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0+: A double digit Sharpe HFT strategy
- anonymoushn 3y agoIt seems like the information being disseminated by the article is just the mapping between the name and the concept, since every participant already knows that they want to be at the front of big levels and can take from the orders behind them if they don't like the fill.
- VagueMag 3y agoYeah I was hired by a prop trading firm of old Chicago floor traders in 2009 and then shortly asked to come up with an algo strategy in Kospi 200 options, with no help from any experienced algo traders. I worked something out completely on my own which was very similar to 0+, it just follows naturally once you understand the dynamics of a microstructure with low fees and FIFO queues. They really gloss over "getting to the front of a strong queue," which generally requires stacking to many levels of depth in the market (which adds risk), or finding some way to join or remain in weak queues before they become strong, which requires some other method of estimating a theoretical value. Estimating and tracking depth in the queue at each level was definitely a significant part of the more sophisticated code I wrote. The article may overstate the importance of lower latency as well. I definitely was not the fastest at the time, running some fairly non-optimized Java when I knew there were some faster C++ players in the market, and I was still able to do relatively well.
- nurettin 3y agoCan't you start off by spreading your OCO limit orders 10-11 ticks away from the last price and then just wait it out? Those queues are usually very thin.
- VagueMag 3y agoRight, so that's "stacking to many levels of depth." To add some color to my point about how it "adds risk," the day Kim Jong-Il died, the market spiked lower and I was instantly lifted on every stacked offer I had in every put. I managed to recover a bit but it still took out about a quarter of a year's PNL in one fell swoop.
- barnabee 3y agoNobody is going to start the next rentec after reading this article, but for people new to the subject I think it is quite an approachable intro to some of the practicalities of market microstructure and how they affect trading strategies.
- anonymoushn 3y agoIt's helpful, but even after all the work to be on all the right levels one still has a difficult prediction problem to decide when they don't like a fill. I guess the point is that this prediction problem (conditional on fills at front of big queues, should I dump it?) may be easier to make into a profit because your predictions can be of only moderate quality if your downside is just fees. In crypto d1, the fees are maybe small enough to support this, but other concerns make it difficult. As mentioned elsewhere in the comment section, one may learn that their downside is often not just fees.
- barnabee 3y agoYeah, totally, it really just gives a flavour of how the structure of price levels and price/time priority, tick sizes, etc. can create exploitable probabilistic advantages, and I think many folk are not aware of even this. The real environment is absolutely messier and more complex than described by this article. Still, it's a layer deeper than "speed is good", to paraphrase Gordon Gekko.
- VagueMag 3y ago> Top equities on US exchanges like NASDAQ and NYSE might be out of the scope for the average hobby quant, but a thinly traded penny stock, or a low-cap cryptocurrency on a smaller crypto exchange, might not be. These kinds of markets tend to exhibit the kind of price moves and thin liquidity which make pulling off 0+ style trading very difficult.
- KrugerDunnings 3y agoInteresting, everstrike is a option market that sells a type of option they call an everlasting option. They say it was co-invented by non other than SBF: https://www.paradigm.xyz/2021/05/everlasting-options https://www.paradigm.xyz/2021/05/everlasting-options
- yieldcrv 3y agovanilla options (edit: pricing model) were invented by LTCM and they blew up on degenerate bets too looks like it just comes with the predisposition
- 1retep 3y agoI don’t think vanilla options were invented by LTCM. But the pricing model and thereafter the popularity was.
- VagueMag 3y agoVanilla options are hundreds of years old, but Myron Scholes (of the ubiquitous Black-Scholes pricing model) went on to be principal at LTCM.
- anonymoushn 3y agowe need not confuse blowing up one's own portfolio with stealing ten billion dollars
- yieldcrv 3y agowe need not confuse the legitimacy or illegitimacy with the characters involved, since they both mismanaged capital and business
- VagueMag 3y agoFar more money has probably been stolen with the "heads I win, tails you lose" approach -- just put on massive leverage and stick someone else with the bill if it blows up -- than has been stolen by all the Ponzi schemes in history.
- bb88 3y agoI find it interesting how HFT apparently creates no economic value whatsoever. The value is siphoned off more traditional market trades.
