HFT Myths

Quote from hft:



As for a strategy in detail, here's one:
Rest orders in symbol A at endpoint B for C ticks wider than the price that the same symbol is quoted on at endpoint D is quoting. When filled, hit A@D for a C tick winner. Easy as that. Feel free to change the variables to match anything traded in the world. A=EURUSD, B=Currenex, C=1, and D=Hotspot has worked for me in the past. And be sure to let me know how it goes! :)
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thanks for sharing this is a nice one. how do you deal with the risk of not getting a fill quickly at D and then the price runs away from you? thanks.
 
Quote from ogarbitrage:
How do HFT's solve the partial fill problem on the FX leg when trading ADRs or other dual listed assets across markets?
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Depends on the specific circumstance. In some markets, you can specify a minimum fill quantity (so if you're resting $1M at hotspot, you can specify that you don't want to be filled on anything less than X, at the risk of losing out on some order flow). Of if you're trading something like stocks on Toronto vs US, you're always carrying small partial USDCAD positions and have to weigh the cost-benefit of how often you want to hedge. Typically it's a minor consideration in the grand scheme of things since you're round-turning positions so often.
 
Quote from hft:

But the catch is that a single uptick doesn't make you money. All that guarantees is that if you lift the offer, then you're very likely to be able to hit the bid at the same price later, which is a loser after fees. On top of that, as you increase X, you're going to become more latency-sensitive, vying for more competitive prices and your fill simulation will be thrown off, in addition to being subject to adverse selection of prices that aren't truly as attractive as your simple model predicts.
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My algos can predict 1 tick moves pretty accurately without any increase in X on my part. Any advice on how to profit from it, since it is still a looser net of fees.

Thanks
 
Quote from hft:

I'm not quite smart enough to understand that full paper. But from what I can gather, they're predicting mid-price market movement. Conceptually it is identical to what we do. And in fact, when you're making markets you can use that model as-is to probably make some money since you're going to capture a bit of edge from capturing bid/ask. But you have to be fast enough to avoid getting picked off (i.e. reacting to your signal more quickly than other market participants).

If I could give you a signal that predicted with 99% accuracy that the market will uptick (next mid-price will be 1 tick higher than the current), could you make money with it? Turns out I can. If you look at all instances where the ratio of quantity on the bid vs volume on the offer is greater than X, you can increase X until you get a probability approaching 100% of an uptick. But the catch is that a single uptick doesn't make you money. All that guarantees is that if you lift the offer, then you're very likely to be able to hit the bid at the same price later, which is a loser after fees. On top of that, as you increase X, you're going to become more latency-sensitive, vying for more competitive prices and your fill simulation will be thrown off, in addition to being subject to adverse selection of prices that aren't truly as attractive as your simple model predicts.

As for a strategy in detail, here's one:
Rest orders in symbol A at endpoint B for C ticks wider than the price that the same symbol is quoted on at endpoint D is quoting. When filled, hit A@D for a C tick winner. Easy as that. Feel free to change the variables to match anything traded in the world. A=EURUSD, B=Currenex, C=1, and D=Hotspot has worked for me in the past. And be sure to let me know how it goes! :)
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I appreciate your candor and you taking the time and answering all the questions.

Your this line "Conceptually it is identical to what we do. " is telling. It implies that reading some academic literature can point in the right direction of what is getting done "generally" in the hft space.

Thanks for the detailed strategy - As I expected, very simple concept but impossible to exploit unless one is HFT. I will surely make an attempt towards this in due course. Will be glad to let you know how this goes. But given where I am currently on the technical and access side, its going to take around 1-1.5 years for me to get there. :)
 
Quote from hft:

Nothing out of the ordinary.

Linux, (Bash/sed/etc), Python, and R for analysis.
C++ for production.
LibreOffice and Thunderbird for non-productivity.
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What is your FIX Engine ? Quickfix c++?
 
Quote from RedDuke:

My algos can predict 1 tick moves pretty accurately without any increase in X on my part. Any advice on how to profit from it, since it is still a looser net of fees.

Thanks
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No I sure don't. Maybe my statement was unclear when I said "I can do that" - I meant I could give you that signal, not make money on it. Like you said, it's still a loser net of fees if you're crossing the market to enter and exit. So you have to use it only to bias the orders you rest, as opposed to crossing, which then requires consideration of other aspects of market-making.

If you could extend the timeframe to predict 1.5 or 2 ticks though, you might have something useable as a longer-term crossing signal. It's very hard to do, but maybe you've got a decent start on it already.
 
Quote from ssrrkk:
thanks for sharing this is a nice one. how do you deal with the risk of not getting a fill quickly at D and then the price runs away from you? thanks.
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That's essentially the underlying problem to be handled when making markets, regardless of the market. It is what we spend our livelihoods trying to figure out. I can give you a super secret hint: Get FAST.
 
nothing personal, but all frontrunning strats aka hft need to be taxed.

hold for 1 minute or more or pay a huge tax.



period.

leeches.


i say 1 minute as i am willing to hold for that long.
 
hft,

In Market-Making Strategy (trying to capture bid/ask), in what condition ? no trend market ? because it's maybe dangerous ..

You add some prediction market direction movement for "always" to do a good direction ?

You do on FX market ? you need pairs with "large" spread but with good liquidity ?

thx
 
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