Algorithmic trading -- the positive side • Hacker News Board

Re: Algorithmic trading -- the positive side

#21

Post by nandemo » Fri, Aug 12, 2011, 6:48 PM UTC

cma wrote: post #17

nandemo wrote: post #13

Earlier quoted context omitted.

Wait, what? Individual traders who are value-oriented or technical traders, as well as mutual funds etc, gain money on "buy low, sell high". Of course mutual funds and the like do so on a very long term basis. In any case, they pay the spread. So if the spread is narrower then they make more money in average. Example: if the Apple's quote is 95/105 (buy/sell) today and 105/115 tomorrow, an invidual trader buying and…

What if the only participants were mutual funds and individual traders with no significant market microstructure strategies. Half of all orders would still be resting orders, the other half would hit the bid/offer in some way. Sometimes you'd lose more due to this, sometimes you'd make more. But it would be a "fair" coin. Let's say on average it was $0.01 per dollar. As soon as someone entered the market with some mi…

> What if the only participants were mutual funds and individual traders with no significant market microstructure strategies. Half of all orders would still be resting orders, the other half would hit the bid/offer in some way.

No it wouldn't. Unless you make some really odd assumptions (like the traders are monkeys), you could still have tons of limit orders and NO executions. That's what happens to iliquid stocks.

Re: Algorithmic trading -- the positive side

#22

Post by nandemo » Fri, Aug 12, 2011, 6:48 PM UTC

cma wrote: post #17

nandemo wrote: post #13

Earlier quoted context omitted.

Wait, what? Individual traders who are value-oriented or technical traders, as well as mutual funds etc, gain money on "buy low, sell high". Of course mutual funds and the like do so on a very long term basis. In any case, they pay the spread. So if the spread is narrower then they make more money in average. Example: if the Apple's quote is 95/105 (buy/sell) today and 105/115 tomorrow, an invidual trader buying and…

What if the only participants were mutual funds and individual traders with no significant market microstructure strategies. Half of all orders would still be resting orders, the other half would hit the bid/offer in some way. Sometimes you'd lose more due to this, sometimes you'd make more. But it would be a "fair" coin. Let's say on average it was $0.01 per dollar. As soon as someone entered the market with some mi…

> What if the only participants were mutual funds and individual traders with no significant market microstructure strategies. Half of all orders would still be resting orders, the other half would hit the bid/offer in some way.

No it wouldn't. Unless you make some really odd assumptions (like the traders are monkeys), you could still have tons of limit orders and NO executions. That's what happens to iliquid stocks.

Re: Algorithmic trading -- the positive side

#23

Post by joe_the_user » Fri, Aug 12, 2011, 7:42 PM UTC

joshu wrote: post #16

joe_the_user wrote: post #4

Earlier quoted context omitted.

Ah, But is it real liquidity or the illusion of liquidity? Liquidity is, more or less, money ready to be invested. The question of whether sophisticated strategies really provide this is complex, like the strategies themselves. If you want background, I think Doug Noland's Credit Bubble Bulletin has done a good job of addressing these questions over the years. At the same time, I think we can see simple things. The b…

No. Liquidity is the measure of the ease with which it is easy to trade a given item. That is to say, shares of IBM are pretty liquid, treasury bonds are very liquid, and dollars are extremely liquid. But your car is not particularly liquid. The rest of your analysis is nonsense.

Liquidness - has easily a thing can be liquidated, how easily it can be turned into cash. Liquidity - cash waiting to buy the thing and liquidate it. A "liquid market", though, is normally a market with lots of liquidity rather a market which can be easily sold.

The existence of money to be invested is what makes a stock markets liquid...

Money to be invested is the necessary ingredient of a "liquid market". And a liquid market is a complex thing to measure. A market can easily seem liquid if lots of shares trade. But if it's the same shares over and over again on a day-to-day basis and if any time a large block appears, the price goes way down, then the market has an illusion of liquidity rather than real liquidity.

Re: Algorithmic trading -- the positive side

#24

Post by joshu » Sat, Aug 13, 2011, 4:28 AM UTC

joe_the_user wrote: post #23

joshu wrote: post #16

Earlier quoted context omitted.

No. Liquidity is the measure of the ease with which it is easy to trade a given item. That is to say, shares of IBM are pretty liquid, treasury bonds are very liquid, and dollars are extremely liquid. But your car is not particularly liquid. The rest of your analysis is nonsense.

Liquidness - has easily a thing can be liquidated, how easily it can be turned into cash. Liquidity - cash waiting to buy the thing and liquidate it. A "liquid market", though, is normally a market with lots of liquidity rather a market which can be easily sold. The existence of money to be invested is what makes a stock markets liquid... Money to be invested is the necessary ingredient of a "liquid market". And a li…

http://www.investopedia.com/terms/l/liquidity.asp#axzz1UscLt...

Re: Algorithmic trading -- the positive side

#25

Post by [deleted] » Sat, Aug 13, 2011, 10:47 PM UTC

joshu wrote: post #24

joe_the_user wrote: post #23

Earlier quoted context omitted.

Liquidness - has easily a thing can be liquidated, how easily it can be turned into cash. Liquidity - cash waiting to buy the thing and liquidate it. A "liquid market", though, is normally a market with lots of liquidity rather a market which can be easily sold. The existence of money to be invested is what makes a stock markets liquid... Money to be invested is the necessary ingredient of a "liquid market". And a li…

http://www.investopedia.com/terms/l/liquidity.asp#axzz1UscLt...

[deleted]