Trading Risk on / Risk off

It's pretty simple qlai.

If I am a fund manager and I have sold my bonds and bought equities because I think that it will help my portfolio, but then equities start to stall and bonds start to rally, then I better sell my equities and buy back my bonds before my portfolio gets whacked.

Since they all do this at the same time, and because they are using ES to cut exposure, the globex bids start to get taken out. Then HFT arbitrageurs provide new bids on globex and lift offers in cash so that the investment managers can get their portfolios back to the risk off allocation RIGHT NOW!

I'm sitting here at my house measuring when (and how much) the arbitrage is happening. The price doesn't move (or stop moving) until the liquidity is actually taken and the arbitrage is finished.

The funny thing is that the arbitrage tells me whats gonna happen in both markets.

This is because most of the traders are not paying attention to it, or because the market was wrong about the direction of bonds or equities.

But, I am using pretty fancy pants scripts and mathematics, statistics, and algorithmic analysis (in real-time).

That's why it works. The edge is the arb, it's just that I'm not the one doing it.
 
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Real Money said:
This is because most of the traders are not paying attention to it.

But, I am using pretty fancy pants scripts and mathematics, statistics, and algorithmic analysis (in real-time).
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Ok, who am I to say otherwise. I've seen a few people here make big claims based on spreadsheets and free (crappy) data. If you can pull it off, good for you. To me, sounds a bit far fetched as far as calling it arbitrage(keeping in mind most HFT stuff doesn't scale well, but you are talking massive liquidity).
 
qlai said:
sounds a bit far fetched as far as calling it arbitrage
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What do you mean by this? Every time I say arbitrage I specifically state exactly what I mean.

Which part of this sounds unbelievable? That you can't know when the arb is taking place, or that it doesn't give a tradable signal fast enough to make trades?
 
Real Money said:
Every time I say arbitrage I specifically state exactly what I mean.
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Arbitrage is guaranteed profit (obviously sh*t happens but it's an exception). HFTs invest huge amount of money to be able to arbitrage.
Maybe your system has 90% win rate, it's still not arbitrage.
You are saying it's possible to do it on retail level? Or are you saying if you had access to HFT infrastructure, you would be able to do it?
 
Real Money said:
I'm saying that I don't do arbitrage. The HFT firms are doing it. I just have a way to measure it using differentials of tradable instruments and index data feeds.
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K, forgive me for highjacking this thread, but I see you posting a lot about it. I got impression from your posts that measuring this gives you an edge(or adds to your other edge). If you measured something that HFTs arb'd a few millisecond ago, what do you get out of it. I guess my question is - is your research tradable or theoretical?
 
qlai said:
If you measured something that HFTs arb'd a few millisecond ago, what do you get out of it.
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Here is a chart of my custom indicator. The indicator plots the net activity of HFT arbitrage on the stock indexes. When the indicator is rallying, the buyers are trying to move the price up. When the indicator is falling, sellers are trying to push the market down. The blue line is AAPL. I don't think I can get a better system to help me trade.

APPL CHART.png
 
It's not made for AAPL. It's used to trade index futures and rate futures. This is the chart that I posted in another thread when that idiot Amherix was trolling ET. But, it still works to trade this stock because AAPL is arbitraged against the Nasdaq 100 contract.

The indicator only tells you how much HFT arb is going on and in what direction. You also have to know how to use it. People don't understand that since HFT index arb is market neutral, the indicator is showing actual speculative positioning.
 
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