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Backtest Market Making
- Thread starter maninmoon
- Start date
Market making is really hard to backtest because your limit orders will really effect things.
Especially when there is a spread more than .01 -- if your ATS tried to match the inside market, another ats will often jump your price by a penny so they have the inside market. This can happen repeatedly in rapid succession.
So, I think you have to get theoretical and read some models of market microstructure and then just test things out. This can get expensive.
Especially when there is a spread more than .01 -- if your ATS tried to match the inside market, another ats will often jump your price by a penny so they have the inside market. This can happen repeatedly in rapid succession.
So, I think you have to get theoretical and read some models of market microstructure and then just test things out. This can get expensive.
I am not sure I am directly competing. Although I will in effect be providing liquidity for short periods - that's not the reason for doing it!
This is an alpha generating model, but I want to use orders to get long at the Bid or short at the Ask.
Do you have any experience of simulating this?
This is an alpha generating model, but I want to use orders to get long at the Bid or short at the Ask.
Do you have any experience of simulating this?
I have never traded FX. However, my understanding is that it works very differently than equities and there is no central exchange. So, when you are offering liquidity, not everyone "sees" it and your broker will take your liquidity only when it is advantageous to them?
http://en.wikipedia.org/wiki/Foreign_exchange_market
http://en.wikipedia.org/wiki/Foreign_exchange_market
Yes, you are wrong. But it's confusing at best...
There are generally 3 different models for trading spot fx (let's forget about retail fx platforms):
1: Single bank platforms
2: Multibank platforms (aggregators)
3: ECN's
On 1. and 2. you are trading on the prices that the dealing banks are willing to trade with you. That is, you can only be the price taker.
Then there exist various ECN's where you can act as price maker (i.e. your order will be displayed to other participants on the ECN). However, each ECN have their own rules and setups. For example at some ECN's you can only trade with other participants if they use the same prime broker.
Also, most ECN's operates as hybrids, where the liquidity shown is a mix of liquidity from multiple bank streams (like in 2.) and liquidity from participants on the ECN (external and internal liquidity).
On top of this you have EBS and Reuters which are considered the "true" interbank market. But these are not easily accessible.
There are generally 3 different models for trading spot fx (let's forget about retail fx platforms):
1: Single bank platforms
2: Multibank platforms (aggregators)
3: ECN's
On 1. and 2. you are trading on the prices that the dealing banks are willing to trade with you. That is, you can only be the price taker.
Then there exist various ECN's where you can act as price maker (i.e. your order will be displayed to other participants on the ECN). However, each ECN have their own rules and setups. For example at some ECN's you can only trade with other participants if they use the same prime broker.
Also, most ECN's operates as hybrids, where the liquidity shown is a mix of liquidity from multiple bank streams (like in 2.) and liquidity from participants on the ECN (external and internal liquidity).
On top of this you have EBS and Reuters which are considered the "true" interbank market. But these are not easily accessible.