5 ms·

What they actually do: colocated servers next to the exchange collecting $0.0000001 per trade with nanosecond latency. Create mystique of doing spooky AI to ge

by zelly 7y ago

What they actually do: colocated servers next to the exchange collecting $0.0000001 per trade with nanosecond latency. Create mystique of doing spooky AI to get more capital which they use to hedge even more trades/second, making more money, which they then attribute to AI which gets them even more capital.

Beefin 7y ago
They’re creating liquidity !! /s
anonu 7y ago
So much negativity in this thread.
throwawaymath 7y ago
That's part of it, but HFT is also a pretty saturated field. It's typically not enough to be fast and physically near the exchange these days; that's a necessary but insufficient condition. A lot of nontrivial math and CS is still poured into HFT at places like Two Sigma, Jump and Hudson River Trading.
skunkworker 7y ago
Time to make your own microwave network
mjfl 7y ago
I like that it's become a common understanding that AI research is most effective in the marketing department.
vecter 7y ago
If you knew anything about HFT, you'd know that speed got arbitraged out more than a decade ago. Everyone is fast now. In order to make money, you need true alpha and predictive ability. It's sad to see you disparage their impressive achievements when what they've done is incredibly difficult to accomplish, especially as such a latecomer. I know because I tried it myself ten years ago when it was even less competitive and couldn't make it work.
- continuations 7y ago
  How does XTX differ from a firm like Renaissance Tech?
  - qeternity 7y ago
    Impossible to really say without splitting RenTech into its different funds (you're probably referring to Medallion) and knowing what the underlying strats are. But at a high level the difference between MMs and quant funds are AUM which means different time horizons. An MM might have a time horizon measured in mics to seconds, and might be focused on micro market analysis like the balance of order book over the next 1,000 microseconds. RenTech (likely) can't deploy all of their capital in these types of strategies so they focus on strats with better liquidity and almost certainly longer time horizons (minutes to hours and days, possibly weeks for more CTA style strats). And at the opposite end of the spectrum, Berkshire can deploy tens of billions in a single trade, but that means an investment horizon of years to decades.
- PopeDotNinja 7y ago
  The real money is probably made by you renting out the server racks close to the exchanges!
  - kasey_junk 7y ago
    Lots of exchanges now capture that themselves.
- rrauenza 7y ago
  When you say “speed got arbitraged out” — what does that mean?
  - smabie 7y ago
    It means that it’s no longer profitable for the vast majority of firms that used to do latency arb. Most of those firms have either gone out of business or managed to discover less obvious signals
Abishek_Muthian 7y ago
In India, the exchange was bribed to have the servers within the exchange for algo trading by some high profile institutional traders! [1]https://wikipedia.org/wiki/NSE_co-location_scam https://wikipedia.org/wiki/NSE_co-location_scam
- zorked 7y ago
  Is this fraud in India? I think most stock markets sell this as a service.
  - Abishek_Muthian 7y ago
    At that point SEBI (SEC equivalent) didn't permit exchanges to do it and were in the process of forming co-location guidelines, but this exchange went ahead and gave preferential treatment to few traders.
smabie 7y ago
You can’t make less than a cent per trade in most markets. The bid-ask spread can never be less than a cent. I guess you could make less than cent with commissions, but you certainly can’t make $0.0000001.
- notavalleyman 7y ago
  This is a result of the common Maker/Taker pricing model. [1] Those who "make" liquidity by publicly quoting ask/bids are rebated fractions of a cent when their orders are filled, and those who "take" liquidity by exercising the Maker's position are charged. This is separate to the spreads. The book Flash Boys has a very good explanation of the model. [1] https://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp https://www.investopedia.com/articles/active-trading/042414/...
  - deleted 7y ago
    [deleted]
- cheez 7y ago
  * Number of trades = 100000 * Number of successful trades = 1 * Number of unsuccessful trades = 999,999 * Profit on successful trade = 1000000 * Loss on each unsuccessful trade = -1 * Net profit: $1 * Net profit/trade: $0.00001
  - smabie 7y ago
    Well if we’re averaging, sure. But that’s not what the parent is talking about. Moreover, what you’re describing isn’t a HFT strategy, it’s an investment strategy.
    - cheez 7y ago
      No, that is how you think about high frequency trades. Lots of trades in a small amount of time, with a tiny positive expectancy.

