Live data from Hacker News

Ask HN: Is it feasible to do high-frequency trading as an individual?

news.ycombinator.com

31–40 of 59 posts

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#31
As others have said, I think focusing on HFT is a bad idea. You are going to be in competition with other players in the market. What are your weaknesses compared to them:

1) You are alone; you are competing with teams mixing 3-4 math/physics ph.d.'s and 3-4 programmers that might implement their algos on the latest GPUs (and this is very time consuming).

2) You have no experience. You are competing with very smart people that have been playing this game for years.

3) You (probably) have little money. So you want to minimize cost of historical data acquisition, data storage, data analysis, hardware, collocation …

IMH, these points pretty much rule out HF trading.

You also have some advantages compared to the competition. One of them is that you have little money, so you can invest in assets that are illiquid to someone that wants to move a lot of cash.

I think it is possible to trade as an individual; hard but possible. And if you are successful at some non-crazy frequency -- a few days, a few hours, a few minutes -- then, maybe, maybe have a look at HF.

And another thing, if you can, go shopping for a broker with lower fees. $10/trade? It looks as if you did not do basic homework -- but mabe you live in a country where that's the cheapest you can get.

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#33
I like lrm242's comments. I started my own high freq algo firm back in 2007 and crushed it for awhile. In the end though, the governing dynamics of the marketplace change and can change very rapidly, so any machine learning or neural networking you do perform can become obsolete fairly quickly. Unless you've developed HAL you're probably going to have a rough go of it alone...hope this helps!

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#34
post #22

True high-frequency is very hard. Most of these guys got started in the 1999/2000 time frame and didn't have to deal with many of the start-up issues that new entrants face. For example, just consider the data you need to trade that quickly. Not only is the real-time feed expensive, but if you want to source the data from the execution venue then you have a lot of code to write. The amount of data is also quite large…

NPR's Podcast Planet Money has an interesting show on this subject called "The Million Dollar Microsecond":

http://www.npr.org/blogs/money/2010/06/08/127563433/the-tues...

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#35
post #26
post #4

It's not a dumb idea, but you certainly should give up. The high frequency game is one you will lose, because many of the large investment banks have relationships with the stock exchanges allowing them to get information faster - and respond to that information faster - than other traders. See this NYT article (including the graphic) for more: http://www.nytimes.com/2009/07/24/business/24trading.html

That article is 85% hype. It reads like an editorial, not a news article. What exactly do you mean by "relationships with the stock exchanges"? If by that, you mean they pay the exchanges for colocation (which anyone can do), then yes, I would agree. If you mean the banks and exchanges are cronies and that the exchanges give the banks free perks because they're golf buddies, then that's wrong. The edge you are talkin…

I meant colocation - the costs of which I assume to be too high for individuals - and flash orders - which I did not know were no longer operating.

My general point was just that the playing field is not exactly level - the banks have resources the individual does not have, if speed is the game you're playing. I didn't mean anything at all to do with personal relationships.

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#36
High Frequency trading, is really meant for people or companies that have their servers in the same network as the exchange they are HF'ing on. In fact, true HF'ers buy and sell in fractions of a second, some lasting seconds, or minutes.

I've researched this, and tried doing the same, but, in the end, trade fee's, and commissions kill the idea dead. In fact, HF Trading falls under Day Trading, which required that you must have the legal minimum $25,000 in equity on hand to day trade... that is the main thing that killed it for me... read for yourself: http://en.wikipedia.org/wiki/Day_trading

If you'd like to try it out before you trade live (here comes the shameless plug), you can use the trade simulation I made (buy/sell/sell short) and set your trade fee's and commissions totally free at https://algxchange.com

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#37

Stay away from HFT, big players will eat your lunch. HFT isn't even a game of milliseconds anymore, it's a game of microseconds. You can still do well with algorithmic trading where speed of execution isn't an issue. Work on your strategy, test it on historical data, execute it manually, if it works then automate part or all of it.

Yup. NASDAQ will even tell you what the current latencies are for their coloc: http://www.nasdaqtrader.com/trader.aspx?id=inet Microseconds indeed.

Alternatively, you might consider going overseas if you aren't prepared to pay coloc fees and do custom FPGA or realtime work. Some of the exchanges, particularly in Asia (except Japan) still have clearing times measured in seconds.

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#38
post #22

True high-frequency is very hard. Most of these guys got started in the 1999/2000 time frame and didn't have to deal with many of the start-up issues that new entrants face. For example, just consider the data you need to trade that quickly. Not only is the real-time feed expensive, but if you want to source the data from the execution venue then you have a lot of code to write. The amount of data is also quite large…

(very off topic) How do you store, query, and manipulate data that includes 45 million new rows per day?

