HFT Orders Getting filled against market

[ExperiencedJoe]

then how come it worked in as simple as spot fx years ago? It worked according to atticus (and unless a lot of his other crap, that particular thread sounded pretty legit) with some fx broker that offered wrongly priced fx options. I believe it may not work anymore today but nothing speaks against doing it from a technical perspective. I have earned millions in dollars arbing brokers in the professional space on the options side. Sure, they may not like it if they find out but as long as you play the game smart it will take quite some time before someone notices. (and there is nothing whatsoever illegal in doing so, and I would argue it is not even unethical) Some individual trades netted me hundreds of thousands of dollars. Even firms like Goldman begged at times to cancel the trade. Sometimes I let them out because they obviously mispriced, at other times I held them up to a done deal. That was only a short few years ago. So, nothing speaks against opportunities existing as long as one finds a way to execute and take advantage of them. My example stems from the discretionary world, and I admit such opportunities may not exist in the algorithmic space anymore.

So how did Goldman Sachs beg for mercy ? Did they write you a letter ?

As for what is the current state of the arbitrage game, you tell me. If you were making millions doing it, why did you stop ? Surely it can't be the incoming cash was so much that it burst your bank account wide open that you risked upsetting the bank because the weight of your cash pile was going to collapse their building ?

My main interest is in market makers and know nothing about arbitrage. I imagine there are queues of people like the OP who go in to try their luck. So arbitrating against them can produce some profit. As these people gets wiped out quickly, the pickings would be rather slim and few and far between.

 

[volpunter]

their head of sales called, apologized and asked for his trader to be let out of the trade. If things got head to head I would involve my boss as well. He was generally be the one to recommend leniency due to business relationships but at other times he was a real hard ass and insisted on the trade being done. When I later on started overseeing a desk of traders at a different firm I did not encounter the same issue because I started trading a different asset class.

Why I/it stopped? Because things got shaken up during the financial crisis, risk limits were trimmed down, a lot of things changed. At points even Goldman completely refused to quote prices (so much to market makers or sell-side trading desks making markets in OTC space). Broker arb works best in medium volatility environments. You pick a market/name here and there that gets shaken up and early on after market open request two-way prices from several brokers while they are still scrambling to get a better sense of where prices are. You will be surprised at what you are getting at times. But when dispersion drops/market correlation tightens and the whole global landscape gets shaken up then brokers for understandable reasons become very hesitant to deal in size.

Re currency markets (and OP specifically mentioned currency markets) you are still dead wrong, whatever you say: There are ECNs at even retail's disposal that you can hit 20 times a second with order modifications throughout the whole order book and nobody is gonna unplug you nor widen the spreads for you. Liquidity may dry up during highly volatile times but that is very normal and expected.

So how did Goldman Sachs beg for mercy ? Did they write you a letter ?

As for what is the current state of the arbitrage game, you tell me. If you were making millions doing it, why did you stop ? Surely it can't be the incoming cash was so much that it burst your bank account wide open that you risked upsetting the bank because the weight of your cash pile was going to collapse their building ?

My main interest is in market makers and know nothing about arbitrage. I imagine there are queues of people like the OP who go in to try their luck. So arbitrating against them can produce some profit. As these people gets wiped out quickly, the pickings would be rather slim and few and far between.

 

[max_w]

I'm leaving the below message for anyone who wants to get into forex high frequency trading. Most liquidity providers have last look provisions. So you ping times don't really make that much of a difference. There are exceptions, but you have to ask. Lps are in business to make money, so they protect themselves.

Primexm has a vm offering where your ping times to the order server is 30 microseconds starting at 350. Again, being that close doesnt make that much of a difference since th banks have last look. Usually set at 350 ms by default. So they will execute the trade when it is in their best interest.

I wish someone had told me this when I first began. I know there are a lot of people here that know this. The above is for people that don't know.

 

[ExperiencedJoe]

So they will execute the trade when it is in their best interest.

You finally hit the jackpot.

What next, start looking for magic candle patterns where the banks will develop an urge to give you their money because they just could not resist the pattern ?

