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Challenges:

* The need for speed, at every level of the architecture (network, tcp/ip, hardware, app)

* Reducing order (send/ack) round-trip times, this generally means putting your servers in a data cetre as close to the exchange as possible (co-located, if the exchange offers it). If your trading across multiple exchanges simultaneously it gets trickier.

* Sourcing market data - can you source direct from the exchange, rather than through a 3rd party like Reuters? Again, it comes down to how fast you can re-act to the market.

* Back-testing - you need historical data to test a model, then you need a way of testing the model - what are you going to test against? How are you going to simulate the exchange?

* Expense - it's expensive - market data, co-location etc etc all costs, as others suggested. HFT is generally short term positions, with some arbitrage strategies holding positions for less than a few milliseconds. A medium term (intra-day) type strategy requires less intensive (expensive) technology as your not trading to capture market prices that might only be extant for a few milliseconds.




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