7 ms·

I worked in this industry. 2 more common issues: * Doing a latency-sensitive trade when you don't have good execution. It's easy to go wild in simulation and t

I worked in this industry. 2 more common issues: * Doing a latency-sensitive trade when you don't have good execution. It's easy to go wild in simulation and think you can flip in and out of positions. But if you're a retail trader (and in this context, by that I mean "not connected directly to the exchanges, at the minimum") * Not taking into account the impact of your own trading on markets. This is obviously impossible to really simulate. Sometimes you can ignore it (if there's enough liquidity) but I've seen trades that looked great on paper and when trading at small-ish sizes, but then when you try to crank it up and do more volume, prices run away from you. Obviously, there is money to be made in algo trading. It's big business and obviously not everyone is doing crazy latency sensitive stuff- there are quant trades that you could probably do with execution available to retail traders. And honestly I wouldn't be surprised if some retail traders manage it. But I will say that I think for an individual, it's not worth the effort even if you are ones of the ones who can consistently make a profit. Just buy sp500 ETFs and sit on them and do something else with your time.

sitzkrieg 6y ago
same here, aits definitely worth pointing out (as you me tion) simulating execution and realisitic fills (and dont forget rt commissions!) is extremely difficult and also will absolutely kill strategies that casually look profitable
IgorPartola 6y ago
Would you mind if I asked you a question since I have never worked in this industry but did play with crypto trading a while back. Before Mt Gox was shut down I was trading on a couple of tertiary small exchanges and at the time there was a lot of talk of arbitrage between different exchanges and how transaction latency and fees made it very risky at best and a losing proposition in most cases. But what I was wondering about is whether in a situation like that (one large exchange dominating the market, several smaller exchanges trading the same commodity) if it was possible to use the large exchange as a sort of oracle. Essentially my hypothesis was that Mt Gox sets the price and other exchanges follow on a delay so if I watch Mt Gox I can predict where the price on the secondary exchanges will go a few seconds to a few minutes ahead of it moving. I ran a bunch of historical data through some basic analysis scripts and noticed that indeed there was a pattern but when I actually implemented a bot to trade BTC it lost money more often than not. I am curious if (a) that idea has any validity and (b) was me losing money on this strategy due to latency and implementation errors or due to some fundamental principle of trading that I am missing.
- lordnacho 6y ago
  Quant trading guy here. Most likely your simulation didn't account for market impact. It's maybe the hardest bit. See liquidity based bullet points above. Other place to look is whether the data was recorded with timestamps of where the trading happened, but you probably thought of that one. Idea makes sense though.
  - IgorPartola 6y ago
    I was moving very small amounts. I think my Max trade was set at like $50 equivalent so it wasn’t anything crazy. It seems my main issue was latency and not realizing that my time scales should have been significantly shorter.
- caffeine 6y ago
  Your idea is right but the timescale is much shorter. Essentially it's a race. And in 2014 you could make good money doing exactly what you described, the timescale was millis. In 2016-2017 even more money, but different venues. What you are describing is the most basic, canonical form of latency arbitrage. That idea is implemented widely in the HFT industry across all sorts of products, not just crypto, with billions spent on trading the information faster (Source: this is my job).
  - andrepd 6y ago
    Honest question: do you feel comfortable knowing that your job is doing something which is essentially net zero value to society? Negative in fact, you're burning resources which are needed elsewhere, and contributing to concentration of wealth. Not being rude or judgemental, just want to know how you feel about this.
    - KittenInABox 6y ago
      Intuitively, providing more flow + allowing more efficient allocation of resources via algo is pretty valuable to society. Problem is that society is squandering that efficiency.
tim333 6y ago
>prices run away from you I've found that stuff a lot. People forget that on the other end of the price is a thinking human or robo delegate thereof trying to outsmart you. It's really hard to say what will happen until you try it with real money / assets.
UnpossibleJim 6y ago
I see a question, so I'm sorry to ask another but as someone who hasn't done algo trading I'm curious. How quickly are you actually able to trade. I understand with low level trading, through a broker, the trades can be pretty instantaneous. On penny stocks, though, sans broker and with just an API or website that you set up with a field bot, how quickly can you expect for these trades to go through, really? I hear these horrid tales of people killing themselves over bad trades and lines of credit and I wonder how much is poorly written code and how much is the chaos and whim of the market (don't worry, I'm not going to try algo trading).

sitzkrieg 6y ago

same here, aits definitely worth pointing out (as you me tion) simulating execution and realisitic fills (and dont forget rt commissions!) is extremely difficult and also will absolutely kill strategies that casually look profitable

IgorPartola 6y ago

Would you mind if I asked you a question since I have never worked in this industry but did play with crypto trading a while back. Before Mt Gox was shut down I was trading on a couple of tertiary small exchanges and at the time there was a lot of talk of arbitrage between different exchanges and how transaction latency and fees made it very risky at best and a losing proposition in most cases. But what I was wondering about is whether in a situation like that (one large exchange dominating the market, several smaller exchanges trading the same commodity) if it was possible to use the large exchange as a sort of oracle. Essentially my hypothesis was that Mt Gox sets the price and other exchanges follow on a delay so if I watch Mt Gox I can predict where the price on the secondary exchanges will go a few seconds to a few minutes ahead of it moving. I ran a bunch of historical data through some basic analysis scripts and noticed that indeed there was a pattern but when I actually implemented a bot to trade BTC it lost money more often than not. I am curious if (a) that idea has any validity and (b) was me losing money on this strategy due to latency and implementation errors or due to some fundamental principle of trading that I am missing.

lordnacho 6y ago
Quant trading guy here. Most likely your simulation didn't account for market impact. It's maybe the hardest bit. See liquidity based bullet points above. Other place to look is whether the data was recorded with timestamps of where the trading happened, but you probably thought of that one. Idea makes sense though.
- IgorPartola 6y ago
  I was moving very small amounts. I think my Max trade was set at like $50 equivalent so it wasn’t anything crazy. It seems my main issue was latency and not realizing that my time scales should have been significantly shorter.
caffeine 6y ago
Your idea is right but the timescale is much shorter. Essentially it's a race. And in 2014 you could make good money doing exactly what you described, the timescale was millis. In 2016-2017 even more money, but different venues. What you are describing is the most basic, canonical form of latency arbitrage. That idea is implemented widely in the HFT industry across all sorts of products, not just crypto, with billions spent on trading the information faster (Source: this is my job).
- andrepd 6y ago
  Honest question: do you feel comfortable knowing that your job is doing something which is essentially net zero value to society? Negative in fact, you're burning resources which are needed elsewhere, and contributing to concentration of wealth. Not being rude or judgemental, just want to know how you feel about this.
  - KittenInABox 6y ago
    Intuitively, providing more flow + allowing more efficient allocation of resources via algo is pretty valuable to society. Problem is that society is squandering that efficiency.

tim333 6y ago

>prices run away from you I've found that stuff a lot. People forget that on the other end of the price is a thinking human or robo delegate thereof trying to outsmart you. It's really hard to say what will happen until you try it with real money / assets.

UnpossibleJim 6y ago

I see a question, so I'm sorry to ask another but as someone who hasn't done algo trading I'm curious. How quickly are you actually able to trade. I understand with low level trading, through a broker, the trades can be pretty instantaneous. On penny stocks, though, sans broker and with just an API or website that you set up with a field bot, how quickly can you expect for these trades to go through, really? I hear these horrid tales of people killing themselves over bad trades and lines of credit and I wonder how much is poorly written code and how much is the chaos and whim of the market (don't worry, I'm not going to try algo trading).