High Frequency Trading: Today’s Landscape and Career Guide

In Career Guides, Investment Management by Cole DavidsonUpdated On:

HFT Overview

Efficient Market Hypothesis states share prices reflect all information of a given security. That’s the high-level gist of it. When looking at names like Apple, you’ve likely noticed the bid ask spread for the stock is narrow to a penny, leaving few real arbitrage opportunities available apart from uniquely placed and timed stop and limit orders depending on market direction – which could change within minutes, rendering rigorously researched strategies useless just as quickly. Setbacks such as these can be humbling and come with the territory if you want to pursue a career in an extremely technical discipline such as High-Frequency Trading (HFT).

HFT, a well-known term that’s grown the past few decades, covers a broad set of algorithmic trading activities. The broadest understanding of the secretive subsector in the financial industry: an individual or firm executing high volumes of trades at equally low latencies – the speed at which trades can be executed, typically within fractions of a second. That speed in fact is what, for all firms in this subsector, gives someone the leading “edge” to its other competitors. Put simply, the price on the screen is subject to change in seconds. The faster someone can capitalize on that change within milliseconds, the higher the returns that can be generated on a price change. And this is just one transaction of many that will occur throughout the trading day.

But what are the main roles you can pursue at an HFT firm? In an interview with eFinancial Careers, Evgeny Gaevoy, who spent 10 years at Optiver in Amsterdam before founding crypto market maker Wintermute in London, says there are “two core roles in HFT firms” today. That would be traders and developers. Gaevoy sites the importance of the dynamics between these roles in how they drive the success of these firms. “Developers work on the tech stack and infrastructure [of the trading models] and are increasingly important,” while on the other side of the coin the traders “improve trading algorithms [such as adjusting risk parameters] to increase trading P&L.”

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As mentioned, these firms can be highly secretive of their processes, so understanding what a day in the life can be quite tricky to specifically unearth. But keeping it simple at a high level, there are a few common elements of the day to day across these firms. Since a lot of these firms run a lot of high powered, custom hardware to execute trades, it can be a lot like flying a commercial airplane, the plane runs on autopilot, but you still need the pilot in the cockpit to make sure everything is running smoothly in case anything needs to be overridden. For someone like a quant developer, this person would need to start their day with data maintenance to make sure the overnight data batch is correctly processed. From there, the trading and development teams work together to analyze any needed modifications for data and infrastructure related items before their core markets are open for business. You don’t just get to watch the trades be made all day; you need to make sure your ship is flying smoothly. And those developments, big or small, can lead to improved efficiencies that help your firm generate higher returns. Regardless of where you might sit on the lucrative bonus structure, the merits of your contributions give you immense opportunity to earn big with the firm.

Sounds interesting, right? But for an outsider looking in, it still begs questions around what types of backgrounds might be required to break in. Or how to break in at all.

Skills and Paths to an HFT Career

There is more than one way to join an HFT firm, but that doesn’t dispel any requirements of a highly technical background. Having a university background or extensive knowledge of financial markets can certainly help. But most firm’s who are seeking out talent require thorough knowledge in scientific disciplines including mathematics, physics, computer science, or engineering. Some paths, mentioned by QuantStart, in other works, can include:

  1. Graduate School: HFT firms pursue many candidates who are pursuing post-graduate disciplines (Master’s or PhD) as firms can understand a candidate’s disciplines and skills based on their work, dissertations or theses, or overall prestige of their university. These candidates have carried out years of research on low-latency systems or highly efficient models that strongly convey the merits of their candidacy. It can be common for these firms to handpick this caliber of talent from some of the top schools such as MIT, Stanford, and Harvard – and that’s just in the United States. I, for example, live in Philadelphia, home to the prestigious University of Pennsylvania where I have heard that Susquehanna Investment Group, another HFT firm in Philadelphia, uses as one channel of recruitment.
  2. Industry Experience: HFT’s also employ talent who have domain knowledge in technical sectors that require the deployment of high-speed systems such as telecom, software architecture, or data center processing. Although these individuals are highly functional in their background, they may also possess highly technical background from an academic discipline as well.
  3. Exchange Experience: If you’ve read the book, Dark Pools by Scott Patterson, then you understand that the operational framework has evolved immensely overtime as the HFT sector has alongside it. Like the old underground pneumatic tube system that operated in NYC until the 1950’s or an underground city waste system, financial exchanges are systems with thorough infrastructure that routes systematic orders from all over the world with an extensive piping network that makes sure any given set of instructions is routed where it needs to go. Individuals who have direct experience with the inner workings of exchanges such as the NYSE, NASDAQ, the LSE, and others, are highly coveted candidates who have the skills to carry out strategic research on a firm’s algorithms that can take advantage of an exchange’s architecture.

