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- 10/23/03
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Ben Van Vliet is a Lecturer at the Illinois Institute of Technology's Stuart School of Business (IIT), where he also serves as the Associate Director of the M.S. Finance program where he teaches courses in quantitative finance, C++ and .NET programming, and automated trading system design and development.
High frequency trading (HFT) has been the buzzword the past few years but it got more intense attention when HFT was initially pointed out as the likely culprit of the May 6 'flash crash'. Joy Pathak interviewed Mr. Van Vliet for his takes on a wide range of topics surrounding HFT.
What do you consider as your accomplishments up to this point?
Three books on automated trading: Quality Money Management, with Andrew Kumiega; Building Automated Trading Systems, and Modeling Financial Markets, with Bob Hendry.
What are your favourite books? Movies? TV shows? Music?
- Movie: Wall Street.
- Book: Liar’s Poker.
- TV: Bloomberg TV
- Music:80s
- Favourite restaurant in Chicago: Erie Cafe
- AutomatedTrader.net
- Bloomberg.com
- Cnn.com
My research focuses on design, development and quality control of automated trading systems. I currently have 9 papers under development, so that takes most of my time. Probably within the next two years Ill put together my latest research into a book. Probably something like: Engineering Automated Trading Systems.
What is High Frequency Trading (HFT) and where did it come from?
Many of these terms mean different things to different people: automated trading, algorithmic trading, high-frequency trading. HFT is really a subset of auto or algo trading in that refers to short-term trading of stocks. Auto or algo trading really has a broader definition that includes automated market making of options, for example. Of course, by algo trading some people mean only VWAP execution trading, not the black-box trading system definition we usually mean in Chicago.
What kind of work do you do with HFT?
I am a lecturer at the Illinois Institute of Technology’s Stuart School of Business. Additionally, I consult, I write, I testify, etc. on algo trading.
Who are the big players in HFT?
The Chicago prop firms that generate the lions share of automated trading volume are Getco, Infinium, DRW, Citadel, etc. Of course, Goldman is big in this sector too. The barriers to entry are enormous now. You need at least 10 M investment in tech infrastructure to even get in the game. You need smart traders, smart IT staff, smart quants, and an even better process to compete.
How do you differentiate HFT with other kind of system trading?
In my definition of HFT, HFT trading of stocks looks for statistical advantage in short term directional trading over 5 seconds to 5 minutes timeframes. Most of the quant driven automated trading systems are looking for microsecond arbitrage (deterministic or probabilistic) opportunities between stocks, options and/or futures.
From the perspective of system building, what are some of the key differences between building a high-frequency trading system and a lower-frequency trading system?
The cost of high-speed hardware and network technology and optimized software is exponentially higher. But, the payoffs are more certain if you can get the speed.
It seems like there are an ongoing arm race out there between firms to get the fastest machine, lowest latency system. How far can we push technology? Will we hit a ceiling at some point soon?
Yes. The speed of light
You’re one of the keynote speakers at the HFT Leaders forum. Can you tell us what you will be talking about in your keynote speech (Developing profitable HFT and Investment systems)
At this point it looks like rapid model deployment and quality control.
Do you believe HFT is responsible for the crash on Thursday?
Of course not. Actually, automated trading saved the day.
Can you elaborate more on this statement?
We know now that HFT had nothing to do with the crash. The reason it only lasted 15 minutes (instead of 15 days or worse) is because HFT systems immediately took advantage of undervalued stocks.
What form of regulation would you want when it comes to HFT?
Clearly, there need to be engineering standards around design and development of these systems.
Possible tax/spread of 0.50 cent to make HFT trades. Good idea?
This would dry up liquidity entirely, and all of the trading volume would simply move offshore.
What education, training, skill, background, quality that would prepare/help one to succeed in HFT?
Trading strategy, technology, mathematics, and quality control.
What are the top five misunderstanding/myths about HFT?
That technology is the problem. Technology does what people tell it to do.
What books/ reading would you recommend students to learn more about HFT?
What does the future hold for HFT?
HFT is not going away. Hopefully knee-jerk regulation doesn’t drive the volume off shore to the point where the US is no longer the leader in financial services.
We like to thank Mr. Joy Pathak and Mr. Ben Van Vliet for sharing their time and knowledge with readers of QuantNet.