On the winning virtuous strategies for ultra high frequency electronic trading in foreign currencies exchange markets

Dimitri Ledenyov and Viktor Ledenyov

MPRA Paper from University Library of Munich, Germany

Abstract: In the Schumpeterian creative disruption age, the authors firmly believe that an increasing application of electronic technologies in the finances opens a big number of new unlimited opportunities toward a new era of the ultra high frequency electronic trading in the foreign currencies exchange markets in the conditions of the discrete information absorption processes in the diffusion - type financial systems with the induced nonlinearities. Going from the academic literature, we discuss the probability theory and the statistics theory application to accurately characterize the trends in the foreign currencies exchange rates dynamics in the short and long time periods. We consider the financial analysis methods, including the macroeconomic analysis, market microstructure analysis and order flow analysis, to forecast the volatility in the foreign currencies exchange rates dynamics in the short and long time periods. We discuss the application of the Stratanovich-Kalman-Bucy filtering algorithm in the Stratanovich – Kalman – Bucy filter and the particle filter to accurately estimate the time series and predict the trends in the foreign currencies exchange rates dynamics in the short and long time periods. We research the influence by discrete information absorption on the ultra high frequency electronic trading strategies creation and execution during the electronic trading in the foreign currencies exchange markets. We formulate the Ledenyov law on the limiting frequency (the cut-off frequency) for the ultra high frequency electronic trading in the foreign currencies exchange markets.

Keywords: absorption of information; diffusion of information; transmission of information; information theory; ultra high frequency electronic trading; processing frequency; algorithmic trading; informed trading; noise trading; currencies exchange rate; vehicle currency; interest rate; retail aggregator; liquidity aggregator; interdealer trade orders flow direction; stop-loss order; bid - ask spreads; price discovery process; capital inflow; capital outflow; carry trade strategy; financial liquidity; foreign currencies exchange market micro structure; foreign currencies exchange rate dynamics; Wiener filtering theory; Stratanovich-Kalman-Bucy filtering algorithm; Stratanovich – Kalman – Bucy filter; particle filter; nonlinearities; Ledenyov law on limiting frequency for ultra high frequency electronic trading in foreign currencies exchange markets; econophysics; econometrics; global foreign exchange market; global capital market (search for similar items in EconPapers)
JEL-codes: C0 C01 C02 C1 C15 C3 C32 C41 C46 C53 C58 C63 F17 F30 F31 F32 G1 G17 (search for similar items in EconPapers)
Date: 2014-07-03
New Economics Papers: this item is included in nep-mst
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/61863/22/MPRA_paper_61863.pdf revised version (application/pdf)

Related works:
Working Paper: On the winning virtuous strategies for ultra high frequency electronic trading in foreign currencies exchange markets (2014)
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