HFT Myths

hft · Jun 24, 2013

Quote from aaxaa:

hi HFT,
Great thread.

I believe partial fills is one of the big aspects in Futures trading .

1.What are your thoughts on handling the partial fills on entry and exit ?

2. Any possible solution eg. Order type / special logic / books/ articles etc can be looked into to address partial fills ?

Thanks in advance.

Partial fills aren't too much of a problem in futures trading, at least in the grand scheme of things. Comes up a bit in hedging decisions, but not as much as, say equities or FX trading where partial fills can be relatively smaller notional values than a standard futures contract.

You could look into analyzing differences between sessions at exchanges and split up orders amongt them and analyze their flow to try to predict the likelihood of full fills based on partials. But that's getting pretty deep into exchange microstructure, depending on your breadth of knowledge there or desire to obtain such.

rwk · Jun 24, 2013

@hft:
I understand as a retail trader I lack first-rate tools, and that puts me at a competitive disadvantage with hft companies that are smarter and better financed.

Does that mean my situation is hopeless? I am reasonably bright and motivated with some programming skills. I see as my advantages that a) I have low overhead, and b) I am willing to pursue edges that don't scale well. There seem to be a lot of us here at ET.

How does one go about learning market microstructure, especially in futures? Hiring a former Globex executive or programmer is not an option. Getting a job there might work, but that's probably not going to happen either. Any suggestions?

gmst · Jul 1, 2013

if US introduces a transaction tax, will it kill High frequency trading? What will happen to firms like Getco, your firm etc. What will happen to all the people who work there and have developed a highly specialized skillset? Thanks.

hft · Jul 1, 2013

Quote from rwk:

@hft:
I understand as a retail trader I lack first-rate tools, and that puts me at a competitive disadvantage with hft companies that are smarter and better financed.

Does that mean my situation is hopeless? I am reasonably bright and motivated with some programming skills. I see as my advantages that a) I have low overhead, and b) I am willing to pursue edges that don't scale well. There seem to be a lot of us here at ET.

How does one go about learning market microstructure, especially in futures? Hiring a former Globex executive or programmer is not an option. Getting a job there might work, but that's probably not going to happen either. Any suggestions?

I don't think there is much, if any, advantage that can be gained by taking advantage of exchange microstructure with non-HFT infrastructure. Like has been posted earlier in this thread, just extend out to timeframes beyond milliseconds and seconds and don't compete in the same ultra-HFT space as the guys with better tools.

hft · Jul 1, 2013

Quote from gmst:

if US introduces a transaction tax, will it kill High frequency trading? What will happen to firms like Getco, your firm etc. What will happen to all the people who work there and have developed a highly specialized skillset? Thanks.

Hard to say because there are so many variables, but my one-line educated guess is that bid/ask spreads will simply widen on average, enough for us market-making HFT firms to cover most of the new tax (the rest will eat into our now lower margins), whose cost will in effect be covered by liquidity removers by way of the larger spread.

MrN · Jul 1, 2013

"Does that mean my situation is hopeless? "

Bro, the opportunity is what you find and create, not what someone tells you exists. Until you grasp that, quite honestly you are hopeless.

rwk · Jul 2, 2013

Quote from MrN:
"Does that mean my situation is hopeless? "

Bro, the opportunity is what you find and create, not what someone tells you exists. Until you grasp that, quite honestly you are hopeless.

By situation hopeless, I meant specifically with regard to using retail tools to analyze the order book and tape. There are a lot of folks on ET and other traders' groups who say that retail software and data are crap, and there is nothing of value for a retail trader to be gleaned from analyzing the book (DOM) and tape (T&S). I wanted to get hft's take on this.

I wrote a program that processes about 250 updates per second for two issues and displays the static price ladder and tape for each side-by-side. I note that I am not seeing everything that is happening at the matching engines, and obviously I can't respond sub-second even if do I see something. I have no interest in staring at a monitor and pounding a keyboard all day. Nor do I plan to compete with the hft firms at their game with their rules. My business model calls for keeping overhead low and using of strategies that don't scale well. And I was a programmer in a prior lifetime.

MrN, I appreciate your concern, but you needn't worry. Trading is how I earn my living and have for 10+ years. When you get into this, I think you will find that traders don't create the opportunity, the market does. Traders merely respond (or not). Trying to make the market give you money is like try to make a stone give you water. If you want water, look for a spring.

afr6262 · Jul 5, 2013

Hey HFT,

Great thread. Many Thanks.

I have been offered 25-50% pnl split where I put up my own capital for an automated strategy that trades intraday and occasional overnights. They provide the software to backtest and develop new strategies and provide a server in one of the data centers in NYC.

Is this a good deal? I personally don't like it. Im having a hard to finding firms where I can trade of changes in quotes and book quotes. There seems to be an abundance of places to backtest and trade off of tickdata

Thanks again.

MoreLeverage · Jul 5, 2013

Quote from afr6262:

Hey HFT,

Great thread. Many Thanks.

I have been offered 25-50% pnl split where I put up my own capital for an automated strategy that trades intraday and occasional overnights. They provide the software to backtest and develop new strategies and provide a server in one of the data centers in NYC.

Is this a good deal? I personally don't like it. Im having a hard to finding firms where I can trade of changes in quotes and book quotes. There seems to be an abundance of places to backtest and trade off of tickdata

Thanks again.

Just my $0.02 worth, but I think you're right it's not so hot. For those splits, they should be providing the capital. Also, what data center that matters is in NYC?

MrN · Jul 5, 2013

Traders create opportunity by identifying and acting on opportunity. 10+ years. great. 13 here. Semantics or pissing contests, who cares - I don't care to argue.

Quote from rwk:

I think you will find that traders don't create the opportunity, the market does. Traders merely respond (or not). [/B]