As of last year, high frequency trading is the new, new thing. The London Stock Exchange, NYSE Euronext and Nasdaq OMX all say they’re receiving increased applications from high frequency trading specialists, and the fact that the average order size on the LSE
is down from 20.4k in 2005 to around 7.4k today is being taken as an indication that a higher proportion of orders are being put through in small, high speed packages.

Needless to say, banks are keen to get in on the game. Some, such as Goldman, are already massive players. The bank’s estimated to account for 20% of all high frequency trading globally, and is incredibly zealous about protecting its code from rivals.

Other banks, such as Nomura are busy building their high frequency presence.

Recruiters say most banks would snap up a developer or quant with experience of working on high frequency trading systems faster than you can say low latency.

However, for those same individuals, joining a bank may not be a great idea. After all, high frequency trading operations such as Getco, Tradebot, Wolverine, EWT Trading, RGM Advisors or Hudson River Trading, and hedge funds such as Citadel and Renaissance Technlogies are geared around the business of facilitating micro-second trades.

Banks, historically, aren’t.

Banks’ disadvantages in the high frequency trading universe are said to revolve around….

…their IT people

Dominic Connor, director at P&D Quant Recruitment, says hf traders most often leave banks because of the IT department.

“IT people [in banks] get in the way,” says Connor. “They don’t respond quickly and are paid out of a different bonus pool. They’re incentivised so that if they obey the rules, things will be good for them.”

By comparison, IT at dedicated hf trading houses and hedge funds tend to be more, ‘aligned.’

Bob McDowall, a research director at the Tower Group, confirms that hedge funds’ IT systems and employees can be more robust in the face of high frequency trading requirements.

“There will be more oversight and intrusion from Central IT infrastructure and serviies people in banks,” says McDowall. “Plus the systems may not be as proprietary and have the response times and resilience people would like.”

….their pay

It also doesn’t help that banks don’t appear to pay their hf traders particularly well. During the
Sergey Aleynikov case, it emerged that Goldman was paying Sergey (a VP) $400k a year. Teza Technologies (a hedge fund) offered him $1m.

Banks’ hf advantage

On the plus side, however, banks are often able to negotiate more generous deals with exchanges, resulting in lower costs per transaction.

“The cost of trading is a major, if stultifyingly dull element of this,” Connor. “Minimising it is a huge issue. Banks are usually able to negotiate lower costs, but that needs to be balanced against working with their IT people, who are generally amazingly bad.”