Greg Tusar, the head of equity trading at Goldman Sachs, sees 5 new trends in high frequency trading.
Tusar gave a long interview to Traders Magazine recently, and disclosed a lot of unprecented information about Goldman’s new algos and how the firm is reacting to the new trends in high frequency trading.
It’s weird because quants usually get very jumpy as soon as any discussion comes up about the particular strategies their algos are employing.
But part of Tusar’s job is to work with Goldman’s high frequency trading clients, so the trends noted come from their requests, not necessarily from Goldman’s own strategies.
Here are some of the trends Tusar notes in their requests, taken from an interview he gave to Traders Magazine recently.
1. customisation of algorithms on the buyside
Tusar sees this trend on two levels. algorithms profile a portfolio manager(s) and trade based on that. customise the algo to behave the way that somebody thinks about trading.
He decribes the second level like this: I have an algo selection issue–so, for different types of orders, with different levels of urgencies. Right now I’m manually selecting among eight different choices. How can I automate that a little bit more, so that I’m making more informed choices, or automating it or being smarter about that? That’s a trend a few firms have started, but I expect to see that happening more.
2. Algorithms that are based on past trade decisions made by specific people
One of the places algos are going is on the data of past trading decisions made by people in the organisation.
3. Algorithms that determine the best location to route an order
Tusar says it best: “The next is getting much more scientific about … if there are eight venues and soon there will be 10, how do we choose among them? Is that helping us? If the market is $10.12 and the client wants to bid $10, where do you want to place that order? We think there’s a much more scientific way to go about that.”
4. Hardware over software
Data is increasing, so it’s necessary to put it all on smaller chips.
5. Do it all FASTER
Tusar says it’s important to be able to react, to carry out client instructions, faster in a world that requires microsecond speeds. “We have a client order and need to make a decision as quickly as possible on where to route it,” he says.
Clearly Goldman’s clients have been demanding a lot of the firm recently.
Based on those trends, here are the changes he says he’s making to update Goldman’s algos:
- “We’re working on VWAP and squeezing out fractions of basis points of improvement there. So we’re working on a shortfall algo to improve on the financial engineering of that.”
- “We’re working on the portfolio algo.”
And the change they have already made to their hardware:
- “We took however many machines it used to take to consume all that data and worked with a firm to put that in hardware. So, as we’re routing client orders through our options smart router, we’re actually taking all of the market data into the same chip that you’ve got in your Sony PlayStation.”
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