Oct 16, 2017 term paper 2

What are the potential risks for investors, firms and the market as a whole associated with the use of HFT methodologies?

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  • Compare the performance of the selected alternative market with the ASX.
  • What are the prospects for the selected alternative market?

Question 1.

High-frequency trading is not a technical term and has been defined in various ways. The International Organization of Securities Commissions (IOSCO) describes it as; “High-frequency trading is frequently equated to algorithmic trading. However, while high-frequency trading is a type of algorithmic trading, not all forms of algorithmic trading can be described as high frequency.”

The ambiguous nature of this type of algorithmic trading often leads to misunderstanding about the nature of such approaches to computer moderated trading. It is apparent that greater clarity is needed within the discourse in relation to concepts such as HFT and ‘Algo trading, and the risks associated with such practices.

 

 1a. What is High-Frequency Trading and what role if any did such methods of trading play in the so-called Flash Crash of 2010?

 

1b. What are the potential risks for investors, firms and the market as a whole associated with the use of HFT methodologies?

Question 2

Investors have been turning to alternative assets such as fine wine in recent times to diversify their portfolios and hedge against the threat of inflation. Fine wine has had a strong run this year, with the Liv-ex Fine Wine 100, the leading industry benchmark, rising 5.6 per cent since the start of the year and many experts are predicting a sustained bull run for wine.Moreover, it’s hard to imagine an investment that could net you a 600 per cent increase in The value in 12 years, but that’s just what happened when a painting by the artist Brett Whitely went on sale in June 2007. The Igus, a landscape, fetched just under $3.5 million and set a new record for an Australian painting sold at auction. A nice result, whichever way you look at it, and one that could have investors looking a lot more closely at the works of art adorning the walls of the local cafe-cum-gallery.

 

2a. Select either the market for wine or the market for artwork and comment on the characteristics of the market and the attributes of the assets traded within the markets (i.e. what are the attributes of investment class wine assets and investment grade art assets)

 

2b. Compare the performance of the selected alternative market with the ASX.Comment on any identifiable trends. Please note that it may be advisable to select a specific market index or set of market indices for the chosen alternative investment market and compare the selected index with an ASX related index. What are the prospects for the selected alternative market?


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