I just wanted to ask a question regarding our chances against HFT and ALGO type of trading. How easily can these trading styles be manipulated in the following markets: CL, ES, M6E, YM?
Let it be stated, that I am very new to this trading market and I just want to understand our chances(right now and going into the future) against big companies with 100x more capital than me who use HFT and algorithmic trading softwares/ mechanisms.
Do individual traders like me have a chance looking into the next 5-10 years given our rapid advancement in automation and technology? Or is it just a game of tug of war amongst multiple big companies?
You don't have to worry about your chances against "HFT" because "HFT" practitioners are helping you to reduce your execution costs.
The average "HFT" participant is looking to be in and out of the position in a time scale much shorter than your holding horizon, and insodoing, merely intermediates your trade and does not increase or reduce your profitability.
"HFT" participants are almost definitely not looking to compete with retail opportunities.
In products that have much lower "HFT" activity, the spreads are wide and your slippage is larger when you trade.
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You have to remember that during different periods the concept of speed and execution took different formats.
Before Globex (e-trading) the locals on the floor could see the flow of institutions buying or selling, and according to that play the markets. Research, was available only to high net worth individuals by wirehouses, and some customers had direct access to the floor as oppose to a phone broker. Today, all these privileges are obsolete.
What if in the next few years the internet and technology will allow you nanosecond execution? Again, there will be someone who will have an advantage over you. In the evolutionary process of the markets, the HFTs are just another stage.
Focus on a trading method that is practical to the resources you have and the retail commissions that are currently in place.
I hope this helps.
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Last edited by mattz; July 1st, 2016 at 09:19 PM.
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HTF provide liquidity and it is more an help than an obstacle IMO.
Keep in mind that for a trader A it could be a very profitable operation to sell you 10 contract because he is maybe hedging an option position and for trader B it could be a very profitable to buy those 10 contract because he is playing a small intra day move. We can find hundreds of examples like that.
I also think that the very sophisticated and professional investors have little interest in squeezing our small intra day profit and for them we are also a source of liquidity for other bigger longer trade.
At the end even if it is a zero sum game everyone could be happy
(PS I worked as a market maker on options at the time when the market were not electronic and believe me retail was at that time screwed in every possible way. Today as a retail trader I am much more comfortable with an electronic market even if my reaction time is 10s vs the nano second of HTF)
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Last edited by Okina; July 2nd, 2016 at 12:34 AM.
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As has already been said, the algos are operating on a much shorter time horizon than any retail trader. Basically, they are going to be irrelevant to you unless you are fool enough to try their game, which is ultra-short-term.
Their principal effect on you is likely to be just increased liquidity (someone being willing to take the other side of your trade).
The story that "the big boys" are manipulating the market to the detriment of the "little guys" has been around for many decades (or centuries? .) It did not start with the current "big boy" villains.
I think that, realistically, it is an excuse-making thing, or a way to explain away losses. That the big boys are manipulating the market, or "took out my stop" (as if they knew about or cared about some guy's 1-contact trade) is sort of a psychological comfort: it isn't my fault, "They" did it.
Just stop worrying about any and all of this. (Not that it will go away -- whatever the next technological change in the market is, it will bring up the same kinds of stories.) Paranoia is fun.
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