Aug 24, 2009
Hedge funds software engineering
Little understood outside the securities industry, the business [high frequency trading] has suddenly become one of the most competitive and controversial on Wall Street… The profits have led to a gold rush, with hedge funds and investment banks dangling million-dollar salaries at software engineers. In one lawsuit, the Citadel Investment Group, a $12 billion hedge fund, revealed that it had paid tens of millions to two top programmers in the last seven years.
Now your investment fund value, or profit if your are Goldman Sachs, depends on how quick you are able to frontrun the market and protect the philosopher’s stone.
High frequency trading algorithms
The most essential idea of high frequency trading is to split big orders into small pieces to hide the activity from other investors. On the one hand, this helps to eliminate significant market moves caused by big deals. On the other, some other specialists are using software to find out about splitting and manipulate share price down in order to buy a piece of the big deal at a discount and later sell it back, when market manipulation overs.
Another type of modern computerized trading is a use of predictive models based on historical correlation between some particular news, events or filings and further share reaction. Often computerized hedge funds purchase such info at very low latency from Reuters or Bloomberg, so they can benefit from the news much faster than all other investors.
Another type of the thing – automated market makers. They are buying large quantities of shares at price which is only disclosed to one investors and is unknown for others. The investor can either agree or disagree upon the offer. By reducing market transparency and setting their own bid-ask spread and trading on high volume they earn money.
Value added for Goldman Sachs and co
Using new trading technique large investment banks and hedge funds can easily beat analysts expectations on their profit. Some of new hedge funds consist only of several PhD programmers and a good mainframe computer. Now the major task of banks is to protect their intangible assets: people and software code. Yet, people can not always be kept in a stall, like Sergey Aleynikov, a programmer of Goldman Sachs.
How serious is it
Final
It took one day for Goldman Sachs to convince FBI Mr. Aleynikov was guilty. In Goldman Sachs we trust.
Rate opinion
I wish i had a piece of that code
Do you?
That code today is treasure but it is nothing tomorrow, like your anti-virus program without updates. This software and its algorithms sophisticating every minute, like anti-virus databases or Google search result arranging algorithms. So no need to worry
outdated algorithms is nothing.
don’t you think even this raw code has some value?
I think this code may have value for academic use, universities can use this like examples of optimizing algorithms, or maybe for analysis of those algorithms and code. Without high speed computing this code is only letters.
If there are too many optimized algorithms, how Goldman & co will earn money? ( 8
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