3 ms·

Is there a difference between quantitative finance and HFT? I imagine it's a square-rectangle relationship. I'm a big fan of new tools to make mathematical mo

• gjm11 13y ago
  If you hope to make money from trading (beyond the quite respectable gains you can get just from buying index funds or whatever), you basically have two ways to do it. (1) Make better predictions (or better adjustments for risk, or better hedging of one asset against another, etc.; these are all closely related) than others. (2) Buy and sell without any attempt at predicting the future; be willing to take the other side of any trade anyone wants to make, in return for which you get to buy a little low and sell a little high. For #1 you need quantitative finance. #2 is the activity known as "market making" and HFT is what you get when you automate it and then let the people doing it compete. The algorithms in HFT are pretty simple-minded; the goal is to offer as thin a spread between buying and selling prices as you can while still making a profit, and to offer it faster (when someone comes looking to trade) than anyone else. The latter is genuinely useful when it's the difference between (say) 5 minutes and 5 seconds. Unfortunately the same incentives that make it worth while for high-frequency traders to offer sub-second response times then make it worth while for them to keep chasing faster and faster times, until the most important asset a HFT shop has is a bunch of computers positioned slightly closer to a big exchange than anyone else's. There's not much of what people mostly mean by "quantitative finance" in a typical HFT system, I think.