9 ms·

Tradebot had zero trade-lose days in last 4 years

109 points by sandee 16y ago

wglb 16y ago
“Several high-frequency trading firms that I know about stayed in the market that day,” he said, “and had their best day of the year.” Some of the very biggest HFT players stayed in the market, partly because they are obligated to being liquidity providers, and retrospectively because it became a very good day for those that did.
bryanh 16y ago
I'm dubious on this matter. While, yes, high frequency traders are (in some ways) making the market more efficient, it is still extremely difficult to think that a hyper-efficient but potentially unstable market is preferable to a moderately-efficient but much more robust market. I mean, a bug in my coding means someone potentially doesn't get an email with a download link. A bug in theirs potentially means millions of shares are tossed around, possibly even confusing other "well-coded" terminals to trigger a feedback loop. I am interested to know if the stop command was a "save your own skin" move or a "save the market" safeguard.
- _delirium 16y ago
  It seems like they're most likely to perform a positive service if they're a minority of trades, also. Pretty much any kind of market starts going wonky when the people using the market for its official purpose (buying/selling the underlying entity due to real demand for it) aren't a comfortable majority of total transactions. You end up with weird feedback effects where the market looks more like a dynamical system responding to its internal patterns, rather than a clearing-house for settling external supply/demand.
- losvedir 16y ago
  >I am interested to know if the stop command was a "save your own skin" move or a "save the market" safeguard. Definitely "save your own skin." The consequences can be dire when trades are "busted" (as many were). Consider this hypothetical situation: Shares of a stock are trading at $50. After that plunge on Thursday, it's trading at $18, and an algorithm jumps in. The shares rally and at $22, the algorithm sells the shares for a quick profit, and calls it a day. The shares go back to $45 by the end of the day. (This is basically what happened). The next day, NASDAQ rules that all trades at a price below 40% of the price before the plunge [are invalid](http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Number+of+Trades,+But+Says+Its+System+Ran+Problem-Free+During+the+Crash/5607699.html http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Nu...). Now that purchase at $18 didn't happen, but the sale at $22 did, and the high frequency trader is short the stock at $22, with the current price $45. That's why lots of high frequency trading shops shut down when trades are in danger of being busted. Note: I don't do high frequency trading, this was just from interested reading after that plunge happened last Thursday. It seems bizarre to me that they can rule a purchase invalid but keep the sale, but I believe that's what happens.
  - djb_hackernews 16y ago
    Can I get a link to that? Not doubting you, but I am very skeptical. That seems like a nightmare for whoever has to find those shares to fill the short order.
    - losvedir 16y ago
      I wish I could find a good source. Basically I heard it from people like these (http://www.elitetrader.com/vb/showthread.php?threadid=198241 http://www.elitetrader.com/vb/showthread.php?threadid=198241), but I don't know for sure they're not just echoing what they heard (like I just did). There was one guy I remember reading, who seemed pretty authoritative, who echoed it, but I can't find a link to him.
  - bryanh 16y ago
    That explains it very well. I wasn't entirely sure if the stop command came from fear of retribution as the house came tumbling down or not. It was pretty apparent it was a self-made decision.
brown9-2 16y ago
Unlike old-fashioned specialists on the New York Stock Exchange, who are obligated to stay in the market whether it is rising or falling, high-frequency traders can walk away at any time. Can anyone explain what the first half of this sentence means?
- deleted 16y ago
  [deleted]
  - deleted 16y ago
    [deleted]
- njl 16y ago
  I am not a Wall Street expert, by any means, but... The NYSE has guys (mostly guys) who stand around on the floor and act as market makers for various stocks. They call 'em specialist. They stand around and run the auctions for shares, match up bids and so on. Basically, they make sure that if you want to sell a stock, there is somebody buying, and vice-versa. This is their business, and they can't just throw up their hands and wander away, ruining the market in some given stock. The high-frequency traders provide a similar function in electronic exchanges. However, they all threw up their hands and walked away, exacerbating an already bad situation as the liquidity left the market.
  - losvedir 16y ago
    In addition, I believe they will actually buy shares from you or sell shares to you, in certain circumstances, if there's no one else willing to. That's the key difference the article was referring to.
  - ashika 16y ago
    pretty close. They're talking about designated "market makers" (of which specialists are a subset) who get into a contractual obligation with an exchange to be in certain markets for specified percentages of the trading day. They've been part of the exchange landscape for a long time, and they've been largely displaced by HFT firms. To say that this changing landscape is somehow to blame for the flash crash is dubious, at best, however.
nl 16y ago
Why don't more people do this themselves? Every few months a post like this comes up on HN or Reddit and the general consensus seems to be that Goldman Sachs etc are too smart, too fast and too good to compete with. I got a bit curious and did some digging, and it turns out that yes, some people are doing it themselves, quite successfully. See http://www.elitetrader.com/vb/forumdisplay.php?s=4a039395d01ceaced87f28585ba24e5d&forumid=48 http://www.elitetrader.com/vb/forumdisplay.php?s=4a039395d01... for example. I for one think this looks doable.