by zelly 7y ago

Beefin 7y ago

They’re creating liquidity !! /s

anonu 7y ago

So much negativity in this thread.

throwawaymath 7y ago

That's part of it, but HFT is also a pretty saturated field. It's typically not enough to be fast and physically near the exchange these days; that's a necessary but insufficient condition. A lot of nontrivial math and CS is still poured into HFT at places like Two Sigma, Jump and Hudson River Trading.

skunkworker 7y ago

Time to make your own microwave network

mjfl 7y ago

I like that it's become a common understanding that AI research is most effective in the marketing department.

vecter 7y ago

If you knew anything about HFT, you'd know that speed got arbitraged out more than a decade ago. Everyone is fast now. In order to make money, you need true alpha and predictive ability. It's sad to see you disparage their impressive achievements when what they've done is incredibly difficult to accomplish, especially as such a latecomer. I know because I tried it myself ten years ago when it was even less competitive and couldn't make it work.

continuations 7y ago
How does XTX differ from a firm like Renaissance Tech?
- qeternity 7y ago
  Impossible to really say without splitting RenTech into its different funds (you're probably referring to Medallion) and knowing what the underlying strats are. But at a high level the difference between MMs and quant funds are AUM which means different time horizons. An MM might have a time horizon measured in mics to seconds, and might be focused on micro market analysis like the balance of order book over the next 1,000 microseconds. RenTech (likely) can't deploy all of their capital in these types of strategies so they focus on strats with better liquidity and almost certainly longer time horizons (minutes to hours and days, possibly weeks for more CTA style strats). And at the opposite end of the spectrum, Berkshire can deploy tens of billions in a single trade, but that means an investment horizon of years to decades.
PopeDotNinja 7y ago
The real money is probably made by you renting out the server racks close to the exchanges!
- kasey_junk 7y ago
  Lots of exchanges now capture that themselves.
rrauenza 7y ago
When you say “speed got arbitraged out” — what does that mean?
- smabie 7y ago
  It means that it’s no longer profitable for the vast majority of firms that used to do latency arb. Most of those firms have either gone out of business or managed to discover less obvious signals

Abishek_Muthian 7y ago

In India, the exchange was bribed to have the servers within the exchange for algo trading by some high profile institutional traders! [1]https://wikipedia.org/wiki/NSE_co-location_scam https://wikipedia.org/wiki/NSE_co-location_scam

zorked 7y ago
Is this fraud in India? I think most stock markets sell this as a service.
- Abishek_Muthian 7y ago
  At that point SEBI (SEC equivalent) didn't permit exchanges to do it and were in the process of forming co-location guidelines, but this exchange went ahead and gave preferential treatment to few traders.

smabie 7y ago

You can’t make less than a cent per trade in most markets. The bid-ask spread can never be less than a cent. I guess you could make less than cent with commissions, but you certainly can’t make $0.0000001.

notavalleyman 7y ago
This is a result of the common Maker/Taker pricing model. [1] Those who "make" liquidity by publicly quoting ask/bids are rebated fractions of a cent when their orders are filled, and those who "take" liquidity by exercising the Maker's position are charged. This is separate to the spreads. The book Flash Boys has a very good explanation of the model. [1] https://www.investopedia.com/articles/active-trading/042414/what-makertaker-fees-mean-you.asp https://www.investopedia.com/articles/active-trading/042414/...
- deleted 7y ago
  [deleted]
cheez 7y ago
* Number of trades = 100000 * Number of successful trades = 1 * Number of unsuccessful trades = 999,999 * Profit on successful trade = 1000000 * Loss on each unsuccessful trade = -1 * Net profit: $1 * Net profit/trade: $0.00001
- smabie 7y ago
  Well if we’re averaging, sure. But that’s not what the parent is talking about. Moreover, what you’re describing isn’t a HFT strategy, it’s an investment strategy.
  - cheez 7y ago
    No, that is how you think about high frequency trades. Lots of trades in a small amount of time, with a tiny positive expectancy.