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

  #81 (permalink)
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artemiso View Post
I see, I did a double take and realized people call this "cumulative delta". As mentioned, I don't use such techniques; it's not up to me to conclude if there's any merit because it just means I haven't spent a lot of time with it.



Well, in finance, the opposite of being "right" is being "random". "Poor or even negative sometimes" sounds to me like a random distribution of outcomes.



Just completely different models; better ways to transform that data into useful insights, and more accurate ways to sign the trades.

One issue is that you have to contend with is the cause and effect when you're counting volume in increments and using that to forecast that it precedes any impending volatility (or spikes or trends or whatever the practitioners call it in this space). Naturally, sizes of the individual transactions decrease as the order book depth thins, and any attempt to make a forecast using individual transaction sizes without removing this baseline phenomenon is going to be ineffective because your signal is dominated by the baseline phenomenon.

Also, the ironic thing is if you actually improve the signing of the trades, you'll often find that the performance actually decreases.

They are making 20% to 40% with their ''randomness'' per annum.What are the standard for being ''right'' then?If we assume that market offers up to 1% per day(just a single underlying),being ''right'' may mean 20% per month(a single underlying),at least.

BTW,i`d make 300% just by growing potato.LOL...

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  #82 (permalink)
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Cachevary View Post
They are making 20% to 40% with their ''randomness'' per annum.What are the standard for being ''right'' then?If we assume that market offers up to 1% per day(just a single underlying),being ''right'' may mean 20% per month(a single underlying),at least.

I don't think it's correct to see how distinguishable the mean profits of a strategy are from those of the traded asset as a measure of "rightness". Even if that's what you want to do, then you should be normalizing the leverage at the very least.

Anyway, I did mention earlier on in the thread that I was hoping to address more questions about the industry rather strategy development - I hope that I've gone a sufficient extent to answer your questions.

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  #83 (permalink)
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@artemiso,

i was trying to address my question to how the HFT industry dismantled volume/price analysis,but your reply was somewhat vague.

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  #84 (permalink)
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Cachevary View Post
@artemiso,

i was trying to address my question to how the HFT industry dismantled volume/price analysis,but your reply was somewhat vague.

I don't think the industry has dismantled anyone's trading strategies; the FIA maintains a literature review of academic studies on this topic from unbiased researchers (e.g. http://www.futuresindustry.org/ptg/downloads/HFT_Literature_Review_0913.pdf) and in fact most studies suggest that we improve price discovery and reduce volatility and trading costs, all of which I understand that chart-based traders have always wanted.

The amount of trading volume that chart-based traders contribute to the market is very small, so it makes no sense why our industry would pick on chart-traders of all participants. Moreover, by saying that we 'dismantled' volume/price analysis, you're implying that we compete on the same strategies. I disagree on that for reasons I've described before - that I think that volume/price analysis in the "cumulative delta" sense is misguided.

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  #85 (permalink)
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I don't think the industry has dismantled anyone's trading strategies; the FIA maintains a literature review of academic studies on this topic from unbiased researchers (e.g. http://www.futuresindustry.org/ptg/downloads/HFT_Literature_Review_0913.pdf) and in fact most studies suggest that we improve price discovery and reduce volatility and trading costs, all of which I understand that chart-based traders have always wanted.

The amount of trading volume that chart-based traders contribute to the market is very small, so it makes no sense why our industry would pick on chart-traders of all participants. Moreover, by saying that we 'dismantled' volume/price analysis, you're implying that we compete on the same strategies. I disagree on that for reasons I've described before - that I think that volume/price analysis in the "cumulative delta" sense is misguided.

You`ll never know if they are biased or unbiased.Moreso,when the scholars used terms such as ''seems/seemed'' it doesn`t look like scientific research,it seems

It does say in the paper that the HFTs trade alongside with the other participants,though.But the buzzword is 'frontrunnig'(meaning they in early and out early),so it surely affects the chart trader`s V/P analysis.

I also belive that HFT has nothing to do with narrowing spreads,lowering trading costs and volatility.It`s more like due to industry expansion and competition,availability of technologies.

