October 7, 2022

3 High-Frequency Trading Techniques to Run Your Business Like a Hedge Fund

4 min read
3 High-Frequency Trading Techniques to Run Your Business Like a Hedge Fund

Becuase I have spent the past decade of my life as an entrepreneur, people are often surprised to learn that I have a master’s degree in financial engineering and worked as a high-frequency trader for eight years at BNP Paribas.

It wasn’t until I saw my entrepreneurial friend working from a laptop on the beach while drinking a piña colada that I realized my job wasn’t as cool as I thought. I made the switch and never looked back, but the high-frequency trader mindset has never really left me.

Over the years, I’ve found myself incorporating financial principles into my business with great success. I could probably write an entire book on this (and I very well might) but for the sake of brevity, here are three that every entrepreneur should know.

1. True productivity is the sum of many small wins

As a high-frequency trader, my job was to use algorithms and mathematical formulas to trade billions of dollars of stocks a day at microsecond speeds. My individual trades might generate just fractions of a penny, but the results over time would result in enormous returns for the bank.

In that world, microseconds can equate to millions of dollars of profit-and-loss (PNL) swings–so saving time was an incredibly important part of my job. I can remember days when we’d be on the phone with a telecom company asking it to build its towers just slightly higher so we could send information a few microseconds faster. It was that big of a deal.

This mindset of saving microseconds has had a big impact on how I approach operational efficiency (now the core offering at my company, Leverage). In general, I find that people are looking for huge breakthroughs that are going to save tons of time. But the reality is usually quite different.

Really, true productivity is the sum of many small wins. Shaving even a few seconds off a process that’s done many times per day can provide huge time savings in the end. So I always tell my clients to not get discouraged if we can’t find any major breakthroughs, and instead, learn to celebrate the small wins.

I get excited about saving a second in my business. If you can adopt that mindset and extend it across your entire team you can find some incredible time savings.

2. Role rotation

When I worked as a trader, I was forced to have another colleague take over my trading book once a year while I went on vacation for two weeks (called a block leave), and I did the same with someone else at another point in the year.

While on block leave, you’re locked out of all systems. You can’t enter the building, login to email, nothing. It’s a full lock out to give the company time to make sure nothing dodgy arises. This was done for compliance reasons, but I noticed it had plenty of other benefits. 

Every time I did this exercise, I’d come back to find an improvement to how my book traded. My colleagues would come in with a completely different perspective and find areas that could be improved or made more efficient which I had simply glossed over.

Role rotation is something I think all companies should employ to some degree–even if it just means having someone complete a process outside of their role. It can spark innovation leading to better processes, and it can make your team more versatile by introducing them to parts of the business they’d never have experienced otherwise.

It also forces everyone to document the core processes in their role, which helps to de-risk the company. That way, key functions can always continue in the event that someone leaves or gets sick.

3. Measuring what matters

When people hear about my background, the number-one question I get is if I have any good stock picks for them. They’re usually shocked to learn that I actually don’t invest in the stock market, and the only way I would is if I had a million dollars worth of computing power to do so. 

That’s because in high-frequency trading, everything is based on data. My algorithms would select investments purely based on financial data. What the company did or what was happening on CNBC was of no importance to me–the only thing I cared about was the metrics.

That’s because metrics allow you to make informed decisions. Without metrics, you’re just guessing–and this holds true in business. 

If you want to make the right decisions in your business and avoid setbacks, you need to be making data-driven decisions as much as possible. If you don’t have a metric to inform your decision, then the first order of business should be to figure out what metric that would be and start tracking it.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

https://www.inc.com/nicholas-sonnenberg/3-high-frequency-trading-techniques-to-run-your-business-like-a-hedge-fund.html

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