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

Ledenyov, Dimitri O. and Ledenyov, Viktor O. (2014): On the winning virtuous strategies for ultra high frequency electronic trading in foreign currencies exchange markets.

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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.

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