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0+: A double digit Sharpe HFT strategy

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Re: 0+: A double digit Sharpe HFT strategy

#51

Post by anonymoushn »

geysersam wrote: post #45
yellowstuff wrote: post #34

Earlier quoted context omitted.

On the contrary, equities markets need the liquidity HFTs provide to function well. Before HFTs there were human market makers who played a similar role in equities markets, but charged far more to do it. HFT is a story of efficient technology bringing prices down a lot and shrinking the profitability of an existing industry. I’m sympathetic to the view that a lot of resources have been poured into making trades happ…

> people keep finding that letting the fastest system get the trade actually does work better than alternative approaches. What does "work better" mean in this context? Did the exchange find it increased their profits?

It means people get better prices than they otherwise would.

US markets are pretty bad along many axes (e.g. brokers have an obligation to route flow to wholesalers in an effort to maximize price improvement, but this does not necessarily result in the best price on a per-order basis the way that a limit order book populated by wholesalers and other retail orders would. startup costs to get "fair access" to institutional flow and 0 captive retail flow are multiple millions of dollars because of exchange revenue models. retail maker orders will literally never interact with retail taker orders. etc.), but it's difficult to argue that retail would pay less in fees and spreads if they had to always interact with quotes manually created by humans.

Re: 0+: A double digit Sharpe HFT strategy

#52

Post by amluto »

oh_sigh wrote: post #24
VagueMag wrote: post #18

Earlier quoted context omitted.

Yeah I'm pretty sure cables will always beat satellites over the same distance. One interesting idea I heard was to string stationary drones that would relay microwaves across the ocean, similar to what was done with the relay towers between Chicago and New York.

Light travels at ~0.8C through fiber optics, whereas it travels at very close to C through the atmosphere and C in space. You need to make up for the extra ~200 miles going up and down, as well as the extra curvature of the satellites orbital shell vs the ground. But, it is doable, assuming you can relay the signal fast enough from satellite to satellite. Fiber optics needs to also be boosted on long routes, I'm not…

Getting your fiber to go straight (in the great circle sense) from point A to point B can be quite challenging given the presence of mountains, water, and people or countries that control the land in the way.

For what it’s worth, hollow core fiber is available now, although at least the one vendor I found is very very expensive. I haven’t found an entirely clear answer as to the group velocity in hollow core fiber (it’s not in the data sheets), but it ought to be pretty fast. (The group velocity in vacuum-filled waveguide is not the speed of light in a vacuum — it’s slower.)

Re: 0+: A double digit Sharpe HFT strategy

#53

Post by Galanwe »

VagueMag wrote: post #44
kolbe wrote: post #41

Earlier quoted context omitted.

Right now, the fastest path from Chicago to London is to bounce radio signals off the ionosphere, which lands them in Lithuania, and then microwave back to London.

Wow, are there HFT firms doing this? How reliable is it?

No just HFTs use microwave. Most big DC players (e. g. Equinix) provide access to a MW antenna, as well a dedicated links to PBs and exchanges PoP.

Re: 0+: A double digit Sharpe HFT strategy

#55

Post by geysersam »

anonymoushn wrote: post #51
geysersam wrote: post #45

Earlier quoted context omitted.

> people keep finding that letting the fastest system get the trade actually does work better than alternative approaches. What does "work better" mean in this context? Did the exchange find it increased their profits?

It means people get better prices than they otherwise would. US markets are pretty bad along many axes (e.g. brokers have an obligation to route flow to wholesalers in an effort to maximize price improvement, but this does not necessarily result in the best price on a per-order basis the way that a limit order book populated by wholesalers and other retail orders would. startup costs to get "fair access" to instituti…

I definitely don't know enough about trading. So please forgive if this is just naive.

From what I gather, the problem is matching sellers to buyers. Sellers list what they're looking to buy, and the price they're willing to pay. Buyers list what they're willing to sell, and at what price. Let's say each offer is valid for 100 ms (that's a reasonably short time span, no immense risk for the entity making the offer).

But I find it difficult to understand where speed (on the level of HFT) ever becomes a factor in this game?

If the HFTs looks at different exchanges and work as gel between them, making the trades between exchanges that otherwise wouldn't happen, that would make sense as a valuable business. Is that their purpose?

Although, it still seems to me the slower buyer and seller would prefer to come to an agreement alone without the middle man taking part of the profit.

If the trade enabled by the HFT would've happened the next 100ms clock cycle anyway after the buyer and seller noticed each other and adjusted their prices, I don't see the value of the HFT trader. Seems they're just hacking the system.