Perhaps one shouldn't? I've always been a bit fascinated by the analytical tools in brokerage software - with a pretty good understanding of DSP and an appreciation for the fact that asset prices are somewhat periodic, it's hard to overlook the fundamental similarities between stock graphs and audio waveforms. Once you start performing FFTs or wavelet transforms and get a 'feel' for dealing with signals, patterns become very seductive...possibly too seductive: http://en.wikipedia.org/wiki/Pareidolia and http://en.wikipedia.org/wiki/Tetris_effect

Might there be another approach? You wouldn't prepare to go to the store by reviewing and analyzing the 1287 individual footsteps of your previous trip, or try to predict the content of a HN thread by textual analysis of all previous threads. Do we do so at a subconscious level, then? Not really - or rather, our subconscious tends to forget about things as soon as they cease to be important, which in the case of things like walking is a period of seconds or less. Processing large volumes of data is computationally expensive, but it turns out that simple rules can yield results that are both complex and useful, as in flocking and swarming behavior: see http://en.wikipedia.org/wiki/Boids and http://en.wikipedia.org/wiki/Swarm_Intelligence, plus everything from the wisdom of crowds to nonlinear dynamic systems (aka chaotic ones) like Newton's basin or the logistic equation.

I feel there are two other fundamental problems with the massive dataset + analysis approach. One is that you're not working in a closed system, and there's no sensible way to quantify unexpected events. 'Bigcorp CEO in Sex Scandal!' might cause the price of Bigcorp to tank if it's a major distraction or their largest customer base is among rural conservatives. If Bigcorp makes racing cars, it might just be good publicity! Now you can do some kinds of interesting posthoc analysis (eg for news stories that contain a stock symbol, measure the correlation between # of textually similar stories and stock volume/prices using a distributed windowing function) but we're a long way from having a browser plugin that trades based on the contents of your RSS feed.

Another problem is that of feedback. As you've discussed so ably above, people who spot an arbitrage opportunity will mine the hell out of it. And as we all know, traders are extremely subject to herding behavior even though all training suggests they do otherwise. Sure there are systematic contrarians, but I bet that if you just want to do academic analysis you could find a contrarian coefficient and quantify its damping effect on price or volume movements.

So rather than crunching vast quantities of stored data, I wonder if it might be better to treat price movements not as absolutes which you hope will reach a particular ceiling or floor, but as differential vector data with a short half-life. So far AI and modeling approaches seem to have focused on prediction (surprise) and don't perform especially well. I think it would be more interesting to map correlation variations for as large a number of nodes (listed securities) as possible - think how we intuitively appreciate the dynamics of a school of fish when watching a nature documentary, without performing any detailed analysis of individual fish trajectories.

Of course this still involves processing a lot of data, but storing it is less important because are only seeking to become more familiar with high-level behaviors inside that system. There's more to fishing than running trawlers!

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#39
post #22

True high-frequency is very hard. Most of these guys got started in the 1999/2000 time frame and didn't have to deal with many of the start-up issues that new entrants face. For example, just consider the data you need to trade that quickly. Not only is the real-time feed expensive, but if you want to source the data from the execution venue then you have a lot of code to write. The amount of data is also quite large…

(very off topic) How do you store, query, and manipulate data that includes 45 million new rows per day? Perhaps one shouldn't? I've always been a bit fascinated by the analytical tools in brokerage software - with a pretty good understanding of DSP and an appreciation for the fact that asset prices are somewhat periodic, it's hard to overlook the fundamental similarities between stock graphs and audio waveforms. Onc…

Good thoughts, and I don't particularly disagree. Regardless of any derivative you might obtain from the data, most folks want to retain high-fidelity historical data for two reasons:

(a) Future analysis techniques are unknown. Today you might be using method X, but tomorrow you might want to try method Y which calls for an entirely different massaging of the raw data.

(b) Backtesting and replay. Simulations and replays of previous trading events are valuable not only for testing a model but also testing the particulars of new "infrastructure" code.

Both require high-fidelity source data. This stuff is so hard to come by and costs so much money that most people want to be safe and save it forever.

To your point on analysis: it is rare that one would directly analyze the source data itself. You'll almost always want to transform the data into something more manageable for model development. The most crude form of this is idea of "bars". Instead of looking at tick data, traders tried to reduce the noise by looking at arbitrary aggregations of that data: 1 minute, 1 hour, 1 day, etc. Technical analysis using moving averages and other indicators are also examples.

Re: Ask HN: Is it feasible to do high-frequency trading as an individual?

#40
As an individual it is unlikely. Your best bet would be to develop an algorithm with massive amounts of recent historical data that shows you could hypothetically be profitable. Shop that to trading firms or angel investors and use their capital to get a direct feed. You probably won't be able to do this to a major exchange, but there are lots of other options. If you find a smaller market you can also potentially get a market maker agreement. This will mean that you have to have certain positions open at all times, but you can place any orders you want in addition to those, and all of them will have $0 fees.

All that said, I would suggest you stick with vanilla algo trading to start, and leave HFT to the big boys (until you are one).

Post reply on HN