- ctkrohn 16y ago
  It is doable, if you have the knowledge and expertise. Many high frequency trading firms are small operations with just a couple people. The stereotype is two dudes and a Bloomberg terminal. Anyone with enough cash can have their servers colo-ed at the exchange. The biggest hurdle is initial capital. You could probably start a semi-respectable HF operation with 5-10mm in tradeable funds.
  - lrm242 16y ago
    You don't need anywhere near 5-10mm. You need about 50k.
- takrupp 16y ago
  The problem is access to liquidity. People do do it themselves, but they can only trade very small amounts of money and thus make only a little return (albeit with pretty limited risk). If you have a good brokerage account (like most prop firms) or are a bank you can essentially trade for free. Your brokerage account will only charge you for the overnight holding as the cost of capital (you get charged transaction costs but no need to buy leverage). So, firms with a good amount of capital can use their balance on a brokerage account and who do not have overnight holding (common for these strategies) essentially don't need capital to trade. Its just how much you want to scale. Also, if something goes wrong, you can lose your capital very quickly. An easy risk to cover for a multi-strategy prop firm, but it could sink an independent trader. I've spoken to a lot of these guys, and a new strategy mysteriously losing 1MM+ in a couple minutes is pretty common. Back to access: The types of connections these firms have to exchanges are very expensive. If you dont have the scale necessary to cover 10k per month per connection than you can't compete with all of the other players in the market. Then it goes down to execution speed, colocation, etc - those are the things that make non-bank prop firms like Tradebot or Getco successful. The strategies are only a part of the equation, the trading systems are what really separates the pack. Most of these firms have way more developers than traders, and the developers they have would make Google jealous.
ctkrohn 16y ago
Firms like this do tens of thousands of trades per day. It's just a consequence of the law of large numbers.
lukifer 16y ago
Much has been made of Kurzweil's idea that computers will eventually overtake the raw processing power of the human brain. I wonder what will happen economically if/when software market algorithms become more efficient than the distributed human-driven algorithms of today. (And I would wager that the latter will happen well before the former.)
- rw 16y ago
  For more on that, you might enjoy Charlie Stross' "Accelerando": he discusses lots of awesome singularity topics, including so-called Economics 2.0. He posts on HN as cstross.
- nl 16y ago
  Software algorithms already are a lot better than humans at technical analysis (http://en.wikipedia.org/wiki/Technical_analysis http://en.wikipedia.org/wiki/Technical_analysis) by almost any measure. There is still some way until they are there in fundamental analysis (http://en.wikipedia.org/wiki/Fundamental_analysis http://en.wikipedia.org/wiki/Fundamental_analysis). I think there are some pretty good opportunities in automated fundamental analysis and trading, though. If I had the capital I'd build a trading bot which traded on the basis of automatic news analysis.
  - secret 16y ago
    I would love to do that too. Here's a head start ("Machine-readable economic indicators from the lockups to your trading algorithm"): http://www.needtoknownews.com/ http://www.needtoknownews.com/
grandalf 16y ago
The entire movement against automated / high frequency trading is a hoax. Remember how much Dick Grasso was paid as head of the NYSE? Typical exchanges charge substantial membership fees and reap massive profits. In the age of computers the traditional exchange becomes a lot less valuable, since it's easy to match buyers and sellers over any computer network. The law requiring all trades to be filled at the lowest price was motivated by major exchanges not wanting to be cut out of the action (even though a trader might be OK with getting not quite the lowest price in exchange for much lower transaction fees overall). Also, the majority of HFT platforms run off of the major exchanges on private networks that only sometimes pass orders on to the rest of the market. The more liquidity/volume occurs on these smaller networks, the less relevant the older established players (NYSE, NASDAQ) become. Exchanges have traditionally been gatekeepers charging fees to use their monopoly product. This battle has been going on for a long time (and so far the upstarts have been winning in spite of the hurdles imposed by the influential old timers). FUD about algorithm based trading strategies is just a part of this larger battle and it's 100% nonsense.
- nl 16y ago
  I mostly agree with this. I do think that there seem to be some problems with the "PRICE TIME" rule. My understanding is that is supposed to mean that if two orders get placed at the same price, then the one placed first gets filled first. However, it appears possible for some players to work around this rule and jump in first. That seems unfair to me. Tradeworx says this too: Jumping ahead of an order that was placed earlier at the same price by another trader is an UNFAIR practice, because it undermines the principle of PRICE-TIME priority on which our equity markets are premised Unfortunately, this UNFAIR practice is widespread, due to a deficiency in Rule 611 of Regulation NMS HFTs should not be blamed for exploiting it – in fact, many HFTs who exploit this deficiency do so unwittingly Instead, the regulators should work to correct this deficiency in the market structure ASAP ! (page 17, http://sec.gov/comments/s7-02-10/s70210-129.pdf http://sec.gov/comments/s7-02-10/s70210-129.pdf)
- joe_the_user 16y ago
