Out Today Market Making Scalping Manual

[2FT]

It isn't a book. It is apparently only the equivalent of a 55 page pdf. In a way that is encouraging, as most books are padded with fluff anyway.

 

[JigsawTrading]

This is a rare case where both sides are probably right.

Much of the 'edge' scalpers used to enjoy is long gone. Long gone.

In fact, the edge has morphed into a snake pit. That's why this guy is selling stuff and not trading . Easy.

BUT , a good scalper with experience, and a feel for markets, along with world class money management skills, can still make money.

How many like that are there? I don't know. Very few I suspect, and probably near zero that learned from a $999 book.

Nice price though, its LESS than a grand!

This guy is still trading.

The book is written, he is now making money from both. One does not preclude the other.

 

[JigsawTrading]

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.

Gary has worked with a number of HFTs and what they do is not market-making. As a professional market maker, if you've also worked with HFT firms in the space, I presume you would know that.

You would also know that if HFTs were dominating Futures trading - where is the depth? Displayed depth is miniscule and actual depth, measured by what trades at each price is even smaller. If this is HFT, then it's extremely small and way off the sort of thing you see in equities markets.

If HFTs aren't the book - then the implication would be they are going in at market which would mean giving up the spread - to a market maker.

 

[JigsawTrading]

It isn't a book. It is apparently only the equivalent of a 55 page pdf. In a way that is encouraging, as most books are padded with fluff anyway.

It is indeed fluffless - all strategy and execution.

 

[traider]

Gary has worked with a number of HFTs and what they do is not market-making. As a professional market maker, if you've also worked with HFT firms in the space, I presume you would know that.

You would also know that if HFTs were dominating Futures trading - where is the depth? Displayed depth is miniscule and actual depth, measured by what trades at each price is even smaller. If this is HFT, then it's extremely small and way off the sort of thing you see in equities markets.

If HFTs aren't the book - then the implication would be they are going in at market which would mean giving up the spread - to a market maker.

You are kidding right?

Index equity futures are more thiccer than Shakira's hips.
The game is so optimized now anybody who isn't colocated with the best algo and tries to fight for queue position will end up getting only adverse selection.

 

[JigsawTrading]

You are kidding right?

Index equity futures are more thiccer than Shakira's hips.
The game is so optimized now anybody who isn't colocated with the best algo and tries to fight for queue position will end up getting only adverse selection.

Not at all.

The 2 year on the left is thick. Eurostoxx 50 is thick. US Indices are very thin - 100-200 a level, most of which is pulled out of the way as price gets close to it. Nothing like the 1000's per level we'd see 5 years ago.

So you get 20-50 contracts actually trading per level. If you consider the spreaders, the outright traders and the arbs (which are probably algorithmic), then it doesn't leave a lot of room for all the people trading the instrument AND HFTs being dominant.

The big game for HFTs is buying equity order flow from TD Ameritrade et al - people like Getco, Knight who can then pull their bids/offers if they see flow coming in against them. It's not front running - but it's close.

If there was massive HFT trading in futures markets like S&P, Crude, Wheat, Corn etc - you'd see it in the volume.

Volume at price is not indicative of huge HFT market-making participation.

Not sure if you remember BAC, C getting hit by HFT rebate traders - churning billions of shares a day yet sticking in a tight 5-6 cent range. These guys had to do several reverse splits to shake them off - basically increasing the margins on them till they moved elsewhere.

 

[ZTrader888]

Not at all.
View attachment 218637

The 2 year on the left is thick. Eurostoxx 50 is thick. US Indices are very thin - 100-200 a level, most of which is pulled out of the way as price gets close to it. Nothing like the 1000's per level we'd see 5 years ago.

So you get 20-50 contracts actually trading per level. If you consider the spreaders, the outright traders and the arbs (which are probably algorithmic), then it doesn't leave a lot of room for all the people trading the instrument AND HFTs being dominant.

The big game for HFTs is buying equity order flow from TD Ameritrade et al - people like Getco, Knight who can then pull their bids/offers if they see flow coming in against them. It's not front running - but it's close.

If there was massive HFT trading in futures markets like S&P, Crude, Wheat, Corn etc - you'd see it in the volume.

Volume at price is not indicative of huge HFT market-making participation.

