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Lowering commissions: Traits to look for in a broker/platform for Hi Freq trading
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Lowering commissions: Traits to look for in a broker/platform for Hi Freq trading

  #1 (permalink)
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Lowering commissions: Traits to look for in a broker/platform for Hi Freq trading

Does anyone know off hand if there is a threshold or volume where commissions lower because of the sheer number of trades made on any given account?
Related question: If any given strategy is a hi frequency type where many trades are executed, what is the preferred platform or setup for such strategy? What kind of characteristics should I be looking for in a broker or a platform if going down that road?

Thanks in advance to anyone that can comment or throw their 2 cents worth in.

Cheers!
Bullywig

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  #2 (permalink)
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  #3 (permalink)
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To get you started....


Hi Bullywig,

Sure I can give you some information in this area. This is the the world that I am attempting to play in currently .

1. First there are discounts you can get from a broker for hitting a certain volume. For example:
https://www.interactivebrokers.com/en/index.php?f=commission&p=futures2
MB Trading | Offered by Ally Invest

Not every broker will have this published, but there is information out there if you look, or call and ask.

2. The real savings though is going to be getting a seat license at the exchange. There is a great thread here that covers this in detail. https://futures.io/emini-index-futures-trading/7376-becoming-exchange-member-leasing-seat.html But generally speaking for a few thousand dollars (non- refundable up front) and then 300-400 dollars per month depending, you can get your all in trade cost reduced by about half.

3. Also the exchange has a volume tier program of their own. The CME gives you discounts after like 75 trades per day, and further discounts come in for the super high volume players.

I think the net savings you can get with all three items I mentioned will get your all in cost < $2.00 per trade for the CME.


Something to know regarding the HFT world: You will be at a huge speed disadvantage over pros that play in this space, so you will best case only be fast enough to catch bread crumbs. So the first thing you will need to do is co-locate near your exchange of choice / data provider / broker, depending on the specifics. This will help your execution time and give you at least a fighting chance. The pros, can bypass broker risk checks, and not have a middle man handling the data feed. They have direct market access and can plug into the exchange matching engine directly. So how do I the retail guy do this? Just come up with $500,000 and then you can join the club. Unless you are at this level, you will only be as fast as proximity hosting + the highest end of retail platforms allows.

In terms of platforms that could actually achieve a high number of trades and be profitable... I think there are a few retail trading systems out there that might have a fighting chance, but others that certainly would not be fast enough. Anything hosted on the net that requires your trades to sit on their platforms servers before being routed to the exchange would make co-locating useless. There are a couple big retail systems that fall into this category.

Ideally you would want your own system coded in c++, but you aren't likely to go down this road. So here are the retail systems that might give you a fighting chance.

1. Ninjatrader: This is what I use, and while I know it is not the fastest retail option, the fact that it is c# based, allows me to code anything I can think of. Also the unmanaged order class gives it significantly more value to me in pursuing HFT vs. other platforms that have built in rules where you can't do certain things because most retail traders would blow up their account with 10 + open orders on both the bid and ask side... NT let's you do this with the unmanaged order type.

2. Rhythmic API: I believe this is one of the fastest if not the fastest retail level platform. You can co-locate at the CME and in theory get about as fast as any retail player out there. They will cost more per trade though. I think the order routing is 50 cents, vs. CQG / Continuum which is 20 cents.

3. TT Trader / X Trader: I don't know much about this platform but I have heard that it is fairly fast, and several others on this forum that are legit traders use it. They may be able to add more color here.


But here is the big key: Can you make any money in this space in the first place? It is very easy to throw a bunch of limit orders into a crappy simple HLOC bar based back tester and crush it, but most back testers / SIMs will over state your results by a significant magnitude. Playing in this area, especially considering it is a speed game and you will be the slowest guy out there will be difficult.

Here is my advice: Before you spend any money of your own, get a realistic backtesting system from a solid platform, and see if you can beat it with very conservative assumptions. Again, you don't need to make $3 - $5 dollars per trade.
Your break even with all the discounts I mentioned show that anything north of $2 dollars is profit. Start with this goal. Then if you look good, scrutinize the hell out of your results. Look at every trade and try to understand every assumption the backtesting / SIM made. Were these realistic, did these take into account the bid / ask volumes, and your place in the queue, etc. Test and validate, until you feel like you know the assumptions made, and they are a fair representation of the market. If you have any doubt. Get the level 2 data your self and build your own testing platform. I did this, and others on here have as well. You need to be very careful as you test your strategies because I can't tell you how many people crushed a backtester with a Line Break bar, or Renko bar, only to lose real money in the market.

Hope all this helps you out!

Best of luck!

Ian



Bullywig View Post
Does anyone know off hand if there is a threshold or volume where commissions lower because of the sheer number of trades made on any given account?
Related question: If any given strategy is a hi frequency type where many trades are executed, what is the preferred platform or setup for such strategy? What kind of characteristics should I be looking for in a broker or a platform if going down that road?

Thanks in advance to anyone that can comment or throw their 2 cents worth in.

Cheers!
Bullywig


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.