  Hmm, So it doesn't bother you that this "investment" doesn't have any relation to building productive enterprises of any sort? One might might think that the nastiness of 2008 would wake people up to the idea that markets can generate destructive speculation as well as constructive investment. But fixed ideas mostly resist reality. And contrasting the NYSE profiteering to high frequency profiteering is kind of false argument. It's more a matter that deregulation has been a disaster and the situation cries for a modern version of re-regulation - except that the inmates are still well in control of the asylum.
tokenadult 16y ago
"Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said." Bernard Madoff used to have a reputation like that. I rather suspect that the only way to be a winner that consistently is to do something as shady as what Madoff did. After edit: noting downvote, I'll give one example of a possible shady practice in this industry mentioned in other comments on this thread. Not following the price time rule, which the trader mentioned in this thread says can happen "unwittingly," despite a regulation requiring the first order placed to be the first order filled.
- nl 16y ago
  can happen "unwittingly," despite a regulation requiring the first order placed to be the first order filled You put quotes around "unwittingly" like you don't believe it. It really is unwittingly - the high frequency shop submits a bid at the same time as another place (or even afterwards), but the exchange fulfills the HF order first. See page 17 in http://sec.gov/comments/s7-02-10/s70210-129.pdf http://sec.gov/comments/s7-02-10/s70210-129.pdf for how it occurs and page 18 for some real world examples.
  - tokenadult 16y ago
    In a given trade, the violation of the price time rule may be inadvertent, but evidently the pattern that this happens is well known. So I put the word "unwittingly" in quotation marks, not to show exactly that I don't believe it, but to adopt the exact language that was quoted in this thread. And now I raise the question: if the trades that violate the price time rule cease, how different would the performance of the traders be? Does this known phenomenon of violating the regulation have a predictable effect on some kinds of trades that is different from faultlessly following the regulation?
    - nl 16y ago
      if the trades that violate the price time rule cease, how different would the performance of the traders be? "Empirically there is a 1.7 cps difference in profitability for a posted share that is first in line vs one which is last in line" (pg 17 from the document linked above. You have read, that, right?) There's what sounds like a reasonable proposal in that document too.
jaekwon 16y ago
I guess it makes complete sense that the markets would plunge simultaneously. Tradeworks had to dump their inventory all at once, otherwise other high frequency tradebots would have been tipped off. BTW, that high frequency trading is good for the market because they provide liquidity, is bullshit. High frequency traders do not trade in stocks with low volume (because it is risky), so they don't add any liquidity that wasn't already there. There's no legitimate reason, AFAIK, for high frequency trading to be allowed. All they do is syphon away our milkshake in transit from Alice to Bob, because their speed allows them to. We should be taxing these quick buy-sell trades. At least that way more of the money goes to benefit society. Some equation that taxes at the rate of: 80% profit tax for selling stocks held 10 minutes 50% profit tax for selling stocks held 1 hour 10% profit tax for selling stocks held 24 hours no tax for selling stocks held 1 week seems quite fair, would have zero impact for real investors (who are investing in wealth creation, not money creation), eliminate these crazy price fluctuations (that could damage unsuspecting investors' portfolios with stop-sell orders that were meant to protect their investments), and generally help everyone live more meaningful lives.
- yummyfajitas 16y ago
  High frequency traders do not trade in stocks with low volume (because it is risky), so they don't add any liquidity that wasn't already there. Utter nonsense. Many HFT firms trade low volume stocks - low volume stocks have a smaller number of trades, but a higher margin per trade.
  - jaekwon 16y ago
    OK, but we're probably just arguing about definitions. My argument remains that whatever benefit of liquidity that is injected into the market by HFT is offset by the margins that they take away.
- fr0sty 16y ago
  This would have massive impact on 'real' investors. If people could not profitably take on short term positions most of the liquidity in markets would dry up. Market Makers and HFT trading groups comprise the great majority of displayed liquidity (and this is precisely the liqudity accessed by 'real' investors when they wish to buy or sell). If that liquidity is removed spreads would widen and 'real' investors would take the hit. On a larger scale imagine a state pension fund or a large mutual fund that has $X billion which it needs to invest in the newly illiquid markets how much price impact will their 2M share order for Ford have now?
megamark16 16y ago
So, this is kind of off topic, but the guys from Tradebot also run a local venture fund called Tradebot Ventures (http://tradebotventures.com http://tradebotventures.com) that the last company I worked at was funded through. The founder, Dave Cummings, also founded a stock exchange here in Kansas City called Bats Exchange, where one of my brothers works.
jcnnghm 16y ago
Can anyone in algorithmic trading/investment software suggest a good place to start reading and learning about the subject? In particular, I'd like to learn about investment strategies and algorithmic trading. It seems like many of you work in the field and know quite a bit about the subject, whereas some of us are on the outside trying to look in.