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  #86 (permalink)
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Cachevary View Post
You`ll never know if they are biased or unbiased.Moreso,when the scholars used terms such as ''seems/seemed'' it doesn`t look like scientific research,it seems

It does say in the paper that the HFTs trade alongside with the other participants,though.But the buzzword is 'frontrunnig'(meaning they in early and out early),so it surely affects the chart trader`s V/P analysis.

I also belive that HFT has nothing to do with narrowing spreads,lowering trading costs and volatility.It`s more like due to industry expansion and competition,availability of technologies.

Frontrunning is an activity where a broker or fiduciary executes for his own account ahead of his client, using information about his client's orders. Electronic market makers generally have no brokerage clients, and therefore it is impossible for them to frontrun.

It's very easy for us to see that we're the most critical factor in reducing spreads for market participants when we're making up 10% of the trading volume in a single product at times or being 1-5 of the only market makers in some FX flow.

Availability of technology cannot have been the explaining factor for the reduced spreads. In fact a few of the trading venues with the fastest matching engines and market data processors are actually also the ones with the widest spreads because they've failed to attract competitive electronic market makers. One comparison that comes to mind is Canada (TSX) vs Tokyo (TSE) - their matching engines were neck-to-neck but the progression in spread size is drastically different if you look around the dates of Tokyo's introduction of arrownet vs Canada's regulatory attempts to deter substantial order modifications.

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  #87 (permalink)
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artemiso View Post
It's very easy for us to see that we're the most critical factor in reducing spreads for market participants when we're making up 10% of the trading volume in a single product at times or being 1-5 of the only market makers in some FX flow.

Availability of technology cannot have been the explaining factor for the reduced spreads. In fact a few of the trading venues with the fastest matching engines and market data processors are actually also the ones with the widest spreads because they've failed to attract competitive electronic market makers. One comparison that comes to mind is Canada (TSX) vs Tokyo (TSE) - their matching engines were neck-to-neck but the progression in spread size is drastically different if you look around the dates of Tokyo's introduction of arrownet vs Canada's regulatory attempts to deter substantial order modifications.

I want to add that my post has also highlighted two problems here:

(1) Very few people are in possession of such data to draw these conclusions, and those who are raising their pitchforks against us have been misinformed. And those who do possess such data are generally tight-lipped about what they find for an inordinate fear of losing out to their competitors for sharing, or being caught in a witchhunt.

(2) The other problem is that those who *do not* possess such data are the ones who spend all their time speculating and sharing their ideas. I recall that one such professor (won't specify his name) has gone around advocating ideas for speed bumps in trading yet hasn't actually spoken to a single person in our practice. For that matter, I don't think that data providers who only collect the consolidated feeds should be in the position to comment about the value of the proprietary feeds.

As such, I have been advocating for industry transparency for some time because I think other people in my industry should be proud of their contributions to society and that improving the public opinion of us will be an important step forward for further innovation in finance. This is also why I don't mind making these arguments here even if you don't agree with my views.

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  #88 (permalink)
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artemiso View Post
Frontrunning is an activity where a broker or fiduciary executes for his own account ahead of his client, using information about his client's orders. Electronic market makers generally have no brokerage clients, and therefore it is impossible for them to frontrun.

According to Law or Wiki,maybe.But the reality is always different.There is also no clear,hard explanation what HFT actually is.HFT such an elusive notion,so it could potentially be everything.

And with all due respect,sir,you are not accountable for the whole HFT industry,and ,as with everything,there are honest men who doing bussiness and con artists.As such,without proper distinction/regulation of HFT,it`s being treated as something isn`t good.Children should not be allowed to play with matches,another words.

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  #89 (permalink)
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Moreover, by saying that we 'dismantled' volume/price analysis, you're implying that we compete on the same strategies. I disagree on that for reasons I've described before - that I think that volume/price analysis in the "cumulative delta" sense is misguided.

Let`s skip the ''cumulative delta'' type of analysis for that reason.How about simple bar-by-bar volume analysis that we are tiny charts readers used to use more efficiently?Now it is affected by HFT,at least for the velocity increase reason,to name a few.

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  #90 (permalink)
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artemiso View Post

Regarding the latter, I haven't been using models that attempt to determine some underlying function that maps from the prices to volumes;

@artemiso,

just to be certain,are you saying that the models that attempt to connect volume with the price are not viable?

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