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The Day I Lost a Shit-ton of Money, Part I

ptotrading.blogspot.com

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Re: The Day I Lost a Shit-ton of Money, Part I

#111

Post by kasey_junk »

throwaway7808 wrote: post #25
consz wrote: post #16

Reading this sort of stuff from manual prop traders makes me laugh. It sounds so amateur hour. How in the world can manual traders ever compete against a short-term stat arb or HFT strategy? It just sounds like pure luck that any of them will make money. Also, is 130k really a huge loss? I run HFT strategies, and while it would definitely be a big loss even for one of my strategies, it wouldn't be a phenomenal outlie…

Now you are just bullshitting. A 130k is a huge loss and a phenomental outlier. You've never had even a 100k loss on your strategies. And by current standards your strategies are not even HFT. I've seen you talking milliseconds. Nowadays people are talking sub-microseconds.

One of the big problems about conversations around "HFT" is that there is no definition of what that actually is. I like to put computerized trading systems on a scale of 3 different things: 1) trade volume 2) latency sensitivity and 3) human interaction.

So for instance, I've worked on systems that were "fairly" latency sensitive (~tens of micro seconds in latency budget), not very high volume (100s of trades a day) and had virtually no human interaction. I've also worked on systems that were "not very" latency sensitive (co-lo'd but never actually measured tick to trade times, which were assumedly in the tens of milliseconds), high volume (10s of thousands of trades a day) and had a team of clerks looking over it.

I would call both of those systems HFT systems, but some people wouldn't consider either of them HFT.

In both of those cases a 130k loss would be an outlier, but not a phenomenal one. I've worked with people who have lost millions of dollars in seconds and it blew up the group. I've met others that million dollar swings on a given strategy was par for the course (and there hedge funds doing manual trades that won't notice that trade in a graph).

That is, the world of computerized trading is pretty varied. If you are going to say someone is or is not HFT, let them know what your definition is first, as that is the only way the discussion can move forward.

Re: The Day I Lost a Shit-ton of Money, Part I

#112

Post by cmdkeen »

porker wrote: post #103
wazoox wrote: post #97

I can't help but think of confidence and the illusion of control: http://www.nytimes.com/2011/10/23/magazine/dont-blink-the-ha... "Mutual funds are run by highly experienced and hard-working professionals who buy and sell stocks to achieve the best possible results for their clients. Nevertheless, the evidence from more than 50 years of research is conclusive: for a large majority of fund managers, the selection of s…

To me this is depressing as my future pension is invested in funds. Given the rest of the comments: how best to invest it for long-term grown above the rate it'd have in a savings account?

Go with fund managers who genuinely invest over the long term, there are surprisingly few, and over 10+ years it is possible to generate better returns. Picking companies you think will beat the market over 10+ years is about fundamentals and research, not "playing the market".

Too many fund managers aim for consistent shorter term performance, which is getting into dice rolling territory.

Have a look at the fund managers that big pension schemes use. Some of them do genuinely perform well over the long run by not being distracted by short term issues.

Re: The Day I Lost a Shit-ton of Money, Part I

#113

Post by kasey_junk »

TrainedMonkey wrote: post #87
sillysaurus3 wrote: post #41

Earlier quoted context omitted.

It's 1ft/ns in a vacuum, but my understanding is that it's closer to 0.5ft/ns in a wire, so what you say is doubly true. But I think HFTs are running on servers close to the NASDAQ datacenter, and that people pay buckets of money for such privileges.

Pretty sure NASDAQ rents servers directly on site for serious dough, so distance is not that much of an issue.

Yes and No. Nearly every electronic exchange now offers co-location services (including NASDAQ).

The "serious dough" part is a little harder to quantify. I've not looked into NASDAQ specifically but server colocation is usually on the order of a couple of thousand dollars a month. This is a drop in the bucket compared to the real costs of a professional trading outfit (namely employees and margin/risk costs).

Anecdotally, it's also almost exactly what I paid for a tier 1 co-located server at my first job in a startup during the first dotcom boom.

Re: The Day I Lost a Shit-ton of Money, Part I

#114

Post by kasey_junk »

PhasmaFelis wrote: post #91

Every time I try to read about trading, a little Baron Munchausen in my head starts going "Your reality, sir, is lies and balderdash, and I'm delighted to say that I have no grasp of it whatsoever." :-/ I dunno. (This goes double for HFT.)

I feel the same way every time I read a story about a startup trying to put a web front end on some service industry.

This goes double for when I'm reading about their valuations.

Re: The Day I Lost a Shit-ton of Money, Part I

#115

Post by tomp »

kasey_junk wrote: post #109
tomp wrote: post #105

Earlier quoted context omitted.

