High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems (Wiley Trading)

A hands-on guide to the fast and ever-changing world of high-frequency, algorithmic trading

Financial markets are undergoing rapid innovation due to the continuing proliferation of computer power and algorithms. These developments have created a new investment discipline called high-frequency trading.

This book covers all aspects of high-frequency trading, from the business case and formulation of ideas through the development of trading systems to application of capital and subsequent performance evaluation. It also includes numerous quantitative trading strategies, with market microstructure, event arbitrage, and deviations arbitrage discussed in great detail.

• Contains the tools and techniques needed for building a high-frequency trading system
• Details the post-trade analysis process, including key performance benchmarks and trade quality evaluation
• Written by well-known industry professional Irene Aldridge

Interest in high-frequency trading has exploded over the past year. This book has what you need to gain a better understanding of how it works and what it takes to apply this approach to your trading endeavors.

Amazon.com Review

The Evolution of Trading
Amazon-exclusive content from author Irene Aldridge

Since its inception, in the early 1980s, high-frequency trading has evolved as computing capacity has grown. Just over the past 5 years, the daily volume of trades executed by computers has doubled. Alongside these developments, new ways to adapt academic research and to computerize trading activity have been developed.

While “geeks” often claim high-frequency trading as their domain, anyone with the basic knowledge of computer programming can also participate in high-frequency trading. Minimal investment is required. A computer set up to play online video games is in most cases fast and powerful enough to run a high-frequency trading system. The barriers for entry into the field of trading have never been lower.

As a result, the dominant players in the field shift frequently, the markets change and once-profitable strategies become obsolete. Such is the reality of today’s trading landscape. It is also a landscape of opportunity for anyone willing to apply their intellect to instruct computers to solve real-time dependencies in layers of market data. My book, High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems shows this opportunity through aggregating the knowledge required to profitably function in today’s trading environments.

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All Customer Reviews
Average Customer Review:
1 of 1 people found the following review helpful:

Poor contents, 2010-07-14
I'm not sure who's the target audience of this book... if you're an individual investor, you're unlikely to ever need trade in high freq (at best you'll have someone do it with your money). If you're a professional aspiring to learn about HF trading, the content of this book is simply inexistent... 300 pages of vacuum is what it is.

I tried to google the author, and her site is more oriented towards describing how awesome she supposedly is than towards providing useful content.

Save yourself $45.


4 of 6 people found the following review helpful:

Give me a break, 2010-06-20
I bought this book to get some insight into how the HFT community actually puts out their orders on the exchanges. This book was such a waste of time. I read the chapters I thought were the most related to what I wanted to find out and couldn't believe how this book marketed itself and how others in this space trumpeted what a great book it was. I don't like to waste my time writing reviews but I was so infuriated by this book I am writing one. I called Amazon and they gave me a refund. That was the saving grace. I looked at the first review and saw such a glowing review I went with the book. Once I started reading it I went back and noticed that others (Scott C. Locklin and Ken Spriggs) also reviewed the book and came to the same conclusion I did. Unfortunately, I think they suffered more than I as they actually read the whole thing. There was no insight whatsoever into anything that had to do with the actual trading of stocks. The author goes on to claim HFT "adds liquidity" to today's markets. I trade for a living and they are not doing this because they are trying to make the markets more efficient. They are there for one reason and one reason only and that is to make a profit. Thinking anything else and you are fooling yourself. Don't let this author (or anyone else) fool you. The HFT will trade all around your order on the exchanges so they can capture the rebate. Nothing that I could find in the book addressed any actual trading issues.
While I may not like the HFTs I have no problem with them in the market as long as they are playing on the same level playing field as everyone else. They wouldn't need to be co-located at the exchanges if they were not looking for an edge. Flash trading is not available to anyone but the fastest machines out there who get a free look at orders before they hit the exchanges which is where these machines can pick up literally free money in milliseconds.


8 of 11 people found the following review helpful:

Be careful what you write for your review, 2010-05-06
I'm told the author is also known to call people's work places and complain if you don't think highly of her work.

