4 ms·

Don't firms like Renaissance and Virtu destroy this notion?

physguy1123 10y ago
I assume you're referring to the Virtu statement that they only lost money on one day? That's true (or nearly true) of good HFT shops in general. The type of trading that HFTs do (market making, short term predictions) is generally less risky than long term investments. Also, the risk/reward of this trading is realized over minutes, not over weeks/years. So just as a hedge fund might have an unprofitable week but a good year, an HFT has a bad 20 minutes but over the whole day comes out on top. For Renaissance, maybe they are truly smarter than the rest of the market or at least able to act on good trades before anyone else. I wouldn't discount foul play though.
- deleted 10y ago
  [deleted]
- deepnotderp 10y ago
  I'd really be interested to know about the foul play angle, but firms like these buy drone and satellite data, surely they have some information advantage?
  - vostok 10y ago
    One could make the argument that their use of basket options was not uncontroversial.
  - physguy1123 10y ago
    Well, the thing is that other extremely good firms buy drone and satellite data, and other firms also pay the top rate to extremely good people, and etc. So either RenTech is somehow consistently wildly smarter than the rest of the industry through some completely unknown secret, or something else is up. They might be using insider information, they might have a deal with someone news firms* to get news early, they might use illegal order execution techniques. There's a whole slew of things they might be doing to get an advantage. Maybe they use funds other than Medallion (the super good one) as a testbed for strategies and deploy the really good ones to their best fund. FWIW, I don't think funds started by anybody who left there are as successful so the secrets aren't leaving. * A friend of mine in the hft industry told an interesting story to me. A high-speed news wire was very predictive of when orders relevant to the news would get run over - except backwards in time. The news was consistently a few minutes late. So either the high-speed news wire was laughably worse than the competition or somebody was getting news early through illicit means.
dxhdr 10y ago
HFTs like Virtu are just front-running, scamming retail investors like you and I out of pennies on every trade. There's no trading or investing happening here, just arbitraging broken market rules. HFTs don't destroy the notion set forth in the featured article because they aren't involved in the same game.
- vostok 10y ago
  > HFTs like Virtu are just front-running, scamming retail investors like you and I out of pennies on every trade. There's no trading or investing happening here, just arbitraging broken market rules. Do you happen to have a reference for this? This does not seem to match my personal observations, but I could be missing something.
  - dxhdr 10y ago
    Flash Boys by Michael Lewis is a good place to start.
- physguy1123 10y ago
  It's interesting you say that because the only group most agree is helped by HFT is retail investors, because you are getting a much better price on trades and aren't moving the market. Edit: If you want a high level overview, there's this article: https://origin-www.bloombergview.com/articles/2016-02-25/-flash-boys-exchange-isn-t-about-the-little-guy https://origin-www.bloombergview.com/articles/2016-02-25/-fl... Or just go find spread sizes in say 1990 or 1995, notice that they are far larger. Edit 2: Also, HFTs can't see your orders before they hit the market, despite what everyone seems to think after reading flash boys. And the idea that HFTs mostly do latency arbitrage is flat out wrong as well.
  - dxhdr 10y ago
    > Also, HFTs can't see your orders before they hit the market, despite what everyone seems to think after reading flash boys. And the idea that HFTs mostly do arbitrage is flat out wrong as well. Not true: https://www.sec.gov/news/pressrelease/2015-164.html https://www.sec.gov/news/pressrelease/2015-164.html

I assume you're referring to the Virtu statement that they only lost money on one day? That's true (or nearly true) of good HFT shops in general. The type of trading that HFTs do (market making, short term predictions) is generally less risky than long term investments. Also, the risk/reward of this trading is realized over minutes, not over weeks/years. So just as a hedge fund might have an unprofitable week but a good year, an HFT has a bad 20 minutes but over the whole day comes out on top. For Renaissance, maybe they are truly smarter than the rest of the market or at least able to act on good trades before anyone else. I wouldn't discount foul play though.

deleted 10y ago
[deleted]
deepnotderp 10y ago
I'd really be interested to know about the foul play angle, but firms like these buy drone and satellite data, surely they have some information advantage?
- vostok 10y ago
  One could make the argument that their use of basket options was not uncontroversial.
- physguy1123 10y ago
  Well, the thing is that other extremely good firms buy drone and satellite data, and other firms also pay the top rate to extremely good people, and etc. So either RenTech is somehow consistently wildly smarter than the rest of the industry through some completely unknown secret, or something else is up. They might be using insider information, they might have a deal with someone news firms* to get news early, they might use illegal order execution techniques. There's a whole slew of things they might be doing to get an advantage. Maybe they use funds other than Medallion (the super good one) as a testbed for strategies and deploy the really good ones to their best fund. FWIW, I don't think funds started by anybody who left there are as successful so the secrets aren't leaving. * A friend of mine in the hft industry told an interesting story to me. A high-speed news wire was very predictive of when orders relevant to the news would get run over - except backwards in time. The news was consistently a few minutes late. So either the high-speed news wire was laughably worse than the competition or somebody was getting news early through illicit means.

dxhdr 10y ago

HFTs like Virtu are just front-running, scamming retail investors like you and I out of pennies on every trade. There's no trading or investing happening here, just arbitraging broken market rules. HFTs don't destroy the notion set forth in the featured article because they aren't involved in the same game.

vostok 10y ago
> HFTs like Virtu are just front-running, scamming retail investors like you and I out of pennies on every trade. There's no trading or investing happening here, just arbitraging broken market rules. Do you happen to have a reference for this? This does not seem to match my personal observations, but I could be missing something.
- dxhdr 10y ago
  Flash Boys by Michael Lewis is a good place to start.
physguy1123 10y ago
It's interesting you say that because the only group most agree is helped by HFT is retail investors, because you are getting a much better price on trades and aren't moving the market. Edit: If you want a high level overview, there's this article: https://origin-www.bloombergview.com/articles/2016-02-25/-flash-boys-exchange-isn-t-about-the-little-guy https://origin-www.bloombergview.com/articles/2016-02-25/-fl... Or just go find spread sizes in say 1990 or 1995, notice that they are far larger. Edit 2: Also, HFTs can't see your orders before they hit the market, despite what everyone seems to think after reading flash boys. And the idea that HFTs mostly do latency arbitrage is flat out wrong as well.
- dxhdr 10y ago
  > Also, HFTs can't see your orders before they hit the market, despite what everyone seems to think after reading flash boys. And the idea that HFTs mostly do arbitrage is flat out wrong as well. Not true: https://www.sec.gov/news/pressrelease/2015-164.html https://www.sec.gov/news/pressrelease/2015-164.html