Building Automated Trading Strategies October 2018 | Page 10

(iv) Electronic Liquidity Provision
Willing to buy or sell any asset upon counterparty request, electronic
liquidity providers differ from traditional market makers in that they
often do not openly identify the set of assets in which they will trade.
(v) Predatory Trading
Typically placing thousands of simultaneous orders into a market while
expecting to execute only a tiny fraction of all orders. This “place and
cancel” process has two purposes. The first is an information gathering
process. By observing which orders execute, the predatory trader
expects to gain knowledge of the trading intentions of larger market
participants such as institutional asset managers. Such asymmetric
information can then be used to advantage in the placement of
subsequent trades. A second and even more ambitious form of
predatory trading is to place orders so as to artificially create abnormal
trading volume or price trends in a particular security so as to
purposefully mislead other traders and thereby gain advantage. 2
In this eBook, we will focus on (i) algorithmic executions.
Combining Software/Hardware
As mentioned before, institutional traders use complex and sophisticated
automated trading systems. Retail traders on the other hand use a simple
combination of software/hardware including a personal computer and a
trading platform.
2
«Automated Analysis of News to Compute Market Sentiment: Its Impact on Liquidity and Trading» -
G. Mitra, D. di Bartolomeo and A. Banerjee (2011)
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