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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 ma

by 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.
  - kasey_junk 9y ago
    But when people are talking about coin flipping, they are talking about real profit, not trade PnL. If your overhead to get into a trade is more expensive than the PnL on that trade, your consistent ability to make that trade is not a good thing, and that negative should be counted against your win rate wrt things like the efficient market hypothesis. Again, I actually don't have strong opinions about coin flipping and trading being equivalent (and I think Virtu is likely a bad place to have that conversation vs a hedge fund because its not really an investment firm its an execution one) but I think claiming trading PnL refutes it is wrong.

by SEJeff 9y ago

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.
- kasey_junk 9y ago
  But when people are talking about coin flipping, they are talking about real profit, not trade PnL. If your overhead to get into a trade is more expensive than the PnL on that trade, your consistent ability to make that trade is not a good thing, and that negative should be counted against your win rate wrt things like the efficient market hypothesis. Again, I actually don't have strong opinions about coin flipping and trading being equivalent (and I think Virtu is likely a bad place to have that conversation vs a hedge fund because its not really an investment firm its an execution one) but I think claiming trading PnL refutes it is wrong.