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There is no way Wall Street is using trades by retail traders as a signal (except maybe to counter-trade them). Also btw Wall Street can easily differentiate tr

by zelly 7y ago

There is no way Wall Street is using trades by retail traders as a signal (except maybe to counter-trade them). Also btw Wall Street can easily differentiate trades made by big players versus hordes of retail traders, because the banks and HFT firms are who executes the trades from retail brokerages. Retail brokerages like Robinhood don't have the authority to execute trades. They subcontract to a HFT firm who then uses the order flow to seek alpha (i.e., countertrade and run circles around clueless retail traders).

vehementi 7y ago
This is not true of Interactive Brokers, right?
- sitzkrieg 7y ago
  They run their own exchange and I'm sure they do order flow rebates so not really, but its not detrimental to retails
hnews_account_1 7y ago
You contradicted your sentences. I do know Robinhood gives zero commission trades by selling order flow data to hft and market making hedge funds but I don't think those funds execute the orders themselves. The orders still go to brokerages I think (may be wrong about this) or just hit Prime Services from non hft hedge fund books. Either way, those hft firms definitely like retail order flow data. My guess is they're easier to "pick nickels in front of steamroller" kinda trades than institutional money which may cause extended one way moves that hits high frequency balanced traders adversely. I'm also entirely talking out of my ass in the last paragraph. I don't actually know that any of what I said is true. Just speculation.
- kgwgk 7y ago
  > selling order flow data to hft and market making hedge funds but I don't think those funds execute the orders themselves The order flow data is worthless (because the orders come from uninformed traders) the value is in filling them without the risk of being shortchanged (because the orders come from uninformed traders).
  - pbhjpbhj 7y ago
    Surely the order flow is mostly going to look like noise, random. But things like local information and employee information would provide some signal - correlated trading patterns - that indicates there could be some information available to inform a trade. Allowing one to either trade on the meta-signal or seek the information behind it (and then trade). So if you've got a company and the city in which it's headquartered just gets a strong buy signal, sure that could be random but I'd imagine ... Surely having the meta-data on who is trading and linking that to trades is the primary benefit?
    - zelly 7y ago
      I would hope that spying on trades of employees of specific companies would be illegal, but it would not surprise me if Wall Street does use that information.
      - randomcarbloke 7y ago
        it isn't illegal and you can do it yourself, there are websites that show in (near) real-time interesting moves by employees/directors of companies liquidating or acquiring shares in their company.
    - kgwgk 7y ago
      You get the orders to fill, not the identity if the counterparty as far as I know.
  - hnews_account_1 7y ago
    1) order flow data is not useless because it comes from uninformed traders. It depends on the model being used. Most hft models aren't even concerned about the inflow of big trades from institutional money. Most of their models are simple short period time series forecasts they trade around. Which means the model is pretty agnostic on where the trades come from as long as enough back tests show that their predictive power is good enough. 2) even if that were not true, hft works on volumes. So I contradict my previous speculative comment by saying this but volumes of institutional flows absolutely dwarves retail flows. You'd have much more opportunities trading around institutional money than retail money.
vostok 7y ago
What does counter trading and running circles around clueless retail traders mean? Is that another way of saying that retail traders buy on the offer and sell on the bid while HFTs buy on the bid and sell on the offer?
- rapsey 7y ago
  HFT = front running
  - vecter 7y ago
    This has been proven false so many times on HN that I can’t even bother to find all of the comments explaining this.
- zelly 7y ago
  > Is that another way of saying that retail traders buy on the offer and sell on the bid while HFTs buy on the bid and sell on the offer? This is market making which is the bread and butter of HFTs. This is the one thing they do which helps, not hurts, human traders. They can do thousands of trades in the time it takes your nervous system to react and click the mouse. They parse a news headline many seconds before it ever shows up on the internet. They rent satellites to count how many trucks leave factories. They have access to person-to-person dark pool trades that never show up on the normal exchanges. Algorithmic trading is a secretive black box, but who knows. These are just my speculations from hearsay and random research. If they can make a fraction of a cent from messing with you, they will. It can scale up infinitely. It's just software--there's no marginal cost to do so, provided they are properly hedged.
  - nickles 7y ago
    Your comment has a lot of misinformation in it. > This is the one thing they do which helps, not hurts, human traders. Providing liquidity is their job, and it benefits the market as a whole. If market making by HFTs is a good thing, it’s difficult to malign those same firms for, well, making markets. > They rent satellites to count how many trucks leave factories. This isn’t their business model in the slightest. Quant funds certainly do this, but HFTs look for alpha in market microstructure. > They have access to person-to-person dark pool trades that never show up on the normal exchanges. Institutional investors can use dark pools to minimize market impact when trade large blocks. HFTs don’t benefit from having limited information on these flows. > Algorithmic trading is a secretive black box Algorithmic trading != HFT in the same manner that a rectangle is not a square. > It can scale up infinitely. HFT strategies don’t scale. ‘Scalable’ strategies support a large amount of capital. HFTs run high sharpe, low capacity strategies.