We went through it chapter by chapter and decided it is not worth trading real dollars with.


2 of 9 people found the following review helpful:

Excellent Overview of HFT, 2010-04-18
Irene Aldridge offers the most complete, up-to-date, well thought out, practical guide in the market today covering nearly all aspects of HFT (high-frequency trading) and of systematic trading in general with a large audience in mind - be it wall street expert or beginning finance student.

Interestingly enough, financial markets are undergoing rapid innovation due to continuing proliferation of computer power and algorithms, yet few quality books are out there to cover the new investment discipline HFT and its quantitative trading strategies.

Irene did a fantastic job in publishing this book. I can tell by reading through it years of efforts were put into generating this high-quality deliverable. Not only the materials covered were quite complete on HFT topics ranging from Searching for High-Frequency Trading Opportunities, Creating/Managing Portfolios of High-Frequency Strategies, Implementing High-Frequency Trading Systems, HFT Risk Management, Executing and Monitoring High-Frequency Trading, to Post-Trade Profitability Analysis, but also all the quantitative mathematical equations employed in all chapters were sturdy and solid.

The book offers an easy to understand approach for the readers. For example, in the post-trade profitability analysis phase for transaction costs, Irene compares the market movements to ocean wave patterns. "High-frequency strategies are like pebbles thrown parallel to the ocean floor and grazing small ripples near the shore."

Irene is not only an expert and frequent speaker in this red-hot HFT field, but also she has visions way beyond the complex mathematical formulas employed in HFT field. She also understands how the HFT plays such critical role today in financial services industry sector, which perhaps is the most key and too-big-to-fail pillars of the U.S. economy.



25 of 27 people found the following review helpful:

This package is sold by volume, not by weight, 2010-04-09
I'm not sure who or what this book is written for. It obviously requires some mathematical and financial background. It also very obviously isn't useful to practitioners; not even larval ones -this despite it being alleged as "a practical guide." Could it be a textbook for academics? Why would an academic need a definition of returns ... and in chapter 8? I'm guessing it's more of a review for educated types who want to know more or less what HFT is -it succeeds best at this level, though the profusion of equations and literature citations doesn't make it real approachable at this level either.

The book is a sort of review article; a good fraction of the text consists of references to other texts and articles. There are 20 pages of references for a generously spaced 300 page book, and probably another 20 pages of text dedicated to citing these references. I don't think it's a very good review of the subject in the title. While the chapter outline is promising, and something like what a book on HFT should contain, the meat inside the chapter headings is thin and gristly, with few vitamins and minerals. Mostly it ends up reading like "Bob (2006) says blah." Much of what is referenced is irrelevant, much of what is relevant is never mentioned, and some of what is stated in the text is laughably wrong. I don't know who proof read this thing before it went to the publisher; whoever it is is either a moron, or wishes the author ill. I'm no HFT expert either, but I could have written a better book than this.