109 points by sandee 16y ago

wglb 16y ago

“Several high-frequency trading firms that I know about stayed in the market that day,” he said, “and had their best day of the year.” Some of the very biggest HFT players stayed in the market, partly because they are obligated to being liquidity providers, and retrospectively because it became a very good day for those that did.

bryanh 16y ago

I'm dubious on this matter. While, yes, high frequency traders are (in some ways) making the market more efficient, it is still extremely difficult to think that a hyper-efficient but potentially unstable market is preferable to a moderately-efficient but much more robust market. I mean, a bug in my coding means someone potentially doesn't get an email with a download link. A bug in theirs potentially means millions of shares are tossed around, possibly even confusing other "well-coded" terminals to trigger a feedback loop. I am interested to know if the stop command was a "save your own skin" move or a "save the market" safeguard.

_delirium 16y ago
It seems like they're most likely to perform a positive service if they're a minority of trades, also. Pretty much any kind of market starts going wonky when the people using the market for its official purpose (buying/selling the underlying entity due to real demand for it) aren't a comfortable majority of total transactions. You end up with weird feedback effects where the market looks more like a dynamical system responding to its internal patterns, rather than a clearing-house for settling external supply/demand.
losvedir 16y ago
>I am interested to know if the stop command was a "save your own skin" move or a "save the market" safeguard. Definitely "save your own skin." The consequences can be dire when trades are "busted" (as many were). Consider this hypothetical situation: Shares of a stock are trading at $50. After that plunge on Thursday, it's trading at $18, and an algorithm jumps in. The shares rally and at $22, the algorithm sells the shares for a quick profit, and calls it a day. The shares go back to $45 by the end of the day. (This is basically what happened). The next day, NASDAQ rules that all trades at a price below 40% of the price before the plunge [are invalid](http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Number+of+Trades,+But+Says+Its+System+Ran+Problem-Free+During+the+Crash/5607699.html http://www.streetinsider.com/Insiders+Blog/NASDAQ+Busts+A+Nu...). Now that purchase at $18 didn't happen, but the sale at $22 did, and the high frequency trader is short the stock at $22, with the current price $45. That's why lots of high frequency trading shops shut down when trades are in danger of being busted. Note: I don't do high frequency trading, this was just from interested reading after that plunge happened last Thursday. It seems bizarre to me that they can rule a purchase invalid but keep the sale, but I believe that's what happens.
- djb_hackernews 16y ago
  Can I get a link to that? Not doubting you, but I am very skeptical. That seems like a nightmare for whoever has to find those shares to fill the short order.
  - losvedir 16y ago
    I wish I could find a good source. Basically I heard it from people like these (http://www.elitetrader.com/vb/showthread.php?threadid=198241 http://www.elitetrader.com/vb/showthread.php?threadid=198241), but I don't know for sure they're not just echoing what they heard (like I just did). There was one guy I remember reading, who seemed pretty authoritative, who echoed it, but I can't find a link to him.
- bryanh 16y ago
  That explains it very well. I wasn't entirely sure if the stop command came from fear of retribution as the house came tumbling down or not. It was pretty apparent it was a self-made decision.

