how far ahead of us is institutional trading?

M

mute9003

not looking for secrets just curious about general state of institutional trading vs retail.
im assuming that institutional trading is always one or more steps ahead of retail since thats their edge(technology and abilty to buy it with big money)

but i was wondering with AI and algo and their deep pockets how far ahead are these institutions with their electronic trading?
im a nerd so its more about their servers than anything else. im assuming they are insanely powerful systems running those algos and their server is probably smarter than entire village i grew up in
 
mute9003 said:
not looking for secrets just curious about general state of institutional trading vs retail.
im assuming that institutional trading is always one or more steps ahead of retail since thats their edge(technology and abilty to buy it with big money)

but i was wondering with AI and algo and their deep pockets how far ahead are these institutions with their electronic trading?
im a nerd so its more about their servers than anything else. im assuming they are insanely powerful systems running those algos and their server is probably smarter than entire village i grew up in
More...

Institutional take weeks to buy a position. Retail can do it in one click.
 
mute9003 said:
not looking for secrets just curious about general state of institutional trading vs retail.
im assuming that institutional trading is always one or more steps ahead of retail since thats their edge(technology and abilty to buy it with big money)

but i was wondering with AI and algo and their deep pockets how far ahead are these institutions with their electronic trading?
im a nerd so its more about their servers than anything else. im assuming they are insanely powerful systems running those algos and their server is probably smarter than entire village i grew up in
More...

This post is not related to scalping, so why are you asking it....
 
mute9003 said:
not looking for secrets just curious about general state of institutional trading vs retail.
More...
They are selling execution OTC, so they are constantly involved, especially with regard to VWAP. They make markets in everything imaginable and actively manage all the necessary hedges.
mute9003 said:
i was wondering with AI and algo and their deep pockets how far ahead are these institutions with their electronic trading?
More...
They are using tons of stuff that retail trading solutions just aren't competitive in. For example, many spreads and spreads of spreads are traded by very sophisticated mm algo's, and are being monitored/manipulated to control retail participation.

Examples are S&P ETF sector spreads, beta hedged SN exposure, spreads of SN volatility and index vol, the yield spreads like 2s/10s and butterflies like 10s/30s/Ultra, the S&P500/Dow ratio the Dow/Russell ratio and the NQ/ES differential, the index basis spreads (EFP/index arbs), and a million other things the sophisticated players demand from the mm group and exchanges.
 
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HFT is running off the private feed, not the SIP if that's your question. I can't quantify the time differential, but the data cost is material. This is pretty much what "Flash Boys" highlighted. You get a time edge if you're trading off of the paper - the order flow.
 
Real Money said:
They are selling execution OTC, so they are constantly involved, especially with regard to VWAP. They make markets in everything imaginable and actively manage all the necessary hedges.

They are using tons of stuff that retail trading solutions just aren't competitive in. For example, many spreads and spreads of spreads are traded by very sophisticated mm algo's, and are being monitored/manipulated to control retail participation.

Examples are S&P ETF sector spreads, beta hedged SN exposure, spreads of SN volatility and index vol, the yield spreads like 2s/10s and butterflies like 10s/30s/Ultra, the S&P500/Dow ratio the Dow/Russell ratio and the NQ/ES differential, the index basis spreads (EFP/index arbs), and a million other things the sophisticated players demand from the mm group and exchanges.
More...

I was mostly curious how powerful their algo servers are.
and what they are capable of
 
mute9003 said:
I was mostly curious how powerful their algo servers are.
and what they are capable of
More...
It's too broad a question. For example, in hydrocarbons, the CL intras and inters (crack spread, for example) are a source of trading by institutional versus retail players. From their side, these are being used to hedge OTC energy deals and commercial accounts, but the counter-parties will ultimately include retail CL scalpers, day and swing traders.

In equities, vol markets, bonds, etc. the idea is the same with another example being something like a 3x daily performance ETF where the broker-dealer is managing the issuers risk, and again retail is involved since they have to actively manage all the risks (both issuer and dealer).

Just some examples I can think of on the fly, and I'm not a pro in either of these industries.
 
mute9003 said:
not looking for secrets just curious about general state of institutional trading vs retail.
im assuming that institutional trading is always one or more steps ahead of retail since thats their edge(technology and abilty to buy it with big money)

but i was wondering with AI and algo and their deep pockets how far ahead are these institutions with their electronic trading?
im a nerd so its more about their servers than anything else. im assuming they are insanely powerful systems running those algos and their server is probably smarter than entire village i grew up in
More...

It's quite the rabbit hole of obfuscation. Although dated, Lewis's "FlashBoys", Patterson's "Dark Pools" and Hiam Bodek's work provide some windows into the world. Exchange docs used to be a good source but as Bodek exposed, much of it from an HFT pov are "undocumented" order types.

"Institutional" is broad term, they as a whole are also gamed by SLP's.


Tabb Group did a series of articles on the emergence of HFTs about a decade old now.

upload_2024-5-24_11-10-25.png


upload_2024-5-24_11-10-50.png


As a bird's eye view, Mary Jo White's "Enhancing Our Equity Market Structure" is a good place to start.
https://www.sec.gov/news/speech/2014-spch060514mjw#.U-td22N5WEc
 
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