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Controlling risk in a lightning-speed trading environment


  • Carol L. Clark


A small group of high-frequency algorithmic trading firms have invested heavily in technology to leverage the nexus of high-speed communications, mathematical advances, trading and high-speed computing. By doing so, they are able to complete trades at lightning speeds. High-frequency algorithmic trading strategies rely on computerized quantitative models that identify which type of financial instruments to buy or sell (e.g., stocks, options or futures), as well as the quantity, price, timing and location of the trades. These so-called black boxes are capable of reading market data, transmitting thousands of order messages per second to an exchange, cancelling and replacing orders based on changing market conditions and capturing price discrepancies with little or no human intervention.

Suggested Citation

  • Carol L. Clark, 2010. "Controlling risk in a lightning-speed trading environment," Policy Discussion Paper Series PDP-2010-01, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhpd:pdp-2010-01

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    References listed on IDEAS

    1. Edward J. Green & Warren E. Weber, 1996. "Will the new $100 bill decrease counterfeiting?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-10.
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    3. Judson, Ruth A. & Porter, Richard D., 2004. "Currency demand by federal reserve cash office: what do we know?," Journal of Economics and Business, Elsevier, vol. 56(4), pages 273-285.
    4. Edgar L. Feige, 2005. "Overseas Holdings Of U.S.Currency And The Underground Economy," Macroeconomics 0501022, EconWPA.
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    Cited by:

    1. Dorothea Schäfer & Marlene Karl, 2012. "Finanztransaktionssteuer: ökonomische und fiskalische Effekte der Einführung einer Finanztransaktionssteuer für Deutschland; Forschungsprojekt im Auftrag der SPD-Fraktion im Bundestag," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 64, number pbk64.
    2. Ferdinand Fichtner & Kerstin Bernoth & Franziska Bremus & Karl Brenke & Christian Dreger & Burcu Erdogan & Hendrik Hagedorn & Vladimir Kuzin & Katharina Moll & Maximilian Podstawski & Jasper Scheppe &, 2010. "Sommergrundlinien 2010," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 77(26), pages 2-28.
    3. Dorothea Schäfer, 2012. "Financial Transaction Tax Contributes to More Sustainability in Financial Markets," Discussion Papers of DIW Berlin 1198, DIW Berlin, German Institute for Economic Research.

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    Counterfeits and counterfeiting;

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