What Does a Trader at a High Frequency Firm Do?
The role of a trader within a high frequency trading (HFT) firm can be complex and multifaceted, varying based on the specific type and level of maturity of the HFT firm. While it's true that as a process becomes more automated, the firm tends towards hiring system ‘operators’ rather than traditional ‘traders,’ there are still many respected HFT firms that actively hire traders for critical roles.
Managing Unforeseen Conditions
Sometimes, strategies may end up in an unwanted or indeterminate state, requiring immediate attention from a trader. These situations can occur due to inconsistencies between the exchange state and platform state, or due to glitches in coding that manage these states within the trading strategy. For instance, if a trader is liquidating a position, it can be expensive and time-consuming, particularly close to the end of the trading day. In such cases, it may be more practical for a dedicated person to handle the trade-outs, rather than having a developer or strategist do so.
Modularization and Intellectual Property Protection
In larger teams, the trader role can be modularized from the strategist role to protect intellectual property and streamline workflow. Typically, the strategist provides the trader with a configuration file containing a set of execution parameters that can be adjusted according to the trader's discretion. However, the trader has no visibility into the actual alphas (profit-making ideas) behind the strategy. This setup is particularly useful for firms that rely heavily on the low-level execution details of the strategy rather than the quality of the predictors.
The Role of the Operations and Algorithm Development Teams
Interestingly, many HFT firms, including our own, do not designate a specific role as 'trader.' We have an Operations team that monitors the health of feeds and order placement connections. We also have Algo Developers who monitor the behavior of trading strategy programs using a series of automated tools and statistical analysis.
In general, everyone at our firm who interacts with the strategy and the market is highly technical. The focus is on ensuring that the trading strategies are well-executed and the technical infrastructure is robust. The roles of traders, strategists, and developers all play crucial parts in the overall success of these firms.
Conclusion
The role of a trader in HFT firms is vital but can vary widely. It may involve managing unforeseen conditions, protecting intellectual property, or focusing on technical aspects of the trading process. As HFT continues to evolve, the roles and responsibilities within these firms are likely to continue shifting, but the need for skilled individuals to navigate the complexities of high-frequency trading remains constant.