Out Today Market Making Scalping Manual

[traider]

the rare scalper you mention probably has to use a ton of discretion , and the amount of people who can have a correct short term directional bias is near 0.
Also discretion reduces consistency, without consistency you can't put on size of a trade so can't make decent money

 

[quant1]

As a professional market maker, I am certain that buying this manual is a bad idea. Here's why:

- The futures markets are already dominated by HFT firms. Book loquidity isn't the full picture. Implied liquidity is far deeper than diaplayed. Here's an interesting read about the landscape, http://alphacution.com/drw-jump-and-latour-trading-a-brawl-breaks-out-in-the-futures-market-part-2/.

- Regarding the first point, that is not to say you can't try to market make futures (or anything else for that matter), the requirements to be competitive are very high. It will require automation and high performance code. This is to avoid adversity when maintaining quotes.

- If done well, market making is very lucrative and has a steady return profile with positive skew. In some markets during certain periods, manual market making might have positive expectation, but it is more likely an artifact of the market being temporarily mean revertive.

As a side note, if anyone has any market making questions, you can ask me for free.

 

[qlai]

In some markets during certain periods, manual market making might have positive expectation, but it is more likely an artifact of the market being temporarily mean revertive.

Thanks for offering to answer questions. Why do you say "temporarily mean revertive?" On the market making time scale, isn't it pretty much always mean reverting? Don't MMs, under normal market conditions, have the means to revert it enough not to loose money?

 

[quant1]

Thanks for offering to answer questions. Why do you say "temporarily mean revertive?" On the market making time scale, isn't it pretty much always mean reverting? Don't MMs, under normal market conditions, have the means to revert it enough not to loose money?

A huge part of a market making strategy is to have an adversity model that can assess the likelihood of an incoming order having alpha (adversity) versus the order being uninformed. All orders should have an impact that is a function of the size of the order and in the direction of the order. If the order flow is not "toxic" (I.e. has a lot of alpha), we can expect that the fair value has not changed and that any impact that the order had is not permanent. On the other hand, some flow is toxic (think about being a market maker when a bigger/high alpha/longer timescale player like rentech comes in for size). These sorts of trade will have lasting price impact as the intent of the trade is to capture the mispricing in fair value.

Market makers are rarely engaged in price discovery. They live on collecting the spread and collecting some structural mispricing at the order book level. The goals is really to avoid being counterparty to trades that are assisting in price discovery.

There are market makers who do have longer term alpha. In some sense, this is the "holy grail". But I wouldn't classify these sorts of alphas as market making alpha.

 

[surf3r]

Clearly whatever edge he had, if he had it, is long gone. He isn't trading it himself anymore, and is only doing consulting work, which means he can't trade. The hedge fund he is trying to start up is simply to make money on the fees before it closes down when investors realize he can't beat the indexes after a few years.

I would say that it was not smart of him to start working with retail traders in the first place, and especially to write a manual like that. Ridiculous comments and who knows what is likely to follow.

Market making is still possible, yes. And it is extremely hard. It will take you thousands of hours to perfect. And it is almost completely different from what Peter Davies, John Grady, Futurestrader71 and others are talking about. To someone who has the motivation, talent, knowledge, discipline etc. the manual is not necessary. It is almost lik asking a pro soccer player, does he need a book about soccer to learn how to shoot the ball? I think not. But you need to acquire the knowledge and skill. And there are different ways you can go about that.

 

[_eug_]

As a professional market maker, I am certain that buying this manual is a bad idea. Here's why:

- The futures markets are already dominated by HFT firms. Book loquidity isn't the full picture. Implied liquidity is far deeper than diaplayed. Here's an interesting read about the landscape, http://alphacution.com/drw-jump-and-latour-trading-a-brawl-breaks-out-in-the-futures-market-part-2/.

- Regarding the first point, that is not to say you can't try to market make futures (or anything else for that matter), the requirements to be competitive are very high. It will require automation and high performance code. This is to avoid adversity when maintaining quotes.

- If done well, market making is very lucrative and has a steady return profile with positive skew. In some markets during certain periods, manual market making might have positive expectation, but it is more likely an artifact of the market being temporarily mean revertive.

As a side note, if anyone has any market making questions, you can ask me for free.

In the instance of getting picked off by an informed trader and your position starts to move against you, are you hedging right away? At what point do you take the hit on the losing part?

Thanks

 

[NewTraderAdventure]

In the instance of getting picked off by an informed trader and your position starts to move against you, are you hedging right away? At what point do you take the hit on the losing part?

Thanks

Hedging with what ? lol, you must be kidding, these days , unless you're a nanobot, the only hedge is closing the trade

 

[_eug_]

Hedging with what ? lol, you must be kidding, these days , unless you're a nanobot, the only hedge is closing the trade

We are talking market making, not directional trading. From reading Larry Harris trading and Exchanges I understand that market makers hedge. What I'm wondering is how a market maker goes about unwinding the hedge.

