The trial, carried out by Toshiba and Dharma Capital, will look into the effectiveness of high-frequency trading (HFT) strategies for listed stocks in Japanese markets. The testing is based on “optimal solutions” provided by a “quasi” quantum computer, known as Toshiba’s Simulated Bifurcation Machine.
Toshiba stated that by combining its computing power with HFT tech, it’s possible to search statistical arbitration opportunities that haven’t been examined before, with an adequate level of low-latency vs market price fluctuations.
More generally, setting up trading systems that are able to quickly detect untargeted mispricings and remove them is expected to enhance overall market efficiency and liquidity, Toshiba said.
In order to test this, Dharma Capital and Toshiba will be looking at the effectiveness of HFT strategies that are possible or feasible with the computational power of the Simulated Bifurcation Machine.
By combining Dharma Capital’s HFT tech with Toshiba’s Simulated Bifurcation Machine, it may be possible to “find undiscovered opportunities by exploring all possibilities while maintaining sufficient speed,” the announcement noted.
As mentioned in a release:
“Realizing financial markets in which all investors can trade at fair values requires improvements in market efficiency and liquidity. High frequency traders, who continue to become more important as trading entities in financial markets, are characterized by repeating buying and selling of financial products at high-speed and high-frequency using trading algorithms that enable them to make high-speed decisions. It is believed that such HFT activities contribute to improving market efficiency and liquidity.”
For instance, in the stock market, such factors may be “excessive” responses to the news which can result in stock prices deviating considerably from their fair values. This may lead to investors conducting trades at “unfavorable” prices. High frequency traders have “the ability to quickly eliminate these mispricings and improve market efficiency and liquidity by executing transactions that match overvalued/undervalued financial products even when markets are in such volatile situations,” the announcement noted.
The release added:
“Conventional HFTs tend to focus on self-evident arbitrage opportunities where high speed is the main source of competitiveness. An integration with mathematical models that require high-precision wide-area search using sophisticated evaluation functions to detect mispricings has not necessarily progressed over the years. … there has been rapid progress in the development of quasi-quantum computers that can solve large-scale combinatorial optimization problems at high speeds and low latency….”
The release further noted:
“Toshiba will provide Dharma Capital with Simulated Bifurcation Machine customized for financial trading, with which Dharma Capital will combine its proprietary HFT technologies. Dharma Capital will engage in HFT strategies on Japanese stocks at the JPX Co-location area of the Tokyo Stock Exchange. … the two parties will construct a financial trading system environment … and verify the effectiveness of investment strategies based on optimal solutions presented by Toshiba’s Simulated Bifurcation Machine.”