Hedge funds have a new powerful advantage over street-savvy small businesses and investors. Hedge funds, equipped with technology like the HF1 server from Appro, will be able to buy, trade, cancel, execute millions of orders and spot trends before other investors can blink. High-frequency trading is one reason hedge funds continue to make so much money, even after the near-collapse of the financial system.
Hedge Funds
The first hedge fund, setup by Alfred W. Jones in 1949, shocked the investment community by outperforming its peers. Jones implemented innovative use of hedging techniques like short sales and leverage techniques in combination, hence the term "hedge." Nowadays, the term hedge fund doesn't refer to a style of investment, but rather to a description of a private and unregistered group of investors.
What Hedge Funds Do
Hedge funds can buy, sell and trade options and execute any number of techniques to generate returns. Many hedge funds specialize in a trading style, such as equity, relative value and emerging markets. Each style carries with it varying levels of risk and return. Most hedge funds share the common guiding principle of reducing risk and being profitable --- no matter the market conditions. This includes employing any and all technological advantages.
The Appro HF1 Server
High frequency trading uses algorithmic and automated techniques, in some cases placing millions of orders per second. Enter the Appro HF1 server. This server forces "overclocking," the process of pushing a computer past its original specifications. The extra speed is then used to perform a myriad of user-defined tasks designed to give the hedge fund or financial institution a competitive edge. The HF1 is due out in 2011 to a handful of big banks and hedge funds at undisclosed prices.
How Hedge Funds Will Use The HF1
In the world of high-frequency trading, speed is everything. Hedge funds using technology like the HF1 will be able to execute algorithms that perform millions of precise orders a second while simultaneously scanning pertinent marketplaces to spot trends. This allows technologically leading-edge companies to subtly manipulate the market. "It's become a technological arms race, and what separates winners and losers is how fast they can move," says Joseph M. Mecane of NYSE Euronext, which operates the New York Stock Exchange.
