Algorithim Wall Street

Algorithim Wall Street - possible profit from trading These...

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Emir Ibrahimovic FIN321 The Impact of Algorithmic Trading Most of the financial system is currently being trusted by machines. Today when most people think of Wall Street they think of a loud crowded room where people are constantly screaming and yelling prices. This is typically what you will see if you turn to one of the news channels that is showing Wall Street. But when people think of Wall Street they should instead be thinking of the quiet beeping sounds in a room of very large machines and computers. These computers have been designated specifically for Wall Street to do trading. Three fourths of trades currently made are being decided by these computers, rather than by a human decision. These computers have very complicated algorithms built in within them, and they use them to compute what is the best possible trade out there in the market. The main mandate is to increase shareholders value, this way that the investor that is using these machine can get the greatest
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Unformatted text preview: possible profit from trading. These machines only look at one thing when calculating algorithms, the price what they buy the stock for and then what they sell it for. Again this is so that the investor can make a profit by selling this stock for a lot more than what it was paid for. For example there might be a stock out there that is currently $50 and the computer is 99.9% certain that it will go up to $75. The computer automatically buys this stock for $50 and then sells it for $75 which will generate the investor $25 per share. The best part is the investor didn’t even have to do anything. They have an unbelievable speed advantage over a human. They can compute over a million different trades within only five minutes. Since everyone has the same machines it is hard to have a competitive advantage. The only way to get a competitive advantage is to ask for quotes from other machines that way this increases their latency and slows them down for a little bit....
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This note was uploaded on 02/22/2012 for the course ACC 311 taught by Professor Crampton during the Winter '11 term at Jacksonville College.

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