FTfm » Alchemy » High Frequency Trading and ETFs
Infinium used an algorithm to execute a “lead/lag” strategy to exploit any miniscule arbitrage opportunities between United States Oil Fund, a well known exchange traded fund that tracks the price of oil, and West Texas Intermediate, the benchmark US crude oil future.
On February 3 of this year with less than four minutes to go before Nymex closed floor trading for the day, Infinium turned on its new computer programme, which immediately started buying oil futures uncontrollably.
The algorithm managed to place 4,612 buy orders before it was was shut down five seconds later. The company then sent large offsetting sell orders but was left nursing a loss of $1.03m.
Infinium’s burst of buying and selling represented about 4 per cent the trading volume of the contract that day and caused a brief 1.3 per cent jump in the oil price.