In detail: The first four chapters are pretty much useless to anybody I can think of, other than reporters and pointy headed panelist types who want to sound clever in cocktail conversations. Chapter five goes over some a standard bestiary of performance metrics. Chapter six is a very limited description of order types -again; something useful to a stuffed shirt over cocktail wieners: utterly useless, almost laughable to a practitioner. Chapters seven and eight has some weak stuff on "how to find signal" in financial noise. It's useful if you never heard of autocorrelation before, but it's not going to help you if you're in that sad state. A book on signal processing or econometrics might help you. There is also evidence that the author has not actually used some of the models and techniques she name drops here: for example, I've never heard of neural nets having the advantage of "significantly speeding up execution of the forecasting algorithm." Every neural net I've ever encountered sucked at speed compared to, say, regression or ARIMA. The section on tick data is weak. Tick data is certainly mentioned, and you'll know what it is at the end of the chapter, but the chapter doesn't actually tell you anything about "working with tick data." There's lots of tricks to ticks; none are covered here. Chapter 10 on market microstructure contains a section on the gamblers ruin which appears to be completely wrong. Either that, it's misprinted, or the rum I needed to get through this review is causing me to see things. It's probably not worth mentioning the equations are mislabeled in the text, but even in my liquored state, I noticed. Chapter 11 is sort of OK, though, for example, Joel Hasbrouck's chapter 11 on the same subject is much more informative. I also would have liked to have seen more and different stuff in there. I mean, what is the utility of including quotes from the Economist on Bayes theorem? I'd rather quotes from someone who knows what they're talking about, rather than quotes from some ding dong journalist, or perhaps some more information about market microstructure models. Chapter 12 on event arbitrage is good in that exists, and gives a rough outline of how it works. Event arb is awesome, because even schmucks like me can do it; I love event arb; nobody talks about it, but the author of this book actually did. Is this chapter useful to a practitioner? Nope. Again; good for the cocktail crowd and newspaper reporters: useless to anyone who wants to trade. Chapter 13 is on everyone's favorite fancy pants trading strategy, "stab art" (and, BTW physics is a hard science, not a "hard" science like it says in this book). "Statistical arbitrage" is a phrase which tends to cover a lot of different stuff; some of which is never discussed here: pairs trades, for example, is the standard textbook example; MIA. Triangle arb is also conflated with stat arb, which is silly and wrong: there is nothing statistical about triangle arb; triangle arb is just plain arbitrage. I guess there is some general hand wavy material which might give a hint to people looking for opportunities, but there is so much missing, it probably reads like greek to the uninitiated. Chapter 14 purports to be about portfolio management for HFT, though really, it's about classical portfolio management, which isn't so useful for HFT. HFT portfolio management is a genuine black art; a real chapter on it revealing some practitioner secrets (or even some decent academic references) would have been invaluable. This chapter also contains such bloopers as confounding Bayesian self-correction with genetic algorithms on page 209, which is sort of like a chef confusing an eggplant with a blender. It does contain an outline of the portfolio optimization technique used by the author, which I guess is vaguely sensible, but is rather ad-hoc and not particularly convincing, and has little to do with issues which arise with HFT portfolios. I take umbrage with chapter 15 on back testing. Back testing is hugely important in any kind of forecasting algorithm; waving your hands over the MAPE formula is pretty much useless. Nowhere is the sin of data mining given the attention it deserves: things like the bootstrap or establishing p-values for overfitting probabilities ... well, maybe I am expecting too much from a book which confuses eggplant with blender. Chapter 16 is supposed to be on implementation. FIX gets mentioned at least. So is C++, and, erm, Java. I do know of one firm which uses Java, but I know a lot more which use Matlab or Python (yes, even in HFT). A few concepts in software development and QA are mentioned in passing. I'm not sure who she's mentioning this for: any nerd who has slung some C knows what unit testing is. I'd rather a few paragraphs on issues with using time series databases. Chapter 17 (the liquor is getting me pretty hazy at this point) is on Risk management. She describes some stuff on using Pareto-Levy distributions to characterize tail risk. I know Taleb and company seem to recommend this, but I've honestly never heard of anyone trying to do it, because fitting Pareto-Levy distributions sucks. Probably some people do, but "I never hoyd of da bums." She describes some bootstrappy way of doing this, which I'm guessing is somewhat more useless than using the bootstrap to see if your dumb trading strategy has any legs to begin with. Trying to pin the tails on the Pareto distribution seems like a bad idea to me: I think of tail risk as consisting of things which you can't really model. The bits on "legal risk" and "operational risk" are good in that these words exist in the book, but bad in that they contain no actionable information: "talk to a lawyer" isn't really helpful to me. They also don't belong right before a section on stop loss orders, which is a really different kind of risk. The remaining chapters have turned into an alcoholic blur for me, but ch 18 "executing and monitoring" is worthless unless you didn't realize trading systems have to be executed and monitored, and at least chapter 19 finally mentions implementation shortfall and VWAP, which are kind of the harmonic oscillators of algorithmic trading at least. A lot of people would put these somewhere at the beginning of the book.

I don't know if anyone will read that far: I kind of wish I hadn't. The hangover is going to be epic and painful.

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