Are they fully hedged and will wait for original position to come back even if it takes months?

 

[quant1]

In the instance of getting picked off by an informed trader and your position starts to move against you, are you hedging right away? At what point do you take the hit on the losing part?

Thanks

There are many ways of hedging. For example, in ETF arbitrage, one "leans" on a more liquid ETF and quotes the wider/less liquid ETFs on the same index. In this case, you already have a price your system will hedge into if filled on your quote leg.

Another variation might very trading a large book of several equities. If you have some sort of factor model, as you buy one equity that has a heavy loading on a particular factor, you can lean down all the quotes for instruments proportional to their loadings to that factor. This increases the probability of selling that factor, hence balancing your book I factor exposure.

There are many other ideas and variations as well.

 

[ZTrader888]

You said in a post above that this manual is not geared towards NQ/CL scalping, but we also have to include ES in this. The way it moves today, order flow trading in my opinion is simply not conducive to doing it manually. Perhaps with the help of charts, if you're looking for turning points, but on its own, using just the DOM, I don't see how a human trader will beat the algos.

Gary mentions that one of the things you will learn is "Utilizing Queue Position". But this is exactly what doesn't work these days in either CL or NQ or ES, and of course YM as well. Now what's left. Maybe the bonds? I don't know because I don't watch them and I have no idea how thick the levels are anymore. ES used to be much thicker, meaning way more resting orders, but that is now gone. Even resting orders don't really mean anything anymore. Who on earth needs to have an order sitting there if its legit? And since its nothing for 4 or 5 price levels to clear in a second, watching the bids and offers of the inside 3-5 levels doesn't in my opinion provide an edge. Perhaps what's the tape is a bit more telling, but just the bids and offers, I don't think so.

Now if Gary means that this manual is only for the bonds, then he should say that and not be so elusive by being afraid to even mention the market that this will work best on.

Another thing you will learn, as he states, is using the spread. Are you kidding me? If your strategy relies on you buying at the bid or selling at the offer, then you're gonna get killed because a retail trader cannot compete on making the spread. Any time I get filled on the bid, its because price is dropping even lower. When my bid is sitting there and not getting filled, its because I got the direction right and nobody is gonna let me have it at that price so I better be prepared to pay the offer.

Its very obvious to me that what Gary will teach you is what he used to use 10 or 15 years ago to make money. But because it no longer works, he feels justified in "giving" it away for the low price of $999.

Now I could of course be 100% won over with some real, live trading examples. But alas, its very clear this will never happen. So once you're done studying this material and wondering how to make it work, you can't blame the vendor since he never actually was planning to tell you what to do with it in any tangible way.

I also very much doubt this line from his Bio. "Now consults to Investment banks, Hedge Funds and Exchanges."

These are all different players in the game. The exchanges set the rules so what kind of consulting do they need? The hedge funds, ya, they probably would love a consultant, meaning a guy on the inside of the exchanges to get special treatment, but I doubt Gary is the guy. And if Gary is the guy who has an "in" with the exchanges and investment banks and hedge funds, then he is not the guy selling a scalping manual to the retail trader. Next you're gonna tell me that Jerome Powell offers credit counseling on the weekends as a side gig to his little FED position.

Oh, and since its February, do you have any idea about what Baron was saying with regards to Axia coming out to visit him this month for some sort of collaborative work? I got the impression that Baron was going to act like some sort of intermediary in order to validate the legitimacy of Axia.

"Gary mentions that one of the things you will learn is "Utilizing Queue Position". But this is exactly what doesn't work these days in either CL or NQ or ES, and of course YM as well. Now what's left. Maybe the bonds? I don't know because I don't watch them and I have no idea how thick the levels are anymore. ES used to be much thicker, meaning way more resting orders, but that is now gone. Even resting orders don't really mean anything anymore. Who on earth needs to have an order sitting there if its legit? And since its nothing for 4 or 5 price levels to clear in a second, watching the bids and offers of the inside 3-5 levels doesn't in my opinion provide an edge. Perhaps what's the tape is a bit more telling, but just the bids and offers, I don't think so."

Spot on. What worked years ago doesn't work today. "Resting orders" or "queue positions" are pulled all the time. They are mostly fake. I don't care what the CFTC says about their spoofing oversight, spoofing is all over the place.

And once again, without the benefit of videos from live sessions from TODAY'S market for several instruments, no one can duplicate whatever he's blabbing in the book. It's ridiculous. If a brain surgeon only had the benefit of a book with anatomy and surgery pictures, how do you think that would turn out?

And wow - there's another million dollar trade over at AXIA too! Let's see the brokerage account. I don't think so....................