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Ask me anything about hedge funds and HFT
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Ask me anything about hedge funds and HFT

  #51 (permalink)
Elite Member
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@lookOutBelow

1) What was the main reason you went out on your own? Was it purely money driven? Or perhaps the freedom of doing things your way? Or something entirely different?

There's a pragmatic reason, a personal reason, and a more spiritual calling (in ascending order of importance).

For practical reasons: I made my number and left my job, but still ran small personal accounts across a few retail brokerages. I quickly became very dissatisfied with the difference between the tools I had and the tools that I used to have.

The personal reason was that I realized that I had really wanted to finish my PhD and contribute to research and medical technology. I had enough to do the first - and by this I mean I could replicate a deferred real annuity (rather, I would leave it to someone I know to do it for me) that would maintain my lifestyle till I have grandchildren. But the plans I had in mind would require the kind of funding that would be easier to obtain by doing what I was already good at and experienced in. So this was partly a means to an end.

Finally, the spiritual reason is that this work is exciting because it presents unforeseen challenges; it's hard to stop doing it once you've started. It's similar to my research interests - the data is (usually), already there, I can skip most parts of the experimental work and concentrate on the analytical aspect. It's also similar to an elegant mathematical problem, the ones I used to see on the Putnam Competition, in that there's a lot that the problem statement is telling you, or that the inequality (common problem form) is extremely "tight" and requires impeccable intuition to solve. Sometimes you think you've pinned it down to a theorem that is strong enough and all that remains is raw arithmetic or algebraic manipulation, and it turns out that you're wrong. You eventually solve the problem, but that alone is unsatisfactory. Little-by-little, you recognize that the problem has duals to other problems that you've previously come across, or that the solution could be generalized or applied to another area, and that there's much complexity remaining that you still don't understand.

Most of all, I think there's no better way to contribute to society on such a wide scale, and with such instantaneity. I recall someone saying something to the lines of: "It takes interest in the fortunes of others and ties it to our own interests in ways that help advance both." I'm only interested in the models, but it's doubly rewarding to know that my interest in these models brings about a utility to policy makers, retirees, real estate developers, insurers, to someone who is mining palladium on the other side of the hemisphere. If there's one last point I want to make on this thread, it is that I hope we'll see more of the next generation who join this field because they wish to do something for society, because there's so much it can empower you with that you're turning a blind eye to if you're just looking for money.

2) How many people work with/for you? Do you have partners or are you the sole owner? Did you involve investors, finance it yourself, or work out some other deal with another entity?

Our numbers are in the double digits. I have partners. We financed it ourselves and could have kept it that way, although we opened ourselves to investors a few months ago.

3) Do you concentrate on one asset class or several?

Several.

4) Do you get annoyed by all the negative and untrue media coverage? *(Or with those that seem to have an agenda) *Or are you able to brush it off and ignore?

Not really. A friend of mine took a lot of flak from the media, especially because there's one popular writer who writes a lot of crap (this writer published another one of those books recently). Once, we were having a conversation about a paper my friend wrote in the 80's which had to do with a truncated stable distribution, and I noted several people (implicitly, this writer) made a lot of comments about how we were running the entire financial industry with the wrong models - we ignored fat tails - we used normal distributions and so on and so forth - and so it crashed. Here's a very heavily-cited paper in 1980 of a parametric model with a tail index, whose further work found its way into common textbooks before '08. And I can literally name hundreds of papers written before 2000. How are we to respond to that? (Besides, the main reason for the crash had to do with the special purpose vehicles that were structured to reduce capital requirements on intermediary RMBS CDOs, I don't know what's the relation with fat tails or normal distributions, too-big-to-fail, George Bush, Hank Paulson, Ben Bernanke etc.)

When any of your critics demonstrates an absolute lack of key fundamentals, you learn to avoid confrontation, because there's an asymmetric payoff for the same amount of time spent by each of you in argument. Of course, I note that my friend always seems better-dressed than anyone in the room, and though he avoids the topic, piecing Wikipedia/WSJ together, I'm very certain he's better off than the said writer.

5) On a scale of 1-10 how concerned are you that HFT will be regulated away in the US? *I know strategies can adjust to rule changes. *I guess I mean, HFT as we currently know it?

3/10. I think HFT's functional self-regulation (barriers-to-entry, increasing competition) will far outpace any actual, external regulation, if any. Also, my team is flexible.

AlexB View Post
What sort of hardware are HFT funds using? Is it anything special?

There's a wide spectrum of hardware and software. There are firms that had microwave links (but these have been limited to non-critical backend as far as I remember), ASICs, Redline etc. even back in 2009. But I also know firms in the equity space running regular Intel SB processors and Windows in their execution boxes. A traditional stack would have Mellanox/Cisco (or similarly spec'ed) switches, Myricom (or similarly-spec'ed) NICs for instance. There are many, many names in the FPGA-based NIC space, Enyx, Inrevium, Diligent etc, but only some venues have rolled out FPGA feeds - I think this part of the industry will see a lot of consolidation in the coming years. I'd *roughly* divide the firms into three tiers (not by their speeds - partly because this is not something transparent - but overall judging from what kind of people they have, their regulatory disclosures, their sizes and age, and so on). There are a few even among the group of firms I'd consider first tier that outsource their execution platforms, e.g. Tethys, Ullink. On the simulation side, petabyte-scale data, 10^3+ core clusters. The technology isn't unique to HFTs.

I also noticed that you mentioned HFT funds. It's more common for them to be prop firms than hedge funds. There's a main reason for this: the scalability of the strategies.