Re: 0+: A double digit Sharpe HFT strategy

#56

Post by yieldcrv »

anonymoushn wrote: post #50
yieldcrv wrote: post #6

Earlier quoted context omitted.

vanilla options (edit: pricing model) were invented by LTCM and they blew up on degenerate bets too looks like it just comes with the predisposition

we need not confuse blowing up one's own portfolio with stealing ten billion dollars

we need not confuse the legitimacy or illegitimacy with the characters involved, since they both mismanaged capital and business

Re: 0+: A double digit Sharpe HFT strategy

#57

Post by barnabee »

anonymoushn wrote: post #48
barnabee wrote: post #25

Earlier quoted context omitted.

Nobody is going to start the next rentec after reading this article, but for people new to the subject I think it is quite an approachable intro to some of the practicalities of market microstructure and how they affect trading strategies.

It's helpful, but even after all the work to be on all the right levels one still has a difficult prediction problem to decide when they don't like a fill. I guess the point is that this prediction problem (conditional on fills at front of big queues, should I dump it?) may be easier to make into a profit because your predictions can be of only moderate quality if your downside is just fees. In crypto d1, the fees ar…

Yeah, totally, it really just gives a flavour of how the structure of price levels and price/time priority, tick sizes, etc. can create exploitable probabilistic advantages, and I think many folk are not aware of even this.

The real environment is absolutely messier and more complex than described by this article. Still, it's a layer deeper than "speed is good", to paraphrase Gordon Gekko.

Re: 0+: A double digit Sharpe HFT strategy

#58

Post by VagueMag »

anonymoushn wrote: post #50
yieldcrv wrote: post #6

Earlier quoted context omitted.

vanilla options (edit: pricing model) were invented by LTCM and they blew up on degenerate bets too looks like it just comes with the predisposition

we need not confuse blowing up one's own portfolio with stealing ten billion dollars

Far more money has probably been stolen with the "heads I win, tails you lose" approach -- just put on massive leverage and stick someone else with the bill if it blows up -- than has been stolen by all the Ponzi schemes in history.

Re: 0+: A double digit Sharpe HFT strategy

#59

Post by anonymoushn »

geysersam wrote: post #55
anonymoushn wrote: post #51

Earlier quoted context omitted.

It means people get better prices than they otherwise would. US markets are pretty bad along many axes (e.g. brokers have an obligation to route flow to wholesalers in an effort to maximize price improvement, but this does not necessarily result in the best price on a per-order basis the way that a limit order book populated by wholesalers and other retail orders would. startup costs to get "fair access" to instituti…

I definitely don't know enough about trading. So please forgive if this is just naive. From what I gather, the problem is matching sellers to buyers. Sellers list what they're looking to buy, and the price they're willing to pay. Buyers list what they're willing to sell, and at what price. Let's say each offer is valid for 100 ms (that's a reasonably short time span, no immense risk for the entity making the offer).…

Most HFTs are market makers, meaning they are willing to buy or sell any of the stuff they trade at any time. They provide the service of assuming risk that they don't really want. If some non-HFT participants show up to a limit order book, they could transact with each other, but it's more likely they will each transact with a market maker. Because of the way limit order books work, they cannot possibly receive worse prices due to the presence of the market maker's orders. If the best price each of them could receive was from the other's order, they would match with each other.

US markets don't work precisely this way for various reasons, but it seems like if the question is "What service, if any, are HFTs selling?" then the answer should be "They are willing to assume risk by taking the opposite side of your trade basically regardless or what your trade is" rather than a rant about US market structure.

"Trading in one market based on price information from another, such that the prices in the two places are in agreement with each other" is actually called out elsewhere in this comments section as a value-destroying activity that reduces liquidity and therefor at the margin causes less sophisticated traders to get worse prices.

If someone is regularly noticing things and adjusting their price in a tenth of a second, it seems likely they are engaged in some form of automated trading.

Re: 0+: A double digit Sharpe HFT strategy

#60

Post by letitgo12345 »

kasey_junk wrote: post #36
bb88 wrote: post #7

I find it interesting how HFT apparently creates no economic value whatsoever. The value is siphoned off more traditional market trades.

HFT may be the most obvious advantage of technology disrupting traditional oligarchical structures the world has ever seen. A market that was previously dominated by good old boy networks of football players was made massively more efficient and the cost of entry driven to the floor purely based on nerds with math. To the benefit of effectively every market participant besides said football players. I find it interes…

Otoh, that ad driven navel gazing ultimately delivered Generative AI which is likely going to lead to superhuman AI. What equivalent value did HFT deliver?
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