I am surprised people aren't talking about the interview on CNBC with the Virtu CEO. First, I don't know much about the company, but after the interview, one thing is clear[er] to me than every before - people misuse the word HFT.
Here is the distinction that _I_ use between a MMing firm and an HFT firm:
They are identical or close to identical in their leaning on extreme low latency tech. The difference is simple. MMers take home inventory. HFTs are flat EOD. This dramatically affects strategy.
The CEO disclosed that essentially they are a market making firm, transferring risk from natural buyers to natural sellers, and acting as a middleman liquidity provider in thousands of instruments around the world 24x5. Sure, they make use of tons of technology behind the scenes, but imo there were three key statements made that everyone should take note of:
To me, the last one is the most interesting of all. Is the risk management done simply by the huge amount of volume that is statistically offset by each other in so many different instruments? Or, are they hedging at some interval with some future or index with some frequency? How much of the money they make are in the stock, or in the tax treatment of futures versus stocks? Do they take inventory? (real MMers do. Otherwise they truly are an HFT firm)
I will leave you with a chart from a while back:
http://www.zerohedge.com/news/2014-...irm-reveals-1-losing-trading-day-1238-days-tr
Here is the distinction that _I_ use between a MMing firm and an HFT firm:
They are identical or close to identical in their leaning on extreme low latency tech. The difference is simple. MMers take home inventory. HFTs are flat EOD. This dramatically affects strategy.
The CEO disclosed that essentially they are a market making firm, transferring risk from natural buyers to natural sellers, and acting as a middleman liquidity provider in thousands of instruments around the world 24x5. Sure, they make use of tons of technology behind the scenes, but imo there were three key statements made that everyone should take note of:
- On most days, they make 10% of the volume in GE. On one of their biggest days ever yesterday, they made about $1000. LOL! But multiply that by 10,000 instruments around the world a day...
- Over an enormous amount of volume, their win:loss ratio is 51:49. So this is Thorp's blackjack system applied to markets. They lose tens of thousands if not hundreds of thousands of times a day. How much of the profit in equities are due to rebates?
- Risk Management is the key to whole operation
To me, the last one is the most interesting of all. Is the risk management done simply by the huge amount of volume that is statistically offset by each other in so many different instruments? Or, are they hedging at some interval with some future or index with some frequency? How much of the money they make are in the stock, or in the tax treatment of futures versus stocks? Do they take inventory? (real MMers do. Otherwise they truly are an HFT firm)
I will leave you with a chart from a while back:
http://www.zerohedge.com/news/2014-...irm-reveals-1-losing-trading-day-1238-days-tr
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. I do everything, from raising cash, network administration, programming, strategy development, research, crying. Don't take it the wrong way, I just prefer to keep things to myself.