5 ms·

I always wonder if this space hasn’t been entirely cornered by HFTs. Isn’t it futile as an individual?

tsss 4y ago
HFT exploits very short lived movements. If you had some algorithm to predict long-term trends, then you could beat HFT without relying on low latency.
- jjtheblunt 4y ago
  Is that essentially what Warren Buffett and Charlie Munger do?
  - HeyZuess 4y ago
    Buffet and Munger are value investors, there are multiple strategies in both investing and trading. Jim Simmons might be a more relevant example here in regards to trading if you are comparing the two.
    - baq 4y ago
      They are value investors… who definitely know the technicalities of the market, and have at times taken serious size option positions. They say to just buy index funds because otherwise it’s a full time job with all the research and accounting.
robswc 4y ago
>Isn’t it futile as an individual? HFT is, more or less... but algo trading in general can be as simple as executing strategies you would otherwise manually perform. I believe there's still enough alpha out there.
thkim 4y ago
Algo trading != HFT. HFT is a type of algorithmic trading strategies, categorized by trading interval. In the same categorization there are mid-freq strategies as well. The term "high frequency" is rather subjective, it depends on what alpha you're targeting after.
hnthrowaway0315 4y ago
Back in the day I was day trading a stock at a gig that provides high speed internet and professional trading software. Many of us did have medium to long term profitability, so I guess it's the same for algo trading.
paulpauper 4y ago
Someone who merely bought and held tech stocks, like Apple & Nvidia, beat virtually all funds since 2009. There are always ways to make money even when your competitors have such advanced tools. The world of finance is big enough that there are opportunities for players of all sizes and resources. Look how badly AQR has done despite hiring from such a qualified talent pool.
- TuringNYC 4y ago
  >> Someone who merely bought and held tech stocks, like Apple & Nvidia, beat virtually all funds since 2009. This is both absolutely correct, and entirely in-actionable since it uses hindsight. The question would be...what are the two stocks to buy to beat the market for the next 13yrs.
  - paulpauper 4y ago
    It does not have to be as cherrypicked as individual stocks. Even something as broad as 'buying and holding an index fund' beats almost all funds and strategies. Doesn't quant funds also rely on hindsight? There are no guarantees that strategies will keep working.
    - bidirectional 4y ago
      > Even something as broad as 'buying and holding an index fund' beats almost all funds and strategies. How do you come to believe something so blatantly false and naive? Is this due to the proliferation of the (good) advice that most Americans are best off saving for retirement in index funds?
  - ggm 4y ago
    Saturation of markets picked up pace across the 2nd half of the 20th century. Postwar, with transistors, electronic goods went to saturation over decades. Since mobile phones, a localized saturation can happen in 1-2 years. The rate Americans bought washing machines and microwaves changed to the rate americans bought iPods and phones. White goods manufacturers stopped looking like profit machines. Apple has a huge problem now: it's eating it's own market. Believing there is an endless belt of profit owning Apple shares is to ignore the risks of consumers changing their minds about "I need this years iPhone" and sales tanking. I read more people saying "my iPhone 12/13 is still fine" than I read people saying "I want to spend $1500 on an iPhone 15" The cost of being Apple never gets better. They now have exposure to costs they didn't have in 2009. They will have exposure to more costs (s/w complexity, VLSI in-house) and they will have exposure to more market entrants. They are also at risk of supply chain dynamics which could erode profits multi-year if bad enough: imagine if TSMC's yield drops on complex must-have chips? It's force majeure stuff. I certainly wish I'd bought apple in the 2000s or before. I would hesitate to assume its worth owning FAANG stock now, rather than other things (including EFT) The long-term rate of return on investment across markets is 6-7% and being above that for periods is unusual and begs questions.
andreareina 4y ago
HFT is mostly arbitrage, that's why they need the speed to reduce the risk. The rest of algo trading (and quant trading in general) tries to guess which way the market and individual securities will go based on market indicators and work over longer time horizons than HF traders work in. A simple example is that in low interest rate stocks will tend to outperform bonds, so the trade is to go long stocks and short bonds. Of course we expect that simple trades like this quickly be seen to be profitable and do more people do it and so the benefit of doing the trade versus just going long the market (beta) should eventually go down. So quants are always looking for other, more complicated trades as their current ones become less profitable.
Lapsa 4y ago
For an individual - HFT isn't all that accessible. Fees gonna kill ya. But yeah - you just zoom out a little bit and work from there.
- OJFord 4y ago
  Well, latency/capital required to lower it gonna kill ya too. Fees are an issue like the blinds in a pro poker game that you don't have the access to our buy-in for either.
- boshalfoshal 4y ago
  fwiw, med/long term strategies are consideribly more difficult than HFT. Also, depending on the product (options, treasuries, etc.) most firms still have traders to manage strategies. For example, the top Options MM firms (CitSec, SIG, Jane Street, IMC, Optiver...) all have traders. Pure play algos is once again, consideribly harder (for certain products). I still think theres alpha, but I don't think it would be from off the shelf methods that some random youtube trading guru talks about.
ikrenji 4y ago
HFTs is about using c++, putting your box as close to the market computer as possible and building out a private optical fiber from chicago to new york to lower your latency vs competition... algo trading can be anything from putting your personal strategy into code to using machine learning to discover trade signals etc

tsss 4y ago

HFT exploits very short lived movements. If you had some algorithm to predict long-term trends, then you could beat HFT without relying on low latency.

