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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

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.
    - wizzwizz4 6y ago
      The stock market is about allocation of profits, and high-frequency trading is about extracting profits from the profit allocation system. This isn't investment we're talking about; this is the stock market.
  - qw3rty01 6y ago
    This is a pretty loaded question to then say "not trying to be judgemental"...take out the bias if that's actually the case: "What kind of benefit do you believe your work provides to society?" or "How do you justify the extra resources taken away from society that may be more beneficial elsewhere, such as X?"
    - wizzwizz4 6y ago
      I'd argue that “how do you justify” is more loaded. “Do you feel comfortable with [objective description of the reason one might be uncomfortable with it]?” is better than how I'd ask it.
    - andrepd 6y ago
      Well I don't know how to make it less loaded x) It's just how things are, it's a work that does no useful work in any meaningful sense, but serves to make some already fabulously rich people even richer (in fact, it extracts that value from non-HFT traders, so even those are shafted here). My point is that I'm curious regarding how the people who work in these things feel about their job. Do they think they're doing a right thing? Do they "own it" to themselves that they don't care as long as they make money? Do they not think about it too much?

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.
  - wizzwizz4 6y ago
    The stock market is about allocation of profits, and high-frequency trading is about extracting profits from the profit allocation system. This isn't investment we're talking about; this is the stock market.
- qw3rty01 6y ago
  This is a pretty loaded question to then say "not trying to be judgemental"...take out the bias if that's actually the case: "What kind of benefit do you believe your work provides to society?" or "How do you justify the extra resources taken away from society that may be more beneficial elsewhere, such as X?"
  - wizzwizz4 6y ago
    I'd argue that “how do you justify” is more loaded. “Do you feel comfortable with [objective description of the reason one might be uncomfortable with it]?” is better than how I'd ask it.
  - andrepd 6y ago
    Well I don't know how to make it less loaded x) It's just how things are, it's a work that does no useful work in any meaningful sense, but serves to make some already fabulously rich people even richer (in fact, it extracts that value from non-HFT traders, so even those are shafted here). My point is that I'm curious regarding how the people who work in these things feel about their job. Do they think they're doing a right thing? Do they "own it" to themselves that they don't care as long as they make money? Do they not think about it too much?