Ask HN: Has anyone used machine learning to trade?

haliax,

If you want more information on this, there was an IAMA on Reddit about 2-3 months ago, on a guy who claimed to do exactly this. It was incredibly informative, and went into a lot of the details that you ask for here.

http://www.reddit.com/r/IAmA/comments/9s9d7/iama_100_automat...

I don't know much about stock markets, but I did a consulting gig for a large currency trading company a while back where I was doing a bit of work on their algorithmic trading platform. I learned that unless you are trading at least a million dollars a trade it's very unlikely that you will make money.

The reason for this is that the large companies won't talk to you unless you're trading at those volumes since they charge pretty high transaction fees. The smaller companies that will talk to you all have accounts with the larger companies and make money by increasing the spread between the bid and ask price they receive from the large companies. The expected return on a trade is usually somewhere in the region of 1-10 pips (where a pip is one ten thousandth of a dollar), with 10 pips being a really good return and 3-4 being more realistic. The smaller companies usually increase the spread by up to 3 pips in each direction on the price they get from the larger company which swallows up your return.

While millions of dollars per trade might sound like a lot the leverage in this market is also very high at 50-100 times meaning that with your 10k you could trade 500k-1M though on a sum that low you might get less leverage. However if you lose money on a trade you could eat substantially into your capital. So if your $1M trade goes against you by 10 pips you'd lose 1k.

I'm not ruling out making money on that market, but I'd say it's very unlikely unless you have a lot more money to start with. I am not an expert in this area though. This is just what I learned from the small amount of time I spent working with the company.

10K is too little. Statistically speaking, a small draw down can wipe out your acount. Most professionals have stop losses to limited their loss to 1-2% of their account. Google "trading money-management". You probably want to paper trade for a while before risking real money. If you are really interested in markets you can follow it as a hobby while working as a programmer. I used Interactive Brokers for trading futures, fx, options and stocks. They are low-cost and provides an API for automation. I write java code for my own personal "proprietary desk trading".

The only tip is: do it on paper first, with the exact setup, lag times, etc. that you're going to have when doing it live. Do it for a while.

And realize that this is a fanciful pursuit which is likely to lose you money, because the guys you're going up against have $ millions, ns-scale lag times, free or near-free transaction costs, and PhDs in theoretical physics.

On a related note, can anyone point to any writings/information on Kurzweil's work in this area?