How to Trade "High Frequency" Markets

Online Finance Radio at Blog Talk Radio with New York Markets Live on BlogTalkRadio

Matthew Cimmino worked on the Comex futures exchange as a trader and broker for 22 years for his own account. Prior to that he worked for Goldman Sachs, running the day-to-day operations of the investment bank's entire Comex floor staff.

Having also worked for Bankers Trust and Flex Trade, he managed a $2 billion metals book with Winkleman, Suskind, Riley, Yee and Lloyd Blankfein, making markets and trading throughout the day.

This week Matthew told me about the capabilities of StrategyDB to backtest trading scenarios. Analyzing what might happen to commodity markets due to the Ukraine situation, for instance, he said that Russia's battle with Georgia in 2008 could be a good example of how things develop.

Before entering any market, "The most important thing an individual trader should consider," Matthew Cimmino says, "is to consider three things...

"First, know how much you are willing to risk in advance before it affects your quality of life, and stick to it.

"Second, know your costs. The commissions you pay to trade should be calculated into your model.

"Finally, what kind of a trader do you wish to be? The choices are a day, medium or long term trader. This decision will direct the kind of trading strategies a trader needs to apply."

What about High Frequency Trading, I asked. Is it bad for the mass of investors, as Michael Lewis' new best-seller Flash Boys contends?

Matthew Cimmino said that middlemen have always been inherent in the markets, and that is likely to continue. What's more, he appreciates the liquidity that comes with technology, and the high-frequency competition in asset markets which computerized trading programs bring.

One proposal to address the concerns raised is to impose a tax on all transactions, or on positions held for very short periods. Instead, however, they might better be resolved by the exchanges moving to charge messaging fees, Mr.Cimmino suggests, with HFT users paying to query an exchange's database of bids and offers many times a second.

You can learn more here in the interview here...