Not sure if you remember BAC, C getting hit by HFT rebate traders - churning billions of shares a day yet sticking in a tight 5-6 cent range. These guys had to do several reverse splits to shake them off - basically increasing the margins on them till they moved elsewhere.

Nice reply. Worthwhile reading. This is the type of stuff you should be posting all the time.

 

[quant1]

Not at all.
View attachment 218637

The 2 year on the left is thick. Eurostoxx 50 is thick. US Indices are very thin - 100-200 a level, most of which is pulled out of the way as price gets close to it. Nothing like the 1000's per level we'd see 5 years ago.

So you get 20-50 contracts actually trading per level. If you consider the spreaders, the outright traders and the arbs (which are probably algorithmic), then it doesn't leave a lot of room for all the people trading the instrument AND HFTs being dominant.

The big game for HFTs is buying equity order flow from TD Ameritrade et al - people like Getco, Knight who can then pull their bids/offers if they see flow coming in against them. It's not front running - but it's close.

If there was massive HFT trading in futures markets like S&P, Crude, Wheat, Corn etc - you'd see it in the volume.

Volume at price is not indicative of huge HFT market-making participation.

Not sure if you remember BAC, C getting hit by HFT rebate traders - churning billions of shares a day yet sticking in a tight 5-6 cent range. These guys had to do several reverse splits to shake them off - basically increasing the margins on them till they moved elsewhere.

So you're advocating for retail traders to market make in ES futures? I don't think there is a more competitive game out there. You have latency arb desks spreading SPY vs ES over microwave lines, ETF arb desks hitting ETFs based on ES movements etc. Not to mention any flow from options MMs who are hedging delta. On top of that, if any paper needs to get size done, that's where they'll go.

To clarify, the MM vs HFT discussion is a false dichotomy. Nearly all market makers trade algorithmically. The ETF arb desk I ran primary made markets in ETFs AND we did so in high frequency. There is no other way to avoid adversity. Also, we also hedge. This causes us to take on more efficient markets as we quote less efficient ones. For example, if I get lifted I SPY, I might send an order to ES to hedge. This is how market makers keep these markets inline - SPY being bid up causes MMs to lift markets elsewhere, transferring price discovery to ES. This can (and often does) happen the other way around.

The "lack" of depth in the markets is a fact about adversity. It is very difficult to be the first one off a level as price discovery occurs. One way of minimizing risk is by quoting less, only maintaining quotes when you either have great priority and alpha.

 

[Seaweed]

Quick question @quant1 .

Why are the levels on the ES much thinner now? The volume seems about the same for years as I have shown on my chart. Are there less MMs quoting and hence each level is only a quarter as thick if not less? Or has their game changed? It's almost as if nobody wants to quote anymore.

 

[JigsawTrading]

So you're advocating for retail traders to market make in ES futures? I don't think there is a more competitive game out there. You have latency arb desks spreading SPY vs ES over microwave lines, ETF arb desks hitting ETFs based on ES movements etc. Not to mention any flow from options MMs who are hedging delta. On top of that, if any paper needs to get size done, that's where they'll go.

To clarify, the MM vs HFT discussion is a false dichotomy. Nearly all market makers trade algorithmically. The ETF arb desk I ran primary made markets in ETFs AND we did so in high frequency. There is no other way to avoid adversity. Also, we also hedge. This causes us to take on more efficient markets as we quote less efficient ones. For example, if I get lifted I SPY, I might send an order to ES to hedge. This is how market makers keep these markets inline - SPY being bid up causes MMs to lift markets elsewhere, transferring price discovery to ES. This can (and often does) happen the other way around.

The "lack" of depth in the markets is a fact about adversity. It is very difficult to be the first one off a level as price discovery occurs. One way of minimizing risk is by quoting less, only maintaining quotes when you either have great priority and alpha.

No - I wouldn't go near the ES for this type of trading - someone simply pointed out that they were trading ES and that HFTs there "ate their lunch and kissed their wife".

I was merely pointing out that if HFTs are so prevalent in Futures markets, they seem to be doing so without this being reflected in depth reported or executions.

My opinion - is you'd be way better off in other markets. I know one of Gary's students is doing really well in NQ -- but that would also not be my thing. I'd be more inclined to look at stuff like grains, metals, meats - although there is an argument for trading Spoos overnight when it's calmer.