by zelly 7y ago

vehementi 7y ago

This is not true of Interactive Brokers, right?

sitzkrieg 7y ago
They run their own exchange and I'm sure they do order flow rebates so not really, but its not detrimental to retails

hnews_account_1 7y ago

You contradicted your sentences. I do know Robinhood gives zero commission trades by selling order flow data to hft and market making hedge funds but I don't think those funds execute the orders themselves. The orders still go to brokerages I think (may be wrong about this) or just hit Prime Services from non hft hedge fund books. Either way, those hft firms definitely like retail order flow data. My guess is they're easier to "pick nickels in front of steamroller" kinda trades than institutional money which may cause extended one way moves that hits high frequency balanced traders adversely. I'm also entirely talking out of my ass in the last paragraph. I don't actually know that any of what I said is true. Just speculation.

kgwgk 7y ago
> selling order flow data to hft and market making hedge funds but I don't think those funds execute the orders themselves The order flow data is worthless (because the orders come from uninformed traders) the value is in filling them without the risk of being shortchanged (because the orders come from uninformed traders).
- pbhjpbhj 7y ago
  Surely the order flow is mostly going to look like noise, random. But things like local information and employee information would provide some signal - correlated trading patterns - that indicates there could be some information available to inform a trade. Allowing one to either trade on the meta-signal or seek the information behind it (and then trade). So if you've got a company and the city in which it's headquartered just gets a strong buy signal, sure that could be random but I'd imagine ... Surely having the meta-data on who is trading and linking that to trades is the primary benefit?
  - zelly 7y ago
    I would hope that spying on trades of employees of specific companies would be illegal, but it would not surprise me if Wall Street does use that information.
    - randomcarbloke 7y ago
      it isn't illegal and you can do it yourself, there are websites that show in (near) real-time interesting moves by employees/directors of companies liquidating or acquiring shares in their company.
  - kgwgk 7y ago
    You get the orders to fill, not the identity if the counterparty as far as I know.
- hnews_account_1 7y ago
  1) order flow data is not useless because it comes from uninformed traders. It depends on the model being used. Most hft models aren't even concerned about the inflow of big trades from institutional money. Most of their models are simple short period time series forecasts they trade around. Which means the model is pretty agnostic on where the trades come from as long as enough back tests show that their predictive power is good enough. 2) even if that were not true, hft works on volumes. So I contradict my previous speculative comment by saying this but volumes of institutional flows absolutely dwarves retail flows. You'd have much more opportunities trading around institutional money than retail money.

vostok 7y ago

What does counter trading and running circles around clueless retail traders mean? Is that another way of saying that retail traders buy on the offer and sell on the bid while HFTs buy on the bid and sell on the offer?

rapsey 7y ago
HFT = front running
- vecter 7y ago
  This has been proven false so many times on HN that I can’t even bother to find all of the comments explaining this.
zelly 7y ago
> Is that another way of saying that retail traders buy on the offer and sell on the bid while HFTs buy on the bid and sell on the offer? This is market making which is the bread and butter of HFTs. This is the one thing they do which helps, not hurts, human traders. They can do thousands of trades in the time it takes your nervous system to react and click the mouse. They parse a news headline many seconds before it ever shows up on the internet. They rent satellites to count how many trucks leave factories. They have access to person-to-person dark pool trades that never show up on the normal exchanges. Algorithmic trading is a secretive black box, but who knows. These are just my speculations from hearsay and random research. If they can make a fraction of a cent from messing with you, they will. It can scale up infinitely. It's just software--there's no marginal cost to do so, provided they are properly hedged.
- nickles 7y ago
  Your comment has a lot of misinformation in it. > This is the one thing they do which helps, not hurts, human traders. Providing liquidity is their job, and it benefits the market as a whole. If market making by HFTs is a good thing, it’s difficult to malign those same firms for, well, making markets. > They rent satellites to count how many trucks leave factories. This isn’t their business model in the slightest. Quant funds certainly do this, but HFTs look for alpha in market microstructure. > They have access to person-to-person dark pool trades that never show up on the normal exchanges. Institutional investors can use dark pools to minimize market impact when trade large blocks. HFTs don’t benefit from having limited information on these flows. > Algorithmic trading is a secretive black box Algorithmic trading != HFT in the same manner that a rectangle is not a square. > It can scale up infinitely. HFT strategies don’t scale. ‘Scalable’ strategies support a large amount of capital. HFTs run high sharpe, low capacity strategies.