That's why most hedge funds underperform compared to S&P in the long run. Private funds like to structure products that are too complex to understand so they look attractive to investors who don't like buy and hold lame crap. They are plenty of middle class people who would fall for that. And then there are the super rich who just have too much money to spend so they do that to diversify their porfolios.
How do HFT strategies combat slippage
- Thread starter traderzhang
- Start date
I'm unable to backtest with bid and ask, so the expected price, according to my backtest would be the last price. If I get filled at the bid or ask instead of last price, would that be considered slippage?
Robert Morse
Sponsor
I think that makes sense. I seem to have the only negative opinion on back testing and paper trading. I can live with that. IMO, back testing only rules out strategies with low expectations. But to test out a strategy when you know facts about the past can be self-serving. And paper trading forward strategies vs testing live with small lots, just does not provide the most accurate results.
Is Fidelity still manual order entry only?
They are manual entry only because their customer base is mainly buy and hold. I do make use of their 'Active Trader Pro' platform which has some good features for traders.
Depending how you have designed your trading system, you could eliminate slippage caused by latency.
How would you accomplish this?
No way of being profitable I would say. 0.04% per trade on stocks is just the spread or below the spread. you would need to be expert on market making strategies or passive strategies how to execute. That is by far more challenging than your developments so far.
So normally you'd expect to lose the entire spread on live trades compared to backtesting?
It depends how long you can wait that an order is executed into a fill. If time is critical you can only pay full spread via market order. If you go between bid ask spread with a limit order it can take up to minutes to be executed. So I do not know your strategy how time is critical factor or if you have all the time you want to get any order executed. There is a trade-off, if you can wait you get a better fill. But because 0.04% per trade is so low, all the setup is very sensitive here. You need to fully automate too. Therefore you need level 2 and orderbook data to get an impression how to execute any orders. This is more challenging than your developed strategy for sure. So the most difficult part to master is still there for you. I cannot say, it is not possible. But the chances are very high, that you cannot make it really profitable for you. Only if you are an expert in passive strategies about order execution then you have a chance. But with no experience in this field it would take some more years to overcome the decifits. If the strategy is then still working after some years, that is another question. Best is, I would advice, that you look for some filters to reduce the number of trades but increase the average trade. That way you have a chance and can get much faster any workable strategy.