don't discount ignorance as well...
High frequency trading strategies
- Thread starter skauf
- Start date
Quote from skauf:
Hopefully this is the right forum to post this question.
I hear and read about people, maybe some posting here, who trade futures with "high frequency" strategies.
Now, I've been looking at full-order-book tick-data, and I am very puzzled:
1. I assume, and correct me if wrong, trading HF means one holds positions for very-short time periods. Say half a second.
2. The usual price movement one normally observes over such a short period is one tick.
3. The bid-ask spread is usually 2 ticks (sometimes more). => so the spread is at least X2 the movement.
How can HFT strategies be profitable under such conditions? it seems impossible.
I only saw instruments move in multi-tick quantities at frequencies way above those which HFT allegedly hold (that is, it takes much longer [say 5 seconds] for an instrument to depreciate 3 ticks than what people would call high frequency [say sub second]).
So what am I missing here?
If you're talking futures... i have no idea how they make this work. If it's equities.. than thats a different story. Its kind of the new "holy grail" of market making. Does anyone here HF trade Nasdaq stocks on a daily basis? PM me if so.
thanks,
Moc.
Only arbitrage would work - anything else IMHO is a physical impossibility.
In stocks:
* This were flash orders, where you got the orders a millisecond before normal participants and could decide, for example, to buy the stock from the market then resell it to the normal dude. YOu paid for the priviledge. THis does not exist in futures
* Futures I can basically see arbitrage - trying to make a tick of differences (between exchanges, between the future and the cash market) and be faster than all other computers. For example, the ES is a basket of stocks - if you can get the stock basket cheaper than the futures.... you can buy them, then sell a future contract
Make some money. But yo have to be FAST and get 500 or so stocks at the same time - typical computer stuff.Anything else I can not see in futures. Take the ES - with bid / size ask around hundred+, a normal bid/ask spread gain attempt is not high frequency.... can take a minute to fill. I just dont see anything in futures where HF trading would even have a chance to be usefull.
NetTecture, you will be probably surprised by my statement but flash orders were hurting not helping HF traders. Also your explanation does not make sense, if I buy from the market and resell to the normal dude at the same price, I will just pay to active fee and make no moneyQuote from NetTecture:
In stocks:
* This were flash orders, where you got the orders a millisecond before normal participants and could decide, for example, to buy the stock from the market then resell it to the normal dude. YOu paid for the priviledge. THis does not exist in futures
Actually no - the idea of a flash order trade is to clear out the book in front of market orders then resell a tick higher Naturally requires certain conditions to be met, but very doable.
So, if I am wrong - please give me some examples of a HF trade in futures
Naturally requires certain conditions to be met, but very doable.So, if I am wrong - please give me some examples of a HF trade in futures
It's a common misconception that HF traders make money by taking offers and consuming liquidity. If fact they provide liquidity by selling at the offer and buying at the bid. This is happening both in equities and futures. It's even simpler in futures since tick is wider there.
Flash orders allowed everybody not just HF trader to provider liquidity.
Flash orders allowed everybody not just HF trader to provider liquidity.
Nice, they provide liquidity to losers. What good is liquidity if you already are losing money cause someone got ahead of you?
Several years ago the minimal spread was one eight of a dollar, so when you wanted to by any stock you have to overpay at least 8.25 cents. Now spreads are tight and you pay half a cent. HFT took money from floor market makers, not you.
Regarding losers - you had 100% over the "flashing" behavior. On some venues you had to mark your order specially to make it flash (or you had option to make it not flash on other venue) . If you think it's hurting your - RTFM and put the right flag. If you don't bother reading documentation then may be you should not trade to start with.
I don't understand. How can you constantly and at HF buy at the bid and sell at the offer? You'd have to hold a large amount of both sides to do this at any given time, meaning you will also lose whenever you win, no?
Also, arguably investment banks and and other large market making institutions might be able to pull this off and be profitable consistently, by chopping their large positions slightly in the right direction all the time. But we've all heard of private propshops and hedge funds that allegedly do this - they have to have another angle.