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Virtu only lost money trading one day out of 1278 trading days between 2009 and 2014. In the most uncharitable analysis (1278/2; or the lost day happened in the

by dsacco 9y ago

Virtu only lost money trading one day out of 1278 trading days between 2009 and 2014. In the most uncharitable analysis (1278/2; or the lost day happened in the middle), they had a 0.5^639 chance of doing that. Maybe you disagree with 0.5 per day. Let's make it 0.9! ...But that's still 5.7 x 10^-30. How many firms do we need to exist for this to emerge by chance? This and website bug bounties being sold on the black market are my two HN crusades. I have heard darts, I have heard coin flipping; I hear all manner of analogies from people who stubbornly insist or strongly imply that consistently, purposely beating the market is infeasible in principle. But no one ever does a modicum of analysis to support whatever trite analogy that's thrown out, they just wave their hands and exclaim, "statistics!". So here is something actually quantifiable. If you have something quantifiable to refute my analysis of your analogy in turn, please share it by all means.

kasey_junk 9y ago
> Virtu only lost money one day out of 1278 trading days Lost money trading. If they made $1 trading that counted though I assure you that day was a loser from a business perspective. I also have not lost money trading in 3 years, simply by not trading at all. It doesn't really detract from your broader point, which I don't have a strong opinion on but that stat is a pet peeve of mine as it's fairly meaningless.
- dsacco 9y ago
  Fair enough, that's correct :) But as you said, it doesn't detract from the point, even if we shift the definition a bit. The likelihood is still clearly beyond what would emerge by chance.
- SEJeff 9y ago
  This is massively incorrect. If Virtu only made $1 trading, they would still make massive amount of $$$ via exchange rebates, as they are a designated market maker. In fact, they aren't the only market maker that does this. A market maker guarantees they'll take trades on both sides of the book, so long as their strategies aren't grotesquely losing, they'll always come out ahead due to exchange rebates. http://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp http://www.investopedia.com/articles/active-trading/042414/w... Source: I worked for Virtu's predecessor Madison Tyler for 4 years and for Virtu after it merged with Madison Tyler for ~8 months and have first hand experience with HFT.
  - tptacek 9y ago
    For whatever it's worth and on the off chance that this short-circuits a really common message board pathology, and allowing that I'm only commenting here because I read all of Kasey's comments: he's got HFT experience too. I think he's just saying that particular metric is missing context: a lot of crappy businesses could claim never to have lost a dollar trading, while still as businesses losing tens or hundreds of millions of dollars chasing, and not finding, profits. I don't think he's arguing specifically that Virtu lost money.
    - SEJeff 9y ago
      Ah fair enough, in that case I'd agree, but it didn't appear to be what he was saying in the comment I responded to. I've got going on 10 years of HFT experience as a Software Eng / Systems monkey and try to at least set the record straight. If you don't understand simple HFT economics such as Maker/Taker rebates, you have absolutely no business whatsoever commenting on market making firms, especially Virtu, which is fundamentally (until they close their KCG acquisition and do execution for more banks at least) a very large and very sophisticated Designated Market Maker. I'm only responding to you, because you're my fav HN personality and tend to have a lot of interesting things to say at ChiSec :)
  - kasey_junk 9y ago
    I actually think that exchange rebates reinforce my point. I've seen algos that would dump trading profit to get their trade levels into particular rebate levels for instance. Those algos would look bad under the metric of "never lost money trading" but look good under the metric of "holistic profitability". I just am annoyed when people site the former when talking about Virtu, both using it pejoratively or in praise of the firm, because I don't think its a terribly useful thing to say. We can judge Virtu the same way we judge every other firm on the planet, by actual profits, there is no need to come up with a new metric for them.
    - dsacco 9y ago
      In fairness, while I agree with your second paragraph, Virtu's example is a very neat case study for the limited dialectic purpose of demonstrating trading consistency, not necessarily profits. I have found that using profits for this particular debate isn't convincing for others, even if it shows a fuller picture; the actual win rate for trades is a simple and quantifiable point to refute comparisons to e.g. coin flipping because it shows that they are capable of doing something over and over in a market that is claimed to be resistant to such a thing.
gd1 9y ago
Yeah this isn't really valid... you can't call what Virtu do 'trading' in the same sense. You're conflating two different things. It would be kind of like calling the Blackjack dealer the best gambler at the table. He's not a gambler, he's just there to facilitate the gambling of others and take a small cut for doing so. Virtu are market makers. They aren't there to pick a direction or express a view or take any long term risk. Gushing about their trading performance is like gushing about McDonalds... oh my god they buy buns and beef and lettuce every day and sell it at a profit!!! Well exactly, that's the business they are in. If a store isn't making money McDonalds would close it down. Virtu quote a bid and an offer in tens of thousands of securities. If they weren't getting enough flow in an instrument to cover their adverse selection costs + fees + fixed costs, they'd shut it down.

