The distinction between algo trading vs automated trading is referred to as New York vs Chicago "style" algo trading in the document:
> The phrase “algorithmic trading” has a different meaning depending on if you are in Chicago or New York. In Chicago it will mean using a computer to place trades to try to make a profit. In New York it means to use a computer to work client orders to try to minimize impact.
Algorithmic trading means the same in chicago new york tokyo hongkong or london. Even in singapore and sydney. Same thing: slicing the order to minimize the impact
I'm amazed people are downvoting this. It's 100% correct. Algotraders work the book to get a good price; they're modern block shoppers. Quantitative traders look for profit. There are entire books on algorithmic trading as "work the book."
Max was a fresh out of college graduate at the time, so his usage was a bit off. Knowing this distinction is a sign of actual experience on the street.
I think both of you are correct. That’s also what Wikipedia says.
However, loads of people (and, according to Max’ document, Chicago) refer to automated trading as “algo trading”. Cue the descriptivist vs prescriptivist linguist debate.
Please allow me for this topic to quote Investopedia [1], and not Wikipedia (which I respect and appreciate).
"..is a type of trading done with the use of mathematical formulas run by powerful computers.."
"..makes use of much more complex formulas, combined with mathematical models and human oversight, to make decisions to buy or sell financial securities on an exchange.."
Ps: In simple english, I go to work, that thing makes profit (if done right). I go to sleep, that thing makes profit. Someone important twits, that thing either makes profit, OR goes bust.
Investopedia makes the same mistake. When you sleep and computer makes you some money, it's automated trading, systematic trading, mechanical trading. This kind of trading was in the industry for centuries: you incent some rules and follow them. Algoritmic trading is about executing large orders by slicing them and filling them thru a trading day. These are the terms seriours industry professionals are using. If you apply for algo trading job in a bank you will not be writing a cash making bot.
Yeah, my impression is that professionals distinguish algorithmic trading (minimising price impact of a given order) and automated trading (rule based trading to generate profit), while amateurs (including Investopedia) tend to use the term "algorithmic trading" either for both, or for the latter while being completely unfamiliar with the former.
Correct. And it is not just Investopedia who is misleading. Type Algorithmic trading in amazon search and you will see tens of books on this topic that have nothing to do with algorithmic trading. No wonder some people are claiming they are doing algorithmictrading and even high frequency trading using their laptops from their bedrooms.
I've been working in the industry in Tokyo for 15 years. And why should we care how everyone else uses the terms if we are professionals? Even the document's title says Automated trading.
How would someone who enjoys algorithms but without a trading background get into the Tokyo HFT/Algorithmic trading industry? For example, do I need to be fluent in Japanese?
Note that the HFT business is most competitive Amstersam, New York, and Chicago. These places are like Silicon Valey in terms of the people that circulate between firms and know each other. There are good firms in Asia but for the most part they’re not considered top tier in terms of technology or competitiveness.
It’s not uncommon to take an HFT trade that is competitive in the US or German markets and go around applying it to markets like Tokyo, London, Singapore, Etc. But the converse is not usually as successful.
So if you start in Tokyo, it might be harder to move up and out just due to more restrictive regulatory frameworks and less efficient markets there.
It depends on your employer. International banks are present in all major cities. So English is mainstream. And you do not need to be in Tokyo for that. The most important thing is where your trading computers are. Plus mind that hft and algorithmic trading are not the same things. Hft is proptrading which is now mostly forbidden for large international banks by Volker rule.
Thanks for mentioning HFT is not the same as algorithmic trading. Actually, I don't mind learning Japanese at all so may be you have some advice on what skills are needed in that part of the world to land a trading job as well as where to look? Also, is it just international banks that hire HFT traders?
This is getting downvoted, but webmascon is correct about the terminology. It might be a bit like cracker vs hacker though, in that popular use will eventually do whatever it wants.
Apart from the Investopedia term, and just because language evolved and (unfortuately) semantics/meanings are redefined, nowadays, algo-trading (retail) is when I run an MT4 software on my laptop, it has a EURUSD chart, I attach a bot (EA) on it, I then sync this MT4 installation/instance with a virtual private server (VPS) somewhere on the planet, then I shut down my laptop, and I go to sleep.
For the large organizations, they got far more complicate systems/servers/software, but these practically do the same thing, just on a massive scale.
Just so we're clear: In the financial industry anyways, there's an arguably artificial but fairly hard distinction between making investment decisions and executing trades to implement those decisions. The term "algorithmic trading" has generally referred to trade execution, whereas in what you're describing there's a bot using logic to make investment decisions.
The point of all this is that algorithmic trading in the industry sense of the term is a product that banks and brokers can sell to buy side funds. "You make the decisions, and we'll handle the execution." If a large org is using algorithmic trading, there's a good chance they're paying someone to do it for them.
