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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

#121

Post by ycombobreaker »

collyw wrote: post #119
tomp wrote: post #107

Earlier quoted context omitted.

"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.

They don't help with long-term behavior, but they definitely can make markets more rational on a shorter time scale. You can think of HFT market-makers as adding friction to a system. They will generally take positions against the trend, reducing (or maybe just delaying) price impact of the trend traders.

EDIT: I should point out: _all_ market-makers provide this benefit to the market. The difference now is that HFT is automated, and like most forms of automation it has out-competed most manual market makers, for better or for worse. AFAIK, the last bastion of manual market-making is NYSE, where the humans have information and discretionary powers that are not granted to any of the robots.

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

#122

Post by mlrtime »

tomp wrote: post #115
kasey_junk wrote: post #109

Earlier quoted context omitted.

"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.

There are 1000's of trades that occur in that second and not only HFT. Someone will benefit if they just happen to cross the spread in that .1s. If you are unloading 10,0000 shares the speed arbitrage could save you real money.

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

#123

Post by joshuahedlund »

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?

I've done some recent reading from financial independence evangelists (ex. Mr. Money Mustache, etc[0]) who advocate low-fee index funds like Vanguard's. The idea (which generally makes sense to me) is that the overall stock market has historically significantly beat inflation over basically any period over 10 (20?) years, so an investment that has that overall profile is fairly low-risk. There are various things you can do with 'target retirement' funds or other methods of allocating more towards bonds as you age to reduce your short-term volatility risk as you near the age you want to use the funds.

[0]http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-...

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

#124

Post by ycombobreaker »

tomp wrote: post #115
kasey_junk wrote: post #109

Earlier quoted context omitted.

"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.

> that's ordinary arbitrage, not HFT arbitrage.

As it turns out, the "HFT" version of any trading strategy is _just like_ the "ordinary" version, but faster. You could say that they "disrupted" the older arbitrageurs due to their collective technology R&D.

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

#125

Post by ycombobreaker »

javert wrote: post #70
onetimeusename wrote: post #67

I lost a shit ton of money at the firm where I work right now almost a year ago. I wrote software that began issuing trades outside of where it was expected to and did not stop. In a panic, I forced the server it was running on to terminate its process but trades were still open in the market. They had to be manually closed. I feel sick to my stomach even writing this right now, that hour I was trying to fix the prob…

Were you able to keep your job after that? (If you're willing to talk about it; if not, I understand.)

If the firm did not go under as a result, it doesn't make sense to fire the individual. An event like that is a valuable (and expensive!) training lesson, and a mistake that probably won't be made twice.

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

#126

Post by kasey_junk »

porker wrote: post #117
kasey_junk wrote: post #108

Earlier quoted context omitted.

"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?

http://www.bogleheads.org/

Also "A Random Walk Down Wall Street" is a central book in this genre.

I will say, you can't generally control how your pension is run (and they run the gamut from wonderful to nearly criminal). It's one of the reasons I highly discount pension funds as a benefit.

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

#127

Post by kasey_junk »

mathgenius wrote: post #118
FLUX-YOU wrote: post #116

Earlier quoted context omitted.

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 sys…

The problem with using nuclear industry systems lessons is that the nuclear industry moves exceedingly slowly (for good reason) but trading needs to move fast. Opportunities exist for a very short time, so being able to find them, exploit them, and not blow yourself up in the process is the trick.

A trick not many folks have proven they can do over the long haul.

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

#128

Post by porker »

kasey_junk wrote: post #126
porker wrote: post #117

Earlier quoted context omitted.

> 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?

http://www.bogleheads.org/ Also "A Random Walk Down Wall Street" is a central book in this genre. I will say, you can't generally control how your pension is run (and they run the gamut from wonderful to nearly criminal). It's one of the reasons I highly discount pension funds as a benefit.

In the UK the latest hot thing is Self-Invested Pension Plans (SIPPs) and being self-employed all of mine is in that. Hopefully better performance in the long run, but a lot more faff/stress making good decisions :)

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

#129

Post by im2w1l »

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…

Well I do not advocate stock picking to beat the market. Just to construct the index tracker yourself instead of paying a fee for someone else to do it.

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

#130

Post by JabavuAdams »

onetimeusename wrote: post #67

I lost a shit ton of money at the firm where I work right now almost a year ago. I wrote software that began issuing trades outside of where it was expected to and did not stop. In a panic, I forced the server it was running on to terminate its process but trades were still open in the market. They had to be manually closed. I feel sick to my stomach even writing this right now, that hour I was trying to fix the prob…

Meh. You're still working there. If you forget, you'll get dumber.
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