brown9-2 16y ago

Unlike old-fashioned specialists on the New York Stock Exchange, who are obligated to stay in the market whether it is rising or falling, high-frequency traders can walk away at any time. Can anyone explain what the first half of this sentence means?

deleted 16y ago
[deleted]
- deleted 16y ago
  [deleted]
njl 16y ago
I am not a Wall Street expert, by any means, but... The NYSE has guys (mostly guys) who stand around on the floor and act as market makers for various stocks. They call 'em specialist. They stand around and run the auctions for shares, match up bids and so on. Basically, they make sure that if you want to sell a stock, there is somebody buying, and vice-versa. This is their business, and they can't just throw up their hands and wander away, ruining the market in some given stock. The high-frequency traders provide a similar function in electronic exchanges. However, they all threw up their hands and walked away, exacerbating an already bad situation as the liquidity left the market.
- losvedir 16y ago
  In addition, I believe they will actually buy shares from you or sell shares to you, in certain circumstances, if there's no one else willing to. That's the key difference the article was referring to.
- ashika 16y ago
  pretty close. They're talking about designated "market makers" (of which specialists are a subset) who get into a contractual obligation with an exchange to be in certain markets for specified percentages of the trading day. They've been part of the exchange landscape for a long time, and they've been largely displaced by HFT firms. To say that this changing landscape is somehow to blame for the flash crash is dubious, at best, however.

nl 16y ago

Why don't more people do this themselves? Every few months a post like this comes up on HN or Reddit and the general consensus seems to be that Goldman Sachs etc are too smart, too fast and too good to compete with. I got a bit curious and did some digging, and it turns out that yes, some people are doing it themselves, quite successfully. See http://www.elitetrader.com/vb/forumdisplay.php?s=4a039395d01ceaced87f28585ba24e5d&forumid=48 http://www.elitetrader.com/vb/forumdisplay.php?s=4a039395d01... for example. I for one think this looks doable.

ctkrohn 16y ago
It is doable, if you have the knowledge and expertise. Many high frequency trading firms are small operations with just a couple people. The stereotype is two dudes and a Bloomberg terminal. Anyone with enough cash can have their servers colo-ed at the exchange. The biggest hurdle is initial capital. You could probably start a semi-respectable HF operation with 5-10mm in tradeable funds.
- lrm242 16y ago
  You don't need anywhere near 5-10mm. You need about 50k.
takrupp 16y ago
The problem is access to liquidity. People do do it themselves, but they can only trade very small amounts of money and thus make only a little return (albeit with pretty limited risk). If you have a good brokerage account (like most prop firms) or are a bank you can essentially trade for free. Your brokerage account will only charge you for the overnight holding as the cost of capital (you get charged transaction costs but no need to buy leverage). So, firms with a good amount of capital can use their balance on a brokerage account and who do not have overnight holding (common for these strategies) essentially don't need capital to trade. Its just how much you want to scale. Also, if something goes wrong, you can lose your capital very quickly. An easy risk to cover for a multi-strategy prop firm, but it could sink an independent trader. I've spoken to a lot of these guys, and a new strategy mysteriously losing 1MM+ in a couple minutes is pretty common. Back to access: The types of connections these firms have to exchanges are very expensive. If you dont have the scale necessary to cover 10k per month per connection than you can't compete with all of the other players in the market. Then it goes down to execution speed, colocation, etc - those are the things that make non-bank prop firms like Tradebot or Getco successful. The strategies are only a part of the equation, the trading systems are what really separates the pack. Most of these firms have way more developers than traders, and the developers they have would make Google jealous.

