Algo Trading and Options Trading

Over the past decade options trading and stock trading have evolved significantly. Just a few years ago most trades took place face to face on the NYSE (New York Stock Exchange) floor, but nowadays all modern stock and options trading are matched electronically.

Most humans have been replaced by computers in trade matching, and with the recent surges in high frequency trading, humans are being replaced by computers in the decision making of the trades as well.

The process of the buying and selling orders, how each trade goes through the exchange, how it gets filled or matched, and the notifying of the seller and buyer of the trade, this entire process can now happen in milliseconds thanks to the process being entirely electronic.

How is this accomplished? Supercomputers at firms for high frequency trading running advanced algo trading systems are able to instantly read enormous amounts of market data, compare the numbers, make decisions on what to sell and what to buy, and finally generate each order based on these factors and send these orders to the market. The fact that these supercomputers can make so many decisions is impressive on its own, but that they are able to go through this process thousands of times a second is quite mind-blowing.

HFT or high frequency trading now dominates the US stock market to the extent that it now makes up the majority of its entire trading volume. Many other participants in the stock market are quite worried by this, including those who use hedge funds or any others who don’t use some form of high speed stock trading.

Due to these worries market regulators such as the Trading Commission of Commodity Futures and the Securities Exchange Commission are now closely monitoring all high frequency trading and considering whether to place any new rules or regulations.

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