Working at a high-frequency trading firm is not only thrilling but also quite rewarding, provided you have the knowledge and expertise in the HFT domain. With all the in-depth information regarding working at an HFT firm, this article covers:
- What is High-Frequency Trading?
- Roles at HFT firm
- Qualifications required
- Skills needed
- Job description
- Applying to an HFT firm
- Pros and cons of working with an HFT firm
What is High-Frequency Trading?
High-Frequency Trading is a special category of algorithmic trading characterized by holding period of securities ranging from microseconds to a few minutes. HFT requires powerful computers and excellent network architecture to transact with data at very high speeds. HFT needs to have low-latency response times and high trading volumes for the system to work successfully. HFT also requires tick-by-tick data and a good understanding of the market microstructure.
HFT strategies are mainly divided into market-making, statistical arbitrage, momentum, mean-reversion, long-short, breakout etc. High-Frequency Trading helps in:
- Increasing liquidity - Liquidity refers to the ability and ease with which assets can be converted into cash without affecting the current asset price in the market to a great extent.
Market liquidity refers to the extent to which a market allows assets such as stocks, bonds, or derivative products, to be bought and sold without paying a huge bid-ask spread.
As the number of trades entered increase, orders may lead to more liquidity in the market.
- Spread narrowing - The HFT traders may provide the most competitive bid-ask prices, which may result in the narrowing of bid-ask spreads. Spread is the difference between the immediate best ask price and the immediate best bid price of a security. It is basically the difference between the lowest price a seller is willing to accept and the highest price buyer is willing to pay for an asset. If the bid price of a stock is $49 and ask price is $50, then the bid-ask spread is $1.
- Improving market efficiency - HFT algorithms incorporate numerous chunks of information in a short time. High-frequency trading technology is the fastest as it can process the market information and invest in the gainful assets within a fraction of second. Thus, the market reflects prices quickly and accurately with no human glitch. Algorithms are free of human emotions (unlike humans) and thus, put forth the market information logically for gainful investing.
Moving forward, let us find out the different roles at an HFT firm.
Roles at HFT Firm
We have a full-blown explanation of different roles at an HFT firm in this article on the Basics of High-Frequency Trading. Mainly there are following four roles at an HFT firm:
- Quant Analyst / Model Developer
- Strategy Developer
- Networks/System Administrator
Quant Analyst / Model Developer
If you are interested in building models yourself and want to apply for a quant analyst/ model developer role, pick up quantitative skills with working knowledge of using quant tools such as R, Matlab, Python.
For strategy developer role, you would be expected to either code strategies, or maintain and modify existing strategies. Most likely you would be working with a quant analyst who would have developed the trading model and you would be required to code the strategy into an execution platform.
For the trading role, your knowledge of finance would be crucial along with your problem-solving abilities. If you are good at puzzles and problem solving, you will enjoy the intricacies and complexities of the financial world.
Core development work which involves maintaining the high-frequency trading platform and coding strategies are usually in C++ or JAVA. Hence, honing your C++ or core development language is definitely essential.
Each role holds due importance with regard to the specialization in the particular field. As an aspiring HFT firm employee, you must find your niche and then apply for the job accordingly.
Let us take a look at the qualifications aspect of an HFT firm employee further.
High-Frequency Trading is an extremely technical discipline and it attracts the very best candidates from varied areas of science and engineering - mathematics, physics, computer science and electronic engineering.
In the developed countries, you need a PhD in CS or physics/maths or an MFE degree to become a quant. Whereas, in the developing economies, an engineering degree in CS/Maths or an MBA in finance from a reputed college also works. Along with that, you surely need a zeal for problem-solving and coding. All this put together, you have a great chance to land up as a quant analyst or a quant developer in a High-Frequency Trading firm.
A key takeaway:
While the degree makes the resume presentable, do not consider it a barrier in case you don’t have one. With a lot of practical work to show in your resume, you can be recognized by the industry as a potential employee.
Although one thing is for sure that, you need to be mentally prepared about investing a significant amount of time in studies (a bookworm? Probably Yes!) and need to make real good practical efforts as a quant trader or a quant developer.
Some of the courses to pursue to qualify for a role at an HFT firm are:
Many High-Frequency Trading candidates are employed straight from college in the relevant area. It's not much different than the campus for the tech industry, although it helps to show something relevant in your resume. It's also quite common for the best undergraduates to be hand-picked from the top technical schools (IITs, BITS, NIT) and then "trained" on the job.
Financial Exchange Experience
Individuals with insight into the inner workings of the exchanges being traded on will be highly sought after as they are likely to be able to help carry out research into new algorithms that can exploit the exchange architecture.
The meritocratic approach of High-Frequency Trading firms usually allows significant autonomy in the projects.
If you wish to work with extremely smart and capable individuals, in a self-starting environment, then High-Frequency Trading is probably for you.
For instance, at one of the HFT firms, iRage, you will get to solve some extremely challenging engineering problems and shape the future of this lucrative industry while working alongside other exceptional programmers, quants and traders.
Note: iRage is a known associate of QuantInsti.
