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How I made $500k with machine learning and high frequency trading

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Re: How I made $500k with machine learning and high frequency trading

#221

Post by 001sky »

heyitsnick wrote: post #210
gweinberg wrote: post #176

Earlier quoted context omitted.

No. Every business has a risk element, but what makes this gambling is that there is no good or service being produced. It's a game of trying to outguess the other players, with one trader's gain being another trader's loss (relative to market returns). Because there's a commission on trades, and because you pay taxes on net gains but your minimum tax is zero, high frequency trading by its very nature must a loss for…

As a professional poker player, analyst and journalist, and being fairly well-read on classifications of gambling vs skill game in different jurisdictions, I have not before come across a definition of gambling that was rooted in the idea that "no good or service is being produced."

Any zero sum or negative expected return conctract would meet this definition (quantitatively). if it floats your boat (makes you hallucinate etc), of course that might be considered a good or service. so you're right, if I was a lawyer those words would be loose language.

Re: How I made $500k with machine learning and high frequency trading

#222

Post by anonymoushn »

beagle3 wrote: post #219
dmmalam wrote: post #206

Being pedantic, 4000 trades a day isn't HFT. This is stil algo trading, of which HFT is a subset. I consider HFT to be any strategy where speed itself is the what gives the edge. Colocation is usually a prerequisite, though not sufficient. It's a shame HFT gets all the attention, when it's really a tiny portion of trading activity. Algo-trading in general is 70%+ of market activity in the US. Also limiting trades isn…

In the US, HFT is mostly synonymous with "all out tech war, flooding the order queue so your less-equipped peers get lags". (Nanex publishes analysis on these events, which are not occuring several times a month and keep accelerating). In Europe, HFT is mostly what OP describes, because they have reasonable control (e.g., you have to have one execution per 10 orders or pay a fine; in US exchanges, you can sometime fi…

Some US venues impose fees for having low fill rate. As far as I know, most US HFT firms' strategies are not based on creating latency by rapidly submitting and canceling orders, but the bad behavior of some players is much more visible than the orderly behavior of others.

Re: How I made $500k with machine learning and high frequency trading

#223

Post by beagle3 »

rorrr wrote: post #197
mertd wrote: post #132

Earlier quoted context omitted.

That's about 50% gain. Unless he put in $1m that doesn't completely explain his ROI.

Considering he was making 1000-4000 trades per day, I assume he put more than $1M. Trade fees alone would eat a huge chunk of money. The cheapest trade I can find is $3.95 (optionshouse.com). So the fees will be $3950 - $15,800 per day. $15,800 - $79,000 per week.

He was trading futures. You need $10K in margin per future. He states somewhere that he started with $30K or so, and I estimate his "margin at risk" at any point was $100K or less.

And he surely wasn't paying retail prices - you can go down to around $0.50/future if you know what you are doing.

(In general, futures have 1:5 to 1:20 leverage)

Re: How I made $500k with machine learning and high frequency trading

#225

Post by marvin »

KingMob wrote: post #217
marvin wrote: post #160

Earlier quoted context omitted.

This is a very mean and unconstructive comment to someone who made the impressive achievement of building his own automated trading system and actually making money from it. I've started calling out comments like this one, because they cause a bad environment for useful discussion. The only argument in your comment that isn't your own unfounded opinion is that market makers make money from people who execute trades.…

While writing his own trading system is a decent accomplishment, due to things such as an overall rising market in the time period involved and survivorship bias, the original author is likely to be completely mistaken about the reason for his winnings. Given that he might convince other people to engage in high tech gambling in a less-favorable market than the one he operated in, strong words are called for in this…

You could argue this, but in that case your arguments have to hold water and not just be a cursory dismissal. Ref. yajoe's much more thorough reasoning.

Re: How I made $500k with machine learning and high frequency trading

#226

Post by incision »

johnwatson11218 wrote: post #190
incision wrote: post #148

Earlier quoted context omitted.

