101 Concepts for the Level I Exam

Essential Concept 101: Types of Electronic Traders

The major types of electronic traders include:

Electronic news traders: These traders profit based on news. They subscribe to high speed electronic news services. They process news releases extremely fast and place trade based on their analysis.
Electronic dealers: Like other dealers, electronic dealers also earn profits through their bid-ask spreads. However, at first signs that prices may move against their inventory position, they immediately take liquidity by executing on the opposite side and reduce their exposure.
Electronic arbitrageurs: These traders monitor multiple markets to look for arbitrage opportunities.
Electronic front runners: These are low-latency traders who use AI methods to identify when large traders, or many small traders, are trying to fill orders on the same side of the market. If they anticipate a lot of buy orders coming, they will purchase the security before these buy orders are placed by the other market participants.

Electronic quote matchers: These traders exploit the option value of standing orders. Standing orders are limit orders waiting to be filled. Quote matchers buy when they believe they can rely on standing buy orders to get out of their positions quickly.