 

[volpunter]

that is bullshit of the past. Most every single bank today that runs an eFX desk does so with the main motivation to garner "flow information" and profitability wise to make money via spread. Hardly any eFX desk has an interest one side or the other during normal market conditions. You would be amazed how accurate the hedge engine of each eFX desk actually is, hence the desk does not lean one side or the other. What most eFX desks do is that they serve customers out of a set inventory that they replenish dynamically as function of their hedge algorithm. Only during extremely volatile times does a desk prefer to lean one side and not the other.

You finally hit the jackpot.

What next, start looking for magic candle patterns where the banks will develop an urge to give you their money because they just could not resist the pattern ?

 

[ExperiencedJoe]

that is bullshit of the past. Most every single bank today that runs an eFX desk does so with the main motivation to garner "flow information" and profitability wise to make money via spread. Hardly any eFX desk has an interest one side or the other during normal market conditions. You would be amazed how accurate the hedge engine of each eFX desk actually is, hence the desk does not lean one side or the other. What most eFX desks do is that they serve customers out of a set inventory that they replenish dynamically as function of their hedge algorithm. Only during extremely volatile times does a desk prefer to lean one side and not the other.

The actual evidence gathered by the OP indicates that the banks take the opposite direction of his trade and then, in concert, move the price against him. So the banks are not neutral. The banks develop a bias the minute the OP takes a position. It's safe to assume the banks have no bias when the OP isn't in the market. Naturally this is simplifying things. The real market has more than one punter in it. So if there is a bigger fish than the OP in play, then the banks will elect to to go after the bigger fish while giving the OP a very narrow window of profit if he happens to face the opposite direction of the bigger fish. This window closes as soon as the bigger fish is gobbled up. Once again the OP will become the only game in town and the banks will give him all the undivided loving attention he needs.

 

[Ghost_of_Blotto]

liquidity providers have last look provisions

You can turn off your flow to providers who last look you too often.

 

[max_w]

@ExperiencedJoe, I'm not looking for the algorithm that will make me a millionaire in a day. I'm in it for the long haul. I basically tried what I could find online as I didn't have an industry guy telling me what to do. So thus far my experience has been by trial and error. You take it for granted that you know what you know. Many new people coming into the business don't.

 

[max_w]

@Ghost_of_Blotto, I'm sending an order to a specific LP. I see an ask price from citi, I send a limit buy at that price and they sit on it. I reduced the time to execute the order to 15 ms and they just got rejected most of the time unless the market moved against me.

 

[volpunter]

that is not what he said. He said he attempted to arbitrage fx pairs (triangular arbitrage, example gbpusd, nzdusd, gbpnzd, arbing market prices in gbpnzd vs synthetic pair created from trading gbpusd and nzdusd) and that each time when he attempted to trade it the arbitrage opportunity vanished. It does not mean that banks saw his order and pulled or moved their prices in response to his order (by definition whenever you trade a currency the liquidity provider is naturally taking the opposite side of his trade). It simply means the market moved between his alpha signal generation and the matching engine receiving his order or that someone else arbed/repriced the pair in faster/more efficient way than he did. Banks quote prices and either show them directly to clients or they run an eFX desk where they show prices and size which risk takers can trade on. Many ECNs today do not have last-look provisions (some do), meaning that the price you see and liquidity you see is something you can directly trade on. None of the liquidity providers see your order before it hits the matching engine, at least in fx space. And keep in mind OP most likely trades orders smaller than 10 million USD notional, no bank cares whatsoever to adjust or move prices in response to a 1 million usd notional order. You see enemies where there are no enemies. Take off your tin foil hat and relax.

The actual evidence gathered by the OP indicates that the banks take the opposite direction of his trade and then, in concert, move the price against him. So the banks are not neutral. The banks develop a bias the minute the OP takes a position. It's safe to assume the banks have no bias when the OP isn't in the market. Naturally this is simplifying things. The real market has more than one punter in it. So if there is a bigger fish than the OP in play, then the banks will elect to to go after the bigger fish while giving the OP a very narrow window of profit if he happens to face the opposite direction of the bigger fish. This window closes as soon as the bigger fish is gobbled up. Once again the OP will become the only game in town and the banks will give him all the undivided loving attention he needs.