Well put. Risk management is probably the single most important thing to understand in trading. Unfortunately, it's something that lots of people learn late, if ever. Folks get caught up in the romantic notion of betting it all and winning big, but end up losers. Meanwhile, the consistent winners they aspire to be are exposing perhaps 0.2% of their roll at a time.

I like the distinction between risk management and the romantic notion of betting it all and winning big. I see the same pattern in other areas as well, e.g. developers who focus on automated testing and other who think it is heroic to modify production code at 2:00 am. I think of it as the cowboys versus the tax accountants.

I actually thought about making that analogy, but it seemed unnecessary as the analogs are just so common.

Though, one thing I think is a bit unique to trading is prevalence of folks who preach without practicing. Just about anyone with a brokerage account can rattle off the same short list of critical do's and don'ts, but very few actually follow them.

Re: How I made $500k with machine learning and high frequency trading

#227

Post by bubbleRefuge »

fludlight wrote: post #120
toomuchtodo wrote: post #59

Earlier quoted context omitted.

I think with the automated trading example, it makes it seem much easier for anyone to dip their cup in the stream. When you think Facebook/Instagram, you think "Damn, those guys got lucky as hell". When you think automated trading, you think, "Hey, it can't be that hard", and start firing up your IDE and rolling out code to talk to an easily provisioned API. Sure, it may take months to lose your shirt selling a phot…

> "The market can stay irrational longer than you can stay solvent." As long as we're quoting Keynes, let's also remember this gem from a letter he wrote to the regents of King's College about the performance of their endowment's portfolio (which Keynes managed). "The management of stock exchange investments of any kind is a low pursuit, having very little social value and partaking (at its best) of the nature of a g…

Wow that is a gem. Keynes was a giant. Wish the political parties wouldn't run from him.

Re: How I made $500k with machine learning and high frequency trading

#228

Post by bubbleRefuge »

beagle3 wrote: post #215
gweinberg wrote: post #176

Earlier quoted context omitted.

No. Every business has a risk element, but what makes this gambling is that there is no good or service being produced. It's a game of trying to outguess the other players, with one trader's gain being another trader's loss (relative to market returns). Because there's a commission on trades, and because you pay taxes on net gains but your minimum tax is zero, high frequency trading by its very nature must a loss for…

> No. Every business has a risk element, but what makes this gambling is that there is no good or service being produced. I was not aware that this is what defines gambling. And "no service produced" is certainly wrong by accepted economic theory - arbitrageurs provide a price discovery service for everyone; they get rewarded for exposing the inefficient prices, even though it is done through market mechanics rather…

Futures, which I assume was the original poster's instrument of choice, are a zero sum game by definition as every contract is an agreement between two parties: buyer and seller.

Re: How I made $500k with machine learning and high frequency trading

#230

Post by femto »

highfreq wrote: post #207
jspaulding wrote: post #121

Earlier quoted context omitted.

It's a great point and seems like a very smart thing to keep in mind. I think in my case, based on the statistics involved, the odds that my success was luck just seems astronomically small. But, guess I'm biased in my own way :)

By luck and skill you found a temporary systematic bias that other players missed. It was even luckier that you found it without a lot of upfront losses. But you could have made many attempts and not found any bias and overall lost money and gave up. If lots of people are losing small sums to find these biases, then it may be that the expected return of trying to find biases is zero or negative. At best HFT is a near…

An example of your last point.

I know a very good engineer, who used to design innovative chips for 4G/LTE mobile telephony. These chips contributed to the market position of one of today's leading mobile phone manufacturers.

Today, this engineer is designing ASICs for high frequency trading (basically a specialised Ethernet switch, with all extra logic stripped out, so packets go through a few nanoseconds faster).

HFT isn't a zero sum game. It's sucking resources away from productive disciplines into an unproductive discipline, so making a net negative contribution.

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