Last edited by iantg; March 1st, 2018 at 08:36 PM.
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  #4 (permalink)
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When you say high frequency, you probably just mean thousands of contracts transacted per month (like in a market making strategy) rather a special class of low latency strategy that we known as HFT. You have to explain why speed matter in your case because speed cost a lot. But I am still going to answer your question, given what I know.

1. Many firms offer tiered commission. IB, Advantage, AMP and many others. You should ask around. There is even a firm that just charges a fixed monthly fee rather than by volume. You should probably look into that too.
2. I would imagine the best platform would be developed by yourself via API with IB, Rithmic mentioned already. Only you know what functions your strategy needs and what order management features you want.
3. Renting a seat at the exchange can lower your commission a lot. You can even buy a seat if you trades a lot every month.

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  #5 (permalink)
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iantg View Post
Hi Bullywig,

Sure I can give you some information in this area. This is the the world that I am attempting to play in currently .

1. First there are discounts you can get from a broker for hitting a certain volume. For example:
https://www.interactivebrokers.com/en/index.php?f=commission&p=futures2
MB Trading | Offered by Ally Invest

Not every broker will have this published, but there is information out there if you look, or call and ask.

2. The real savings though is going to be getting a seat license at the exchange. There is a great thread here that covers this in detail. https://futures.io/emini-index-futures-trading/7376-becoming-exchange-member-leasing-seat.html But generally speaking for a few thousand dollars (non- refundable up front) and then 300-400 dollars per month depending, you can get your all in trade cost reduced by about half.

3. Also the exchange has a volume tier program of their own. The CME gives you discounts after like 75 trades per day, and further discounts come in for the super high volume players.

I think the net savings you can get with all three items I mentioned will get your all in cost < $2.00 per trade for the CME.


Something to know regarding the HFT world: You will be at a huge speed disadvantage over pros that play in this space, so you will best case only be fast enough to catch bread crumbs. So the first thing you will need to do is co-locate near your exchange of choice / data provider / broker, depending on the specifics. This will help your execution time and give you at least a fighting chance. The pros, can bypass broker risk checks, and not have a middle man handling the data feed. They have direct market access and can plug into the exchange matching engine directly. So how do I the retail guy do this? Just come up with $500,000 and then you can join the club. Unless you are at this level, you will only be as fast as proximity hosting + the highest end of retail platforms allows.

In terms of platforms that could actually achieve a high number of trades and be profitable... I think there are a few retail trading systems out there that might have a fighting chance, but others that certainly would not be fast enough. Anything hosted on the net that requires your trades to sit on their platforms servers before being routed to the exchange would make co-locating useless. There are a couple big retail systems that fall into this category.

Ideally you would want your own system coded in c++, but you aren't likely to go down this road. So here are the retail systems that might give you a fighting chance.

1. Ninjatrader: This is what I use, and while I know it is not the fastest retail option, the fact that it is c# based, allows me to code anything I can think of. Also the unmanaged order class gives it significantly more value to me in pursuing HFT vs. other platforms that have built in rules where you can't do certain things because most retail traders would blow up their account with 10 + open orders on both the bid and ask side... NT let's you do this with the unmanaged order type.

2. Rhythmic API: I believe this is one of the fastest if not the fastest retail level platform. You can co-locate at the CME and in theory get about as fast as any retail player out there. They will cost more per trade though. I think the order routing is 50 cents, vs. CQG / Continuum which is 20 cents.

3. TT Trader / X Trader: I don't know much about this platform but I have heard that it is fairly fast, and several others on this forum that are legit traders use it. They may be able to add more color here.


But here is the big key: Can you make any money in this space in the first place? It is very easy to throw a bunch of limit orders into a crappy simple HLOC bar based back tester and crush it, but most back testers / SIMs will over state your results by a significant magnitude. Playing in this area, especially considering it is a speed game and you will be the slowest guy out there will be difficult.

Here is my advice: Before you spend any money of your own, get a realistic backtesting system from a solid platform, and see if you can beat it with very conservative assumptions. Again, you don't need to make $3 - $5 dollars per trade.
Your break even with all the discounts I mentioned show that anything north of $2 dollars is profit. Start with this goal. Then if you look good, scrutinize the hell out of your results. Look at every trade and try to understand every assumption the backtesting / SIM made. Were these realistic, did these take into account the bid / ask volumes, and your place in the queue, etc. Test and validate, until you feel like you know the assumptions made, and they are a fair representation of the market. If you have any doubt. Get the level 2 data your self and build your own testing platform. I did this, and others on here have as well. You need to be very careful as you test your strategies because I can't tell you how many people crushed a backtester with a Line Break bar, or Renko bar, only to lose real money in the market.

Hope all this helps you out!

Best of luck!

Ian

Thanks Ian:

I am currently using NT8. What version of Ninjatrader are you using? I have briefly looked at X trader, and I have heard of Rhythmic API, but I don't know much about them. I have talked with a colleague about the seat option as well, and your estimate of it cutting the transaction cost appx in half seems correct.