Ready to Evolve at a Fast Pace
The role of an HF Trader is very competitive, in the sense that you have to continuously evolve your system. And while being rewarding most of the time, it’s also disheartening when months of hard work and research goes to drain if exchange changes its architecture. At such a time, a new regulatory environment may surface or a competitor may be able to exploit a process at a rate faster than yours. But you need to ensure that you quickly evolve and be mentally prepared to face such adversities.
Entrepreneurial and Meritocratic Mindset
Now, most of the High-Frequency Trading firms are pretty small in size, usually fewer than 100 people. So, you should have a strong entrepreneurial culture and a meritocratic mindset. Given that, the bonus component in total algo trading salary is a multiple of your base pay. Hence, you will need to demonstrate an ability to generate revenue in order to earn that bonus. The flip-side to this process is that often you will be able to "create your own role" within the firm.
Longer Working Hours
Also, you must be prepared to work longer hours than usual. Since such roles often come with longer hours than many might be used to, 10-15 hours per day are not uncommon. The fast-paced growth, intellectual stimulation, and compensation generally outweigh the workload though.
Industrial Expertise in low latency/big data/machine learning
Experts in low latency software development are usually sought after. Expertise in the area of big data or machine learning is another way for you to enter this domain.
For getting hired as a quant trader in a High-Frequency Trading firm, most of the ways require extensive technical skills. These skills need to come from one or more of the hard sciences such as mathematics, physics, computer science or electronic engineering.
Next, we will take a look at the job description for working at HFT firms.
As an employee of the HFT firm, you need to take care of the important job responsibilities for which we have mentioned the job description below, so as to give you a fair idea of the same. So, at an HFT firm, you will be:
- Working at the cutting edge of technology and quantitative research which will require you to be updated with the new technology with the time
- Needed to have a highly motivated attitude for conducting research and for developing fully automated systematic strategies
- Needed to create new systematic strategies from the ground up after which you will receive benefit from a profit-sharing model
- Required to help improve existing strategies, carry out post trade analysis, day to day trading activities, etc.
- Needed to hold interest in finance /algorithmic trading, prior knowledge of financial domain and derivatives is desirable but not necessary
- Needed to be comfortable with high paced work environment, and steep learning curve
Further, let us move on how to apply as a potential employee in an HFT firm.
Applying in an HFT Firm
While applying in an HFT firm, you can either apply directly to the HFT firm or take help of a recruitment agency for the same. The recruiters can usually help you get the job you are best suited for and in the company/firm that you desire to be a part of. Also, it is advised that you work hard on every aspect to get the job at an HFT firm, even after having a good educational background.
The most essential aspects are:
- Working on the missing skills
- Listing down career opportunities
- Networking and preparing for the interview
- Professional development
Working on the missing skills
It is very important that you find out if you are missing out on some personal skills even after being really good with educational background. In case you need to develop the same, it is extremely crucial to take it seriously and build upon the same.
You can avail the benefits from courses offered online such as Machine learning and deep learning in financial markets and Automated trading using Python for gaining further expertise.
Listing down firms
The second most important step is to list down the career opportunities/firms where you aspire to hold a role.
There are several top HFT firms where you can apply and these are:
- Morgan Stanley
- Goldman Sachs
Preparing for the interview
It is highly recommended that you take professional help by gaining knowledge from an individual who holds a role in one of the HFT firms. Also, you must actively prepare for interview questions. For this, networking can really help you. By using platforms such as LinkedIn, you can help yourself get an interview by showing your skills and talents. Getting an experience with the interviews a couple of times can also help prepare you for better opportunities.
Lastly and most importantly, you must not lose the connect with your professional development even after landing a job. Being professionally updated with the new opportunities and developments happening across the industry can help you enhance your capabilities. This will not only help you leap forward in some other firm, but also will help you contribute exceptionally well for the firm you are already working for.
Now, let us find out the pros and cons of working with an HFT firm.
Benefits of Working With an HFT Firm
High-Frequency Trading enables you to utilise fast technology with regard to investing in profitable trade positions.
But, it is not all rosy and there are some cons which should not be missed out. This comparison is important so that you can weigh the pros and cons and decide your next step accordingly.
Let us discuss the pros first and find out what is best while working at a High-Frequency Trading firm:
- New age and successful technology
- Bright future
- Growth opportunities
New age and successful technology
Working at a firm which offers a successful new age technology helps the employees since you remain engaged in an industry which is growing at a good pace and thus, provides you with a secure job.
Scope and career
Given the rapidly growing trend and demand of HFT in developing economies & emerging markets, there have been efforts by various exchanges to educate their members and develop the skill sets required for this technology-driven field. Hence, as an employee in an HFT firm, you are bound to have a bright future.
With an HFT firm, the growth opportunities are tremendous since the chances of promotions and bonuses are higher in an HFT firm.
This article intended to provide you with the necessary information regarding high-frequency trading and the job aspect in an HFT firm. While working at an HFT firm is a dream of many, you can be closer to working at the same with the right knowledge, qualifications and skills.
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