ctkrohn 16y ago

Firms like this do tens of thousands of trades per day. It's just a consequence of the law of large numbers.

lukifer 16y ago

Much has been made of Kurzweil's idea that computers will eventually overtake the raw processing power of the human brain. I wonder what will happen economically if/when software market algorithms become more efficient than the distributed human-driven algorithms of today. (And I would wager that the latter will happen well before the former.)

rw 16y ago
For more on that, you might enjoy Charlie Stross' "Accelerando": he discusses lots of awesome singularity topics, including so-called Economics 2.0. He posts on HN as cstross.
nl 16y ago
Software algorithms already are a lot better than humans at technical analysis (http://en.wikipedia.org/wiki/Technical_analysis http://en.wikipedia.org/wiki/Technical_analysis) by almost any measure. There is still some way until they are there in fundamental analysis (http://en.wikipedia.org/wiki/Fundamental_analysis http://en.wikipedia.org/wiki/Fundamental_analysis). I think there are some pretty good opportunities in automated fundamental analysis and trading, though. If I had the capital I'd build a trading bot which traded on the basis of automatic news analysis.
- secret 16y ago
  I would love to do that too. Here's a head start ("Machine-readable economic indicators from the lockups to your trading algorithm"): http://www.needtoknownews.com/ http://www.needtoknownews.com/

grandalf 16y ago

The entire movement against automated / high frequency trading is a hoax. Remember how much Dick Grasso was paid as head of the NYSE? Typical exchanges charge substantial membership fees and reap massive profits. In the age of computers the traditional exchange becomes a lot less valuable, since it's easy to match buyers and sellers over any computer network. The law requiring all trades to be filled at the lowest price was motivated by major exchanges not wanting to be cut out of the action (even though a trader might be OK with getting not quite the lowest price in exchange for much lower transaction fees overall). Also, the majority of HFT platforms run off of the major exchanges on private networks that only sometimes pass orders on to the rest of the market. The more liquidity/volume occurs on these smaller networks, the less relevant the older established players (NYSE, NASDAQ) become. Exchanges have traditionally been gatekeepers charging fees to use their monopoly product. This battle has been going on for a long time (and so far the upstarts have been winning in spite of the hurdles imposed by the influential old timers). FUD about algorithm based trading strategies is just a part of this larger battle and it's 100% nonsense.

nl 16y ago
I mostly agree with this. I do think that there seem to be some problems with the "PRICE TIME" rule. My understanding is that is supposed to mean that if two orders get placed at the same price, then the one placed first gets filled first. However, it appears possible for some players to work around this rule and jump in first. That seems unfair to me. Tradeworx says this too: Jumping ahead of an order that was placed earlier at the same price by another trader is an UNFAIR practice, because it undermines the principle of PRICE-TIME priority on which our equity markets are premised Unfortunately, this UNFAIR practice is widespread, due to a deficiency in Rule 611 of Regulation NMS HFTs should not be blamed for exploiting it – in fact, many HFTs who exploit this deficiency do so unwittingly Instead, the regulators should work to correct this deficiency in the market structure ASAP ! (page 17, http://sec.gov/comments/s7-02-10/s70210-129.pdf http://sec.gov/comments/s7-02-10/s70210-129.pdf)
joe_the_user 16y ago
Hmm, So it doesn't bother you that this "investment" doesn't have any relation to building productive enterprises of any sort? One might might think that the nastiness of 2008 would wake people up to the idea that markets can generate destructive speculation as well as constructive investment. But fixed ideas mostly resist reality. And contrasting the NYSE profiteering to high frequency profiteering is kind of false argument. It's more a matter that deregulation has been a disaster and the situation cries for a modern version of re-regulation - except that the inmates are still well in control of the asylum.

