Deciphering Price Formation in the High Frequency Domain: Systems & Evolutionary Dynamics As Keys for Construction of the High Frequency Trading Ecosystem.

Abstract

In this paper we propose a new approach to studying electronic trading & systemic risk by re-introducing the High Frequency Trading Ecosystem (HFTE) model [71]. We specify an approach in which agents interact through a topological structure designed to address the complexity demands of most common high frequency strategies but designed randomly at inception. This strategy ecosystem is then studied through a simplified genetic algorithm. The results open up intriguing social and regulatory implications which we propose to study through tracking methodologies and results from theoretical biology. The proposed simplifications aim to bring rigour compared to our first attempt at studying the problem as well as present a practical implementation in the form of the construction of a simulated market for testing strategies impact.