Cue the argument: there are many flavors of HTF trading. Some funds exploit the latency of different trading platforms - I agree they don't add anything to the society. Others offer liquidity - if the bid-offer spread is $1, they will insert bids above the other bids and offers below the rest of offers, making trading less expensive for investors. Yet others specialize in execution - your "dumb" pension fund manager…

"Some funds exploit the latency of different trading platforms - I agree they don't add anything to the society." Even those are pretty easy to make an argument for. Very specialized firms spend vast sums of money, to make very thin margins, to provide me with a very valuable service. That is, I don't have to venue shop based on pricing oddities, they will arbitrage those away. I can shop purely on fees and features,…

Not really - that's ordinary arbitrage, not HFT arbitrage. No "actual" investor will profit from the fact that prices converge in 0.1s instead of 1.1s. They just wast hume sums of money building fiber optics on the direct line from Chicago to NY.

Re: The Day I Lost a Shit-ton of Money, Part I

#116

Post by FLUX-YOU »

mathgenius wrote: post #47

I work in a small prop-shop doing HFT. Most of the guys there are manual traders, and I've seen the same guys there for several years making steady money. I don't think this is bs or amateur hour, let me explain why. It is essentially the small (independent) traders that can make a win when the big guys (hedge funds, pension funds) are moving their positions around. Imagine a dude on a surfboard enjoying the wake of…

Any suggestions for HFT programming reading material and background knowledge for that kind of work?

Re: The Day I Lost a Shit-ton of Money, Part I

#117

Post by porker »

kasey_junk wrote: post #108
im2w1l wrote: post #106

Earlier quoted context omitted.

Invest directly in stock and bonds. And if that is not available, than invest in low fee funds.

"Invest directly in stock and bonds." That is pretty much the opposite advice you should take from those findings. In general, investors now have the widest array of low cost, diversified instruments available at any point in history. Most advisors who know what they are talking about, will tell you to take one of these options (a non-managed index fund, a highly diversified etf) and invest in that. Rebalance once a…

> Most advisors who know what they are talking about, will tell you to take one of these options (a non-managed index fund, a highly diversified etf) and invest in that.

Thanks, do you have any references for this, or more details on such options?

Re: The Day I Lost a Shit-ton of Money, Part I

#118

Post by mathgenius »

FLUX-YOU wrote: post #116
mathgenius wrote: post #47

I work in a small prop-shop doing HFT. Most of the guys there are manual traders, and I've seen the same guys there for several years making steady money. I don't think this is bs or amateur hour, let me explain why. It is essentially the small (independent) traders that can make a win when the big guys (hedge funds, pension funds) are moving their positions around. Imagine a dude on a surfboard enjoying the wake of…

Any suggestions for HFT programming reading material and background knowledge for that kind of work?

I learned most of it on the job, from the masters. So I don't really know about the literature. The non-finance part of it involves alot of real-time stuff, which is found in game programming, and also audio software. Also, you could read up on networking, TCP/IP, etc.

As for risk control (by risk I mean bugs) I often wonder if there are lessons from eg. the nuclear industry, on how to keep complex, highly-strung systems on track. That's another thing I learned on the job, and not always the easy way :-)

Re: The Day I Lost a Shit-ton of Money, Part I

#119

Post by collyw »

tomp wrote: post #107
phyalow wrote: post #101

Earlier quoted context omitted.

To me there seems to be a certain sort of karma in this. Momentum prop trading doesn't really add value to anything in my opinion (cue the arguments that momentum prop trading somehow adds real value to our society). Yet some momentum prop trading creams a profit by shuffling money around very quickly. So if there are sometimes big losses like this from a bug, then it seems to even things out somewhat.

"Anything of value" is a subjective measurement - you could say that stock markets don't add anything of value, or you could say that they enable more investments, since you're able to liquidate your investment whenever you want. Trend following, and mean-reversion following (what this article describes) are techniques that counteract the basic human irrational/emotional biases. Ideally, they should prevent bubbles a…

"They make markets more rational."

Said during the greatest economic downturn since the great depression.

Re: The Day I Lost a Shit-ton of Money, Part I

#120

Post by collyw »

phyalow wrote: post #101
collyw wrote: post #99

Earlier quoted context omitted.

To me there seems to be a certain sort of karma in this. HFT doesn't really add value to anything in my opinion (cue the arguments that HFT somehow adds real value to our society). Yet HFT creams a profit by shuffling money around very quickly. So if there are sometimes big losses like this from a bug, then it seems to even things out somewhat.

To me there seems to be a certain sort of karma in this. Momentum prop trading doesn't really add value to anything in my opinion (cue the arguments that momentum prop trading somehow adds real value to our society). Yet some momentum prop trading creams a profit by shuffling money around very quickly. So if there are sometimes big losses like this from a bug, then it seems to even things out somewhat.

agreed
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