Concept clarification about HFT ticking strategy

Quant Trading Strategies & Ideas
1

Course Name: Day Trading Strategies for Beginners, Section No: 13, Unit No: 11, Unit type: Video

Hello, about the concepts done about this strategy this strategy named HFT ticking is the same as Market Making? I mean, trading the spread, buying 1 tick expensive and selling 1 tick cheaper sounds like providing liquidity.

If it's not the same please can you clarify me what's would be the difference between this and market making?

Regards!

2

Hi Daniel,



You are right when you say that the ticking strategy sounds like providing liquidity. But with respect to the ticking strategy, the HFTs are in the trade for a minuscule amount of time while market makers' orders in the market will stay for a longer time than HFTs.



Hope this helps.

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So the only difference is the time of these orders? I know market makers usually earn rebates for providing liquidity and in some markets they are able to quote at both sides of the book. But what other differences are about HFT ticking and Market Making? I'm very interested about this.

4

Hi Daniel,



So here is a quick comparision of both the strategies:

  1. Ticking Strategy:
    1. The primary goal of a ticking strategy is to exploit small price movements or ticks in the market.
    2. It involves placing a large number of orders in quick succession, taking advantage of micro price changes that occur over very short time frames.
    3. Profits are generated by capturing the spread between bid and ask prices during rapid market fluctuations.
    4. Ticking strategies often involve a high volume of trades with small profit margins, making risk management crucial to avoid substantial losses.
    5. These strategies require extremely low latency and high-speed connectivity to execute orders quickly and capitalize on small price changes.
  2. Market Making Strategy:
    1. The primary goal of market making is to provide liquidity to the market by continuously quoting bid and ask prices for a particular financial instrument.
    2. Market makers constantly update their bid and ask prices based on market conditions. They are willing to buy and sell securities to other market participants at the quoted prices.
    3. Profits come from the bid-ask spread and the volume of executed trades. Market makers aim to capture the spread while managing the risk associated with their positions.
    4. Market makers face the risk of adverse price movements and may need to manage their inventory exposure to minimize losses.
    5. While speed is essential for market makers, it may not be as critical as in ticking strategies. However, market makers still need fast and reliable technology to adjust their quotes quickly in response to market changes.

To summarise, the main difference between ticking and market-making strategies lies in their objectives and execution. Ticking strategies focus on exploiting small price movements for quick profits, while market-making strategies involve providing continuous liquidity to the market and profiting from bid-ask spreads.

Hope this helps!