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It seems that all the big trading firms out there use High-Frequency Trading (HFT) to make their transactions and maximize returns from portfolio investments. I was wondering if it is possible for individuals to set up their own HFT system, perhaps on a personal server or something?

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It's worth mentioning that many HFTs don't do it solo - co-locating (where the processing power of many large computers is exploited by groups of companies to provide a timing advantage) is necessary even for institutional investors. So I don't see this as a workable idea, ejang. –  gef05 Oct 27 '11 at 12:52
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4 Answers

Nobody is going to stop you if you want to try that. But you should keep in mind that you have to invest a lot in getting the best hardware you can lay your hands on, best fail-safe connectivity to the exchanges, best trading algorithms and software that money can buy and loads of other stuff. This all needs quite a big amount of upfront investment without guaranteeing returns. That is why you see institutions with deep pockets i.e. banks and trading firms only involve themselves in HFT.

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Exactly right. With enough resources, an individual can do anything a large company can. The question is whether the OP was asking if 'he' can. I'd guess not. –  JoeTaxpayer Oct 27 '11 at 12:25
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It's worth mentioning that many HFTs don't do it solo - co-locating is necessary even for institutional investors. –  gef05 Oct 27 '11 at 12:45
    
@gef05 - Feel free to edit my answer. The OP was more interested in knowing if he(she) can. Yes there are loads of stuff which can be added for HFT, but wanted to keep it simple for the OP. –  DumbCoder Oct 27 '11 at 12:47
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@ejang - Yes if you desire so, but you will still need the infrastructure for doing algorithmic trading. Any trading without the required infrastructure is going to make you loose money Time is the essential ingredient in any type of trading, and if you are loosing time while trading, money is also lost during the time wasted. –  DumbCoder Oct 28 '11 at 7:37
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You may also need to establish a business relationship with a broker who will be willing to give you appropriate access to trade electronically based on what your computers are doing. Depending on how serious the broker takes you (and the opportunity to make money off of you) your results may vary. –  fennec Apr 17 '12 at 18:17
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Yes you can, but to do so successfully, you need lots of money. You also need to be able to meet the criteria for being classified as a "professional trader" by the IRS. (If not, you'll be buried in paperwork.)

The fact that you're asking about it here probably means that you do not have enough money to succeed at HFT.

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thats not exactly a fair note, its more like if you are in the 99% you dont have enough money to succeed at HFT. but several 99%ers can start a hedge fund and suddenly the tables have turned –  CQM Apr 24 '12 at 17:58
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The answer is to your question is somewhat complicated. You will be unable to compete with the firms traditionally associated with High Frequency Trading in any of their strategies. Most of these strategies which involve marketing making, latency arbitrage, and rebate collection. The amount of engineering required to build the infrastructure required to run this at scale makes it something which can only be undertaken by a team of highly skilled engineers. Indeed, the advantage of firms competing in this space such as TradeBot, TradeWorx, and Getco comes from this infrastructure as most of the strategies that are developed are necessarily simple due to the latency requirements.

Now if you expand the definition of HFT to include all computerized automated trading you most certainly can build strategies that are profitable. It is not something that you probably want to tackle on your own but I know of a couple of people that did go it alone successfully for a couple of years before joining an established firm to run a book for them.

In order to be successful you will most likely need to develop a unique strategies. The good news is because that you are trying to deploy a very tiny amount of capital you can engage in trades that larger firms would not because the strategies cannot hold enough capital relative to the firms capital base.

I am the co-founder of a small trading firm that successfully trades the US Equities and Equity Derivatives markets. A couple of things to note is that if you want to do this you should consider building a real business. Having some more smart brains around you will help. You don't need exchange colocation for all strategies. Many firms, including ours, colocate in a data center that simply has proximity to the exchanges data centers. You will need to keep things simple to be effective.

Don't except all the group think that this is impossible. It is possible although as a single individual it will be more difficult. It will require long, long hours as you climb the algorithmic trading learning curve. Good luck.

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I just finished a high frequency trading project. Individuals can do it, but you need a lot of capital.

You can get a managed server in Times Square for $1500/month, giving you access to 90% of the US exchanges that matter, their data farms are within 3 milliseconds of distance (latency). You can also get more servers in the same building as the exchanges, if you know where to look ;)

thats all I can divulge good luck

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