Thank you for your candid comments about backtesting. I am familiar with the ambrosial high one can glean from those all to often fallacious results, that for the briefest moment, make you feel like a genius, but in the end leave you with just a simple sentiment; something like "isn't it pretty to think so" ...I am moving beyond backtesting at this point though and I'm testing my strategy on the live market everyday that I can with my at home NT8 setup for now. I'm not in a great rush, and so far it has worked out astonishingly well. A bit of a surprise, but I will run with it for several months so I can gather as much data as I can, crash and burn, rinse, repeat, and hopefully run through a diversity of market conditions if they present themselves. This forum has been extremely helpful, inspiring at times, and best of all, sobering; it brings me back to Earth. I am trying to get ahead of everything and understand potential costs and pitfalls and what I might be headed for or into, so, again, thank you for your thorough evaluation of my question, and answering so promptly.

Cheers!
Bullywig

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  #6 (permalink)
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charlotte nc
 
Futures Experience: Master
Platform: ninjatrader
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Hi Bullywig,

It's nice to hear that you are already experiencing some level of success. If you can even tread water with full retail level commissions and fees then you will do great once you can reduce your overhead. It's great that you already have live trading stats to work of off also. Even the best Simulations engines will have difficulties getting you an accurate picture.

As for me, I started with NT 7, but moved to NT 8 last year. There is a bit more functionality with 8. In terms of NT 8 versions.... They are up to 12 now I believe, and I had a terrible headache with several versions that crashed during live trading. 6 and 11 were both unstable in a number of ways. 10 is the one that I currently use, it has been very stable compared to the others I have tested. I run everything through a strategy, no charts, no DOMs, and I haven't hit any issues with it. Starting with version 11, they changed their database structure and starting in 12 they added quite a bit of new functionality. For me, I don't need any of the extra bells and whistles, and starting in 11 I noticed that it consumed far more memory than 10. So I am just going to stick with 10.

There aren't many retail traders on here pursuing HFT type of strategies. So if you ever want to bounce ideas around or talk to a peer researching the same area, I would be glad to share notes.

Happy Trading!

Ian





Bullywig View Post
Thanks Ian:

I am currently using NT8. What version of Ninjatrader are you using? I have briefly looked at X trader, and I have heard of Rhythmic API, but I don't know much about them. I have talked with a colleague about the seat option as well, and your estimate of it cutting the transaction cost appx in half seems correct.

Thank you for your candid comments about backtesting. I am familiar with the ambrosial high one can glean from those all to often fallacious results, that for the briefest moment, make you feel like a genius, but in the end leave you with just a simple sentiment; something like "isn't it pretty to think so" ...I am moving beyond backtesting at this point though and I'm testing my strategy on the live market everyday that I can with my at home NT8 setup for now. I'm not in a great rush, and so far it has worked out astonishingly well. A bit of a surprise, but I will run with it for several months so I can gather as much data as I can, crash and burn, rinse, repeat, and hopefully run through a diversity of market conditions if they present themselves. This forum has been extremely helpful, inspiring at times, and best of all, sobering; it brings me back to Earth. I am trying to get ahead of everything and understand potential costs and pitfalls and what I might be headed for or into, so, again, thank you for your thorough evaluation of my question, and answering so promptly.

Cheers!
Bullywig


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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  #7 (permalink)
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When you execute HFT strategies, your hurdle is not commissions but exchange fees, connectivity and a hosting environment. Having said that many confuse HFT and those who scalp and trade frequently.

Matt Z
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  #8 (permalink)
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mattz View Post
When you execute HFT strategies, your hurdle is not commissions but exchange fees, connectivity and a hosting environment. Having said that many confuse HFT and those who scalp and trade frequently.

Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

Thank you for your reply. Well, I am new to this arena; what would you consider a threshold number to be considered HFT vs. scalper/trade frequently? or is the number even important? I honestly don't know, and my objective is to gather information so I can make an informed decision as to where I should be heading, and or, what I'm heading into before moving in that direction. Costs, all costs, are obviously important, and often overlooked. The objective of this inquiry is to hopefully get enough data/opinions/blessings/warnings to begin to crawl towards my objective.

Cheers!
Bullywig

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  #9 (permalink)
Market Wizard
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Bullywig View Post
Thank you for your reply. Well, I am new to this arena; what would you consider a threshold number to be considered HFT vs. scalper/trade frequently? or is the number even important? I honestly don't know, and my objective is to gather information so I can make an informed decision as to where I should be heading, and or, what I'm heading into before moving in that direction. Costs, all costs, are obviously important, and often overlooked. The objective of this inquiry is to hopefully get enough data/opinions/blessings/warnings to begin to crawl towards my objective.

Cheers!
Bullywig

you are welcome. HFT refers not only to the high frequency of trades but the latency(speed) that these trades occur at. Most retail traders do not have the resources and funds to fuel powerful computers that would take you to HFT levels.

Yes, the cost is important and should be considered. However, your objective should be one: find a method that works and then see if you can get a cost structure to accommodate it. I am not familiar with anyone (in retail) who builds a system to accommodate a cost structure.

I hope this helps.

Matt Z
Optimus Futures

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.
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  #10 (permalink)
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Because HFT is in the microseconds and there’s no way you can reach that without an infrastructure to support that

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