- nonethewiser 3y agoLots of things dont create economic value but that doesnt make them bad. Why so you find it interesting?
- Firmwarrior 3y agoHFT is frustrating since it creates dubious value and eats up a lot of technical talent in the process I don't think there's a reasonable way to stamp it out, though.. I guess if IEX's anti-HFT strategies were more ubiquitous it'd transform the HFT industry and maybe calm it down a little?
- kasey_junk 3y agoIEX’s biggest participants are HFT market makers.
- spicebox 3y agoUsually things that don’t create economic value at least create some other kind of social value, which HFT doesn’t really seem to do
- barnabee 3y agoHFT at the extremes doesn't just create no economic value, it actually extracts value from all other participants. Frequent batch auctions are one possible solution to this problem[0] that I see as quite promising. The problem of couse is that exchanges profit from the HFT extraction via fees and the prestige generated by reporting higher trading volume. Any real solution needs to solve both the micro-structure and the macro-structure of markets and make exchanges a publicly or collectively owned (or at least incentivised) utility. [0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2388265 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2388265
- tbolt 3y agoBe the fastest. Got it
- toddm 3y agoFormer HFT quant here. Thinly-disguised clickbait/advertising. Reminds me of being pamphleted in the airport in the early 1990s.
- hardwaresofton 3y agoWhatever happened to that long term stock market exchange thing
- deleted 3y ago[deleted]
- oh_sigh 3y agoSlightly on topic, but could Elon turn starlink into a giant arbitrage opportunity? Once satellite - satellite laser links are up, it could be the quickest link between say NYC and Tokyo
- lkjdafadsf 3y agoThe Earth is concave. Don't transpacific cables travel less distance?
- VagueMag 3y agoYeah I'm pretty sure cables will always beat satellites over the same distance. One interesting idea I heard was to string stationary drones that would relay microwaves across the ocean, similar to what was done with the relay towers between Chicago and New York.
- oh_sigh 3y agoLight travels at ~0.8C through fiber optics, whereas it travels at very close to C through the atmosphere and C in space. You need to make up for the extra ~200 miles going up and down, as well as the extra curvature of the satellites orbital shell vs the ground. But, it is doable, assuming you can relay the signal fast enough from satellite to satellite. Fiber optics needs to also be boosted on long routes, I'm not sure how that affects latency. But at the very least, speed of light up/over/down is faster than .8C for 7000 miles around the earth
- amluto 3y agoGetting your fiber to go straight (in the great circle sense) from point A to point B can be quite challenging given the presence of mountains, water, and people or countries that control the land in the way. For what it’s worth, hollow core fiber is available now, although at least the one vendor I found is very very expensive. I haven’t found an entirely clear answer as to the group velocity in hollow core fiber (it’s not in the data sheets), but it ought to be pretty fast. (The group velocity in vacuum-filled waveguide is not the speed of light in a vacuum — it’s slower.)
- majikaja 3y agoGlad I didn't pursue this dead end career
- dklsf 3y agoNot really sure how this is supposed to be low risk -- I think they're omitting the actual interesting parts of the strategy (that are essential to actually making money). If you want to be the first or close to the first in the queue on a price level, you're there before it becomes big. So then your "risk-free" closing strategy doesn't work, because if you get traded against, you will have to close out your trade at a loss, since the price level is gone (because it wasn't big yet). But if you wait until the level becomes big, you will no longer be at the front of the queue, so the strategy doesn't work.
- drexlspivey 3y agoIf the ask is at $8.03 and you are first in queue at $8.01 all the orders in $8.03 and $8.02 have to be filled before you get filled so you have plenty of time to cancel your order.
- 1retep 3y agoAssuming you mean bid. If the the size is only 10 @ 8.03 and 1 @ 8.02 and 8.01, then if someone is looking to sell 100 at market price it will be a problem. The sell order will go through many levels after filling yours and it will all happen at the same time.
- drexlspivey 3y agoApparently that doesn’t happen often enough to make the strategy unprofitable
- 1retep 3y agoThe point is that you can’t assume you can pull your order