by dsacco 9y ago

kasey_junk 9y ago

> Virtu only lost money one day out of 1278 trading days Lost money trading. If they made $1 trading that counted though I assure you that day was a loser from a business perspective. I also have not lost money trading in 3 years, simply by not trading at all. It doesn't really detract from your broader point, which I don't have a strong opinion on but that stat is a pet peeve of mine as it's fairly meaningless.

dsacco 9y ago
Fair enough, that's correct :) But as you said, it doesn't detract from the point, even if we shift the definition a bit. The likelihood is still clearly beyond what would emerge by chance.
SEJeff 9y ago
This is massively incorrect. If Virtu only made $1 trading, they would still make massive amount of $$$ via exchange rebates, as they are a designated market maker. In fact, they aren't the only market maker that does this. A market maker guarantees they'll take trades on both sides of the book, so long as their strategies aren't grotesquely losing, they'll always come out ahead due to exchange rebates. http://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp http://www.investopedia.com/articles/active-trading/042414/w... Source: I worked for Virtu's predecessor Madison Tyler for 4 years and for Virtu after it merged with Madison Tyler for ~8 months and have first hand experience with HFT.
- tptacek 9y ago
  For whatever it's worth and on the off chance that this short-circuits a really common message board pathology, and allowing that I'm only commenting here because I read all of Kasey's comments: he's got HFT experience too. I think he's just saying that particular metric is missing context: a lot of crappy businesses could claim never to have lost a dollar trading, while still as businesses losing tens or hundreds of millions of dollars chasing, and not finding, profits. I don't think he's arguing specifically that Virtu lost money.
  - SEJeff 9y ago
    Ah fair enough, in that case I'd agree, but it didn't appear to be what he was saying in the comment I responded to. I've got going on 10 years of HFT experience as a Software Eng / Systems monkey and try to at least set the record straight. If you don't understand simple HFT economics such as Maker/Taker rebates, you have absolutely no business whatsoever commenting on market making firms, especially Virtu, which is fundamentally (until they close their KCG acquisition and do execution for more banks at least) a very large and very sophisticated Designated Market Maker. I'm only responding to you, because you're my fav HN personality and tend to have a lot of interesting things to say at ChiSec :)
- kasey_junk 9y ago
  I actually think that exchange rebates reinforce my point. I've seen algos that would dump trading profit to get their trade levels into particular rebate levels for instance. Those algos would look bad under the metric of "never lost money trading" but look good under the metric of "holistic profitability". I just am annoyed when people site the former when talking about Virtu, both using it pejoratively or in praise of the firm, because I don't think its a terribly useful thing to say. We can judge Virtu the same way we judge every other firm on the planet, by actual profits, there is no need to come up with a new metric for them.
  - dsacco 9y ago
    In fairness, while I agree with your second paragraph, Virtu's example is a very neat case study for the limited dialectic purpose of demonstrating trading consistency, not necessarily profits. I have found that using profits for this particular debate isn't convincing for others, even if it shows a fuller picture; the actual win rate for trades is a simple and quantifiable point to refute comparisons to e.g. coin flipping because it shows that they are capable of doing something over and over in a market that is claimed to be resistant to such a thing.

gd1 9y ago

Yeah this isn't really valid... you can't call what Virtu do 'trading' in the same sense. You're conflating two different things. It would be kind of like calling the Blackjack dealer the best gambler at the table. He's not a gambler, he's just there to facilitate the gambling of others and take a small cut for doing so. Virtu are market makers. They aren't there to pick a direction or express a view or take any long term risk. Gushing about their trading performance is like gushing about McDonalds... oh my god they buy buns and beef and lettuce every day and sell it at a profit!!! Well exactly, that's the business they are in. If a store isn't making money McDonalds would close it down. Virtu quote a bid and an offer in tens of thousands of securities. If they weren't getting enough flow in an instrument to cover their adverse selection costs + fees + fixed costs, they'd shut it down.