Last edited by artemiso; May 2nd, 2013 at 02:40 PM. Reason: Merged posts
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  #52 (permalink)
Elite Member
Manchester, NH
 
Futures Experience: Beginner
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Posts: 902 since Jul 2012
Thanks: 603 given, 1,785 received

OK guys, I think we'll stop here. It was fun and I would love to continue taking questions another time when I'm free.


Last edited by artemiso; May 2nd, 2013 at 05:51 AM. Reason: Merged part of this post to the one above
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  #53 (permalink)
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artemiso View Post
Liquidity shouldn't be measured by the spread alone. It comes up from both sides of the argument - either Arnuk and Saluzzi will probably talk about it, or a self-proclaimed HFT expert like Aldridge will bring it up, but it's a red herring: it's only easier for people to understand a number like that. A narrow spread is a fringe benefit of liquidity, not the other way around. It doesn't mean liquidity cannot improve while the spread remains constant. If you find a spread that does not go narrower, it's almost certain that it cannot go narrower or whoever's quoting it will just be bleeding. And I welcome anyone to try. If you forced me to choose between quoting inside the market for no good reason and quitting my job to pick up aluminium cans from the trash, I would choose the latter.

What's with the hate on Irene? I noticed a lot of people don't like her.

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  #54 (permalink)
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quantarb View Post
What's with the hate on Irene? I noticed a lot of people don't like her.

Irene isn't a gracious personality. I must say one good thing about her though, she's an outspoken woman, and has gotten far enough in life not on the basis of aptitude, but solely on her shrewd networking.

I PM'ed you with details.

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  #55 (permalink)
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artemiso View Post
Tell me that TT isn't predatory for arbing $0.10 per side from a retail trader who uses the NT DOM or whatever they call it, when REDI Baikai, Sapphire etc. are commonplace. I think it's ridiculous someone has to pay for an execution on a price ladder.

By the sound of your comment regarding TT, I take it you don't know the history behind the NT's DOM, TT's intellectual property, and agreements made among the parties to settle claims.


Last edited by SarahKrantz; May 2nd, 2013 at 02:07 PM.
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  #56 (permalink)
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SarahKrantz View Post
By the sound of your comment regarding TT, I take it you don't know the history behind the NT's DOM, TT's intellectual property, and agreements made among the parties to settle claims.

I do - but I don't have to. It's unjust that someone earns $0.10 for every execution on a price ladder, risk-free, while a HFT trade could average $0.10 per side with substantial risk of loss and is branded evil.

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  #57 (permalink)
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artemiso View Post
I do - but I don't have to. It's unjust that someone earns $0.10 for every execution on a price ladder, risk-free, while a HFT trade could average $0.10 per side with substantial risk of loss and is branded evil.

Wow, you came back fast. Got some more spare time?

We live in an unjust world, but it's the only one available. What makes you think users of TT technology paying that $.10 per side don't think TT is also evil. I do, but that's a decision I freely make to use the product.

My advice to HFT types is to ignore the media and make this their mantra: Sticks and stones may break my bones, but words will never harm me (especially if the cash register rings).

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  #58 (permalink)
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SarahKrantz View Post
Wow, you came back fast. Got some more spare time?

Sure, I have a meeting at 2.30, that's about it.


SarahKrantz View Post
We live in an unjust world, but it's the only one available. What makes you think users of TT technology paying that $.10 per side don't think TT is also evil. I do, but that's a decision I freely make to use the product.

Good, you have my respect that you're making a conscious decision and living consistently with your principles.


SarahKrantz View Post
My advice to HFT types is to ignore the media and make this their mantra: Sticks and stones may break my bones, but words will never harm me (especially if the cash register rings).

Indeed, after a while you learn that this is the best approach, but for a different reason. I speak from three recent experiences:

1. Often you'll find an impostor claiming that he has invented some binary store with ridiculous compression or processing speed written only in C# compared to kdb or something - but you have used kdb, and you realized there's something odd about this guy's (claimed) benchmarks, besides the fact that the values are an order of magnitude too slow, and he's doing something wrong in the design... If you try to hint that he's making a critical mistake, you end up getting flamed and accused of not knowing what you are saying. But there's no viable way to disprove the offending remarks besides explain your own methodology - which has an asymmetric benefit to the two parties involved.

2. Sometimes you'll find one claiming to have worked at a trading desk that was right by your old workplace but has absolutely no clue about basic facts like the nearest subway station so on and so forth. However, you don't want to let people in that you used to work at one particular place simply to out an impostor.

3. Other times, you find claims of a particular "trend-following" methodology which has miraculous properties that lets the user work 4 hours per week, trade a few times with ridiculously skewed outcomes, and make millions (if you work out the numbers, it has return properties that you've come across in strategies that require a remarkable degree of sophistication and precision). Do you point out the extraordinary hurdles that person has to overcome to achieve such performance, for the sake of proving that the said person doesn't know what he's talking about? No. Because the details of these hurdles would shed light on your methodology.


Last edited by artemiso; May 2nd, 2013 at 03:13 PM. Reason: Grammar
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  #59 (permalink)
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artemiso View Post
Sure, I have a meeting at 2.30, that's about it.

I have to head out now but if you have a question I'll take one last one from you.

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  #60 (permalink)
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It seems to me this thread turned out to be more about quantitative analysis/trading/hedging and less about HFT. For me, I do not equate the two. The only commonalities I see is their infrastructure speed/latency. From my perspective their strategies, trading time frames, and risk management are completely different.

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