Best Algorithmic Trading Courses (2023)

Amongst these channels does lie a common denominator: these paths don’t mention having a finance background or even a finance degree as a prerequisite to apply for an HFT job. Your knowledge of finance, while not unhelpful, may not matter as much as your technical discipline in understanding the essence, the value of catalytic change – and if put too simply: how to efficiently manage those parameters.

Since HFT roles require knowledge of very technical disciplines, it’s important that you also understand the technological workings of the business that are crucial to a firm’s needs. As mentioned before, exchange architecture is important because you’ll have a good grasp on market order flow. But that’s not all. HFT firms have received their fair share of criticism in the past, which brought forth legislation being enacted by multiple countries like Regulation NMS in the United States and MiFID in the EU which mandates a degree of compliance for these firms to follow.

And if you don’t have an academic discipline that’s rooted in a type of hard science, it doesn’t mean you can’t expand your skill set either. Understanding how algorithms for these companies work, is a plus. In some examples, these algorithms can consist of many conditional commands and rolling calculations. Perhaps you’ve ran analyses and calculations like this through excel models, but a key difference is that these algorithms keep processing new batches of data unlike a static spreadsheet. You’d be putting yourself at a great advantage to level up your skills by learning how to process these commands through coding applications including Python, C, C++, and Java.

While you’ll need to improve your knowledge of hardware frameworks, if your knowledge or skills can overlap with any of these, you’ll have a higher chance of landing interviews with some HFT firms.

Insights & Action

In my experiences working with these firms, previous teams I partnered with invested their capital in such money managers. When you’re evaluating an HFT firm, they won’t necessarily share their process with you, but it would benefit you to ask them about their strategic values or an investment thesis they hold in consensus. When conducting due diligence on these managers, some categories of their strategic approach I gauge can include their valuation approach, risk management (i.e. portfolio concentration controls), and turnover. This can be a useful approach to take to an interview that not only helps you get answers, but conveys your interest them too. Many people who work at these firms are sophisticated and, by extension, curious. Working at an HFT firm is obviously lucrative, but it positions you with some of the brightest and most curious people who are driven and excited by the prospect of solving unique and complicated problems. If this excites you, working at an HFT firm could be a great fit for you.

You might not be surprised at this point, but the HFT sector is a candidate driven market. If you’re a candidate that possess some of the previously mentioned technical skills or is striving to achieve them, it can help provide you leverage as some firms face challenges in their bids to acquire talent. According to global recruiting firm Selby Jennings, most engineers at HFT firms are in their first or second role within a trading firm. Given high levels of compensation that are tied to this sector, it can make poaching talent very difficult, not to mention the hefty non-competes that many are beholden to. While salaries can vary, many trader salaries can average between $150,000 to $250,000 with engineer and developer salaries shooting higher at up to $500,000 in total compensation.

Apart from larger firms such as Citadel or Jane Street, most firms will typically be leaner in scale and source talent through recruiting agencies. Many premier HFT firms are based out of New York, Chicago, and London. Recruiters like Selby Jennings, Korn Ferry, and others are highly knowledgeable in this area and can advise you on the suitability of your background or what role could be a good fit for you. Feel free to contact us for any questions.

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About the Author

Cole Davidson

Cole (LinkedIn) has spent over 8 years analyzing individual companies, funds, and investment managers across nearly every asset class. He has worked at Hornor Townsend Kent, an advisory firm with $7 billion in AUM where he oversaw the due diligence and investment strategies for the firm’s debt and equity offerings. Before that, he also worked on the portfolio management team at Hirtle Callaghan, an OCIO firm with $27 billion in AUM where directly managed trades and model portfolios for high net worth and institutional clients in Philadelphia. Prior to moving to Philadelphia, Cole worked in Florida on the fund performance team at VanEck. He also started his career in Miami analyzing real estate transactions for private equity deals. He believes that numbers tell a story, and that those stories should be heard for everyone to learn from. He has a bachelors degree in economics from Florida State University and a master’s in finance from Florida International University.