Question: What is the Principal Trading Firm?
Answer: The new market participants who usually pursue the Automated and High Frequency trading is known as Principal trading firms. And they are affecting the liquidity provisions and intermediation in the Fixed Income market. Liquid Sovereign Bond Market specially benchmark US Treasuries have seen a significant rise in Automated Trading. Giving access to PTFs has significantly increased the trading volume.
Question: How Automated Trading and High Frequency Trading are related?
Answer: In Automated trading trades decision are done electronically and autonomously while in HFT which is a subset of AT, where trades submission and execution happens at very high speed, which is usually in milliseconds and very tight intraday inventory position is maintained. The main reason behind the HFT is to gauge the market conditions and process available information in milliseconds. And this would have large number of small trades and held for milliseconds. And for having low latency usually Principal Trading Firm put their trading servers physically near the electronic trading platform that is also known as co-location and reduces the latency.
Question: What are the main things are done as part of Automated and High frequency Trading?
Answer: You can have following things with the AT and HFT - Execution of trade: In this an Algorithm or collection of algorithms are used for trading which divide large trade into the small trades and those would be executed on various different venues as well as splitted across time. This type of execution usually done by the broker-dealer and end investors for owning or existing position at low cost. - Market Making: Again, in Automated and High Frequency Trading Algorithms generates the indicative or live screens quotes which can be used to reply RFQ or auto quoting. HFT tries to make money based on the spread between ask and buy price and having the tight risk control over inventory positions and minimizing the risk of transacting with the counterparties.
Question: What are the ways, by which retail investor can invest in Fixed Income securities?
Answer: Retail Investor can invest in fixed income markets using following investment vehicles - Mutual funds - Closed-end funds - Unit investment trusts : In this fund manager or money manager select and manage a portfolio of fixed income securities. - ETF’s: Fixed Income oriented ETFs. - Brokerage Account: Retail investors can also manage a portfolio of fixed income securities through direct ownership in a brokerage account.