jjtheblunt 4y ago
Is that essentially what Warren Buffett and Charlie Munger do?
- HeyZuess 4y ago
  Buffet and Munger are value investors, there are multiple strategies in both investing and trading. Jim Simmons might be a more relevant example here in regards to trading if you are comparing the two.
  - baq 4y ago
    They are value investors… who definitely know the technicalities of the market, and have at times taken serious size option positions. They say to just buy index funds because otherwise it’s a full time job with all the research and accounting.

robswc 4y ago

>Isn’t it futile as an individual? HFT is, more or less... but algo trading in general can be as simple as executing strategies you would otherwise manually perform. I believe there's still enough alpha out there.

thkim 4y ago

Algo trading != HFT. HFT is a type of algorithmic trading strategies, categorized by trading interval. In the same categorization there are mid-freq strategies as well. The term "high frequency" is rather subjective, it depends on what alpha you're targeting after.

hnthrowaway0315 4y ago

Back in the day I was day trading a stock at a gig that provides high speed internet and professional trading software. Many of us did have medium to long term profitability, so I guess it's the same for algo trading.

paulpauper 4y ago

Someone who merely bought and held tech stocks, like Apple & Nvidia, beat virtually all funds since 2009. There are always ways to make money even when your competitors have such advanced tools. The world of finance is big enough that there are opportunities for players of all sizes and resources. Look how badly AQR has done despite hiring from such a qualified talent pool.

TuringNYC 4y ago
>> Someone who merely bought and held tech stocks, like Apple & Nvidia, beat virtually all funds since 2009. This is both absolutely correct, and entirely in-actionable since it uses hindsight. The question would be...what are the two stocks to buy to beat the market for the next 13yrs.
- paulpauper 4y ago
  It does not have to be as cherrypicked as individual stocks. Even something as broad as 'buying and holding an index fund' beats almost all funds and strategies. Doesn't quant funds also rely on hindsight? There are no guarantees that strategies will keep working.
  - bidirectional 4y ago
    > Even something as broad as 'buying and holding an index fund' beats almost all funds and strategies. How do you come to believe something so blatantly false and naive? Is this due to the proliferation of the (good) advice that most Americans are best off saving for retirement in index funds?
- ggm 4y ago
  Saturation of markets picked up pace across the 2nd half of the 20th century. Postwar, with transistors, electronic goods went to saturation over decades. Since mobile phones, a localized saturation can happen in 1-2 years. The rate Americans bought washing machines and microwaves changed to the rate americans bought iPods and phones. White goods manufacturers stopped looking like profit machines. Apple has a huge problem now: it's eating it's own market. Believing there is an endless belt of profit owning Apple shares is to ignore the risks of consumers changing their minds about "I need this years iPhone" and sales tanking. I read more people saying "my iPhone 12/13 is still fine" than I read people saying "I want to spend $1500 on an iPhone 15" The cost of being Apple never gets better. They now have exposure to costs they didn't have in 2009. They will have exposure to more costs (s/w complexity, VLSI in-house) and they will have exposure to more market entrants. They are also at risk of supply chain dynamics which could erode profits multi-year if bad enough: imagine if TSMC's yield drops on complex must-have chips? It's force majeure stuff. I certainly wish I'd bought apple in the 2000s or before. I would hesitate to assume its worth owning FAANG stock now, rather than other things (including EFT) The long-term rate of return on investment across markets is 6-7% and being above that for periods is unusual and begs questions.

andreareina 4y ago

HFT is mostly arbitrage, that's why they need the speed to reduce the risk. The rest of algo trading (and quant trading in general) tries to guess which way the market and individual securities will go based on market indicators and work over longer time horizons than HF traders work in. A simple example is that in low interest rate stocks will tend to outperform bonds, so the trade is to go long stocks and short bonds. Of course we expect that simple trades like this quickly be seen to be profitable and do more people do it and so the benefit of doing the trade versus just going long the market (beta) should eventually go down. So quants are always looking for other, more complicated trades as their current ones become less profitable.

Lapsa 4y ago

For an individual - HFT isn't all that accessible. Fees gonna kill ya. But yeah - you just zoom out a little bit and work from there.

OJFord 4y ago
Well, latency/capital required to lower it gonna kill ya too. Fees are an issue like the blinds in a pro poker game that you don't have the access to our buy-in for either.
boshalfoshal 4y ago
fwiw, med/long term strategies are consideribly more difficult than HFT. Also, depending on the product (options, treasuries, etc.) most firms still have traders to manage strategies. For example, the top Options MM firms (CitSec, SIG, Jane Street, IMC, Optiver...) all have traders. Pure play algos is once again, consideribly harder (for certain products). I still think theres alpha, but I don't think it would be from off the shelf methods that some random youtube trading guru talks about.

ikrenji 4y ago

HFTs is about using c++, putting your box as close to the market computer as possible and building out a private optical fiber from chicago to new york to lower your latency vs competition... algo trading can be anything from putting your personal strategy into code to using machine learning to discover trade signals etc