News analytics for traders. So the way conversations get created in a digital society will be used to convert news into trades, as well, Passarella said. An example of the importance of news (read on) reporting speed to algorithmic traders was an advertising campaign by Dow Jones (appearances included page W15 of The Wall Street Journal, on March 1, 2008) claiming that their service had beaten other news services by two seconds in reporting an interest rate cut by the Bank of England. Passarella also pointed to new academic research being conducted on the degree to which frequent Google searches on various stocks can serve as trading indicators, the potential impact of various phrases and words that may appear in Securities and Exchange Commission statements and the latest wave of online communities devoted to stock trading topics. Kirsti Suutari, global business manager of algorithmic trading at Reuters.

Economies of scale in electronic trading have contributed to lowering commissions and trade processing fees, and contributed to international mergers and consolidation of financial exchanges. For example, in June 2007, the London Stock Exchange launched a new system called TradElect that promises an average 10 millisecond turnaround time from placing an order to final confirmation and can process 3,000 orders per second. Since then, competitive exchanges have continued to reduce latency with turnaround times of 3 milliseconds available. Competition is developing among exchanges for the fastest processing times for completing trades.

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For this reason, in quantitative trading, it is essential to develop tools that can estimate and exploit this predictive capacity. • If this probability is low, it means that the algorithm has a real predictive capacity. For this purpose, a function of particular interest is the Binomial Evolution Function, which estimates the probability of obtaining the same results, of the analyzed investment strategy, using a random method, such as tossing a coin. • If it is high, it indicates that the strategy operates randomly, and the profits obtained may not be indicative for the future.

Scalping is liquidity provision by non-traditional market makers, whereby traders attempt to earn (or make) the bid-ask spread. Also referred to as dealers. A market maker is basically a specialized scalper. For instance, NASDAQ requires each market maker to post at least one bid and one ask at some price level, so as to maintain a two-sided market for each stock represented. The volume a market maker trades is many times more than the average individual scalper and would make use of more sophisticated trading systems and technology. However, registered market makers are bound by exchange rules stipulating their minimum quote obligations. This procedure allows for profit for so long as price moves are less than this spread and normally involves establishing and liquidating a position quickly, usually within minutes or less.