tokenadult 16y ago

"Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said." Bernard Madoff used to have a reputation like that. I rather suspect that the only way to be a winner that consistently is to do something as shady as what Madoff did. After edit: noting downvote, I'll give one example of a possible shady practice in this industry mentioned in other comments on this thread. Not following the price time rule, which the trader mentioned in this thread says can happen "unwittingly," despite a regulation requiring the first order placed to be the first order filled.

nl 16y ago
can happen "unwittingly," despite a regulation requiring the first order placed to be the first order filled You put quotes around "unwittingly" like you don't believe it. It really is unwittingly - the high frequency shop submits a bid at the same time as another place (or even afterwards), but the exchange fulfills the HF order first. See page 17 in http://sec.gov/comments/s7-02-10/s70210-129.pdf http://sec.gov/comments/s7-02-10/s70210-129.pdf for how it occurs and page 18 for some real world examples.
- tokenadult 16y ago
  In a given trade, the violation of the price time rule may be inadvertent, but evidently the pattern that this happens is well known. So I put the word "unwittingly" in quotation marks, not to show exactly that I don't believe it, but to adopt the exact language that was quoted in this thread. And now I raise the question: if the trades that violate the price time rule cease, how different would the performance of the traders be? Does this known phenomenon of violating the regulation have a predictable effect on some kinds of trades that is different from faultlessly following the regulation?
  - nl 16y ago
    if the trades that violate the price time rule cease, how different would the performance of the traders be? "Empirically there is a 1.7 cps difference in profitability for a posted share that is first in line vs one which is last in line" (pg 17 from the document linked above. You have read, that, right?) There's what sounds like a reasonable proposal in that document too.

jaekwon 16y ago

I guess it makes complete sense that the markets would plunge simultaneously. Tradeworks had to dump their inventory all at once, otherwise other high frequency tradebots would have been tipped off. BTW, that high frequency trading is good for the market because they provide liquidity, is bullshit. High frequency traders do not trade in stocks with low volume (because it is risky), so they don't add any liquidity that wasn't already there. There's no legitimate reason, AFAIK, for high frequency trading to be allowed. All they do is syphon away our milkshake in transit from Alice to Bob, because their speed allows them to. We should be taxing these quick buy-sell trades. At least that way more of the money goes to benefit society. Some equation that taxes at the rate of: 80% profit tax for selling stocks held 10 minutes 50% profit tax for selling stocks held 1 hour 10% profit tax for selling stocks held 24 hours no tax for selling stocks held 1 week seems quite fair, would have zero impact for real investors (who are investing in wealth creation, not money creation), eliminate these crazy price fluctuations (that could damage unsuspecting investors' portfolios with stop-sell orders that were meant to protect their investments), and generally help everyone live more meaningful lives.

yummyfajitas 16y ago
High frequency traders do not trade in stocks with low volume (because it is risky), so they don't add any liquidity that wasn't already there. Utter nonsense. Many HFT firms trade low volume stocks - low volume stocks have a smaller number of trades, but a higher margin per trade.
- jaekwon 16y ago
  OK, but we're probably just arguing about definitions. My argument remains that whatever benefit of liquidity that is injected into the market by HFT is offset by the margins that they take away.
fr0sty 16y ago
This would have massive impact on 'real' investors. If people could not profitably take on short term positions most of the liquidity in markets would dry up. Market Makers and HFT trading groups comprise the great majority of displayed liquidity (and this is precisely the liqudity accessed by 'real' investors when they wish to buy or sell). If that liquidity is removed spreads would widen and 'real' investors would take the hit. On a larger scale imagine a state pension fund or a large mutual fund that has $X billion which it needs to invest in the newly illiquid markets how much price impact will their 2M share order for Ford have now?

megamark16 16y ago

So, this is kind of off topic, but the guys from Tradebot also run a local venture fund called Tradebot Ventures (http://tradebotventures.com http://tradebotventures.com) that the last company I worked at was funded through. The founder, Dave Cummings, also founded a stock exchange here in Kansas City called Bats Exchange, where one of my brothers works.

jcnnghm 16y ago

Can anyone in algorithmic trading/investment software suggest a good place to start reading and learning about the subject? In particular, I'd like to learn about investment strategies and algorithmic trading. It seems like many of you work in the field and know quite a bit about the subject, whereas some of us are on the outside trying to look in.