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Jigsaw Trading's Peter Davies - Ask Me Anything (AMA)


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Jigsaw Trading's Peter Davies - Ask Me Anything (AMA)

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  #221 (permalink)
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Hi guys, here is the webinar recording:



Mike

I've updated the webinar recording with a higher quality version courtesy of @tturner86

Mike

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  #222 (permalink)
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Thanks, buddy.

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  #223 (permalink)
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@DionysusToast and @tturner86 Thanks for the webinar and thanks for uploading the video. I pretty much agree with most of the views that you've put forward about the neutral interaction between retail and low latency traders; the distinction drawn between low latency trading and 'predatory' trading, 'spoofing', so on; and the argument that low latency trading does not exacerbate volatility.

I don't know much about this area, however I'll chip in my additional opinion on two points that you mentioned.

1. Faster, more nimble firms are usually not organized as broker-dealers as it's generally not our business edge to pay for retail flow or run a dark pool. Jump and KCG are very different in this respect.

2. I really hope to dispel the view that the "R:R ratio" is stacked in favor of fast traders that can exit their positions quickly. Quite the opposite, if you were to use the classical way of measuring 'R:R ratio' based on target exit prices, it shouldn't be uncommon to see a high speed strategy take 10 units of 'risk' to aim for 1 unit of 'target reward'. Think of it as picking up pennies in a minefield - it's not an enviable position.

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  #224 (permalink)
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artemiso View Post
@DionysusToast and @tturner86 Thanks for the webinar and thanks for uploading the video. I pretty much agree with most of the views that you've put forward about the neutral interaction between retail and low latency traders; the distinction drawn between low latency trading and 'predatory' trading, 'spoofing', so on; and the argument that low latency trading does not exacerbate volatility.

I don't know much about this area, however I'll chip in my additional opinion on two points that you mentioned.

1. Faster, more nimble firms are usually not organized as broker-dealers as it's generally not our business edge to pay for retail flow or run a dark pool. Jump and KCG are very different in this respect.

2. I really hope to dispel the view that the "R:R ratio" is stacked in favor of fast traders that can exit their positions quickly. Quite the opposite, if you were to use the classical way of measuring 'R:R ratio' based on target exit prices, it shouldn't be uncommon to see a high speed strategy take 10 units of 'risk' to aim for 1 unit of 'target reward'. Think of it as picking up pennies in a minefield - it's not an enviable position.

I happen to have access to the daily trade statements for a low latency trading firm that does >135k contracts per day, so I pulled 2 daily statements to illustrate this. To avoid conflating the behavior of multiple strategies, I just took the snippets associated with the 1 strategy that does the most volume on each of these days. Debits are on the left column and credits are on the right. You can clearly see for yourself that the losses are 1-2 orders of magnitude larger than the fees, so it's not just trading out at breakeven all the time. There's no discernible advantage over retail traders because of the fee structure in this case. Of course, the actual numbers should vary from strategy to strategy, but it's not like there's many different ways to do this.


For 1 - I chose to focus on the larger players because they represent the largest slice of the market and so represents the best argument the oft repeated "the algos took me out my stop,stole my girlfriend,killed my dog and scratched my car"

For 2- I absolutely agree not everyone is scratching out but that was used specifically to represent the most extreme case of skew or benefit of low latency trading. The point being that if people could understand that much, they'd be more susceptible to the view that perhaps markets just move around on their own and that firms have lots of ways to make money that are way less risky that loading up a massive directional position and driving the market up 10 points.

One of the things that struck me when I was researching this was how some firms are very unsophisticated and are basically not doing that well at all. So much for 'cheating'!

Thanks for sharing your knowledge.

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  #225 (permalink)
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Makes sense.


DionysusToast View Post
One of the things that struck me when I was researching this was how some firms are very unsophisticated and are basically not doing that well at all. So much for 'cheating'!

By the way, I agree that there's a wide spectrum in terms of the level of sophistication and that there's no 'cheating' involved.

But there's a subtle point - you can measure sophistication in several ways besides technological or strategic sophistication. The firms I consider to be unsophisticated in their trading strategies usually compensate for it with very sophisticated knowledge about the markets. At the end of the day, all the trading firms I know that are engaged in low latency trading have something that is extremely refined.

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  #226 (permalink)
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artemiso View Post
But there's a subtle point - you can measure sophistication in several ways besides technological or strategic sophistication. The firms I consider to be unsophisticated in their trading strategies usually compensate for it with very sophisticated knowledge about the markets. At the end of the day, all the trading firms I know that are engaged in low latency trading have something that is extremely refined.

One appropriate analogy is to say that it's like a mechanical watch with extreme handmade craftsmanship. It's really simple if you think about what it does and what's needed to do it. But there's a ridiculous number of tiny moving pieces, and if it breaks, you need specific knowledge to fix it. Except take this analogy 1 step further: if it breaks, you need specific tools and knowledge to fix it that 1 firm will have and another firm will probably not.

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  #227 (permalink)
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@DionysusToast

Auction Vista looks great. So much more aesthetically pleasing than looking at a Dom.

For people who trade equities, is it possible to connect to an IB data feed and call market depth from each exchange/MM eg ARCA, BATS, ISLAND/NSDQ, BEX etc

I know the likes of NT only supports depth from one exchange at a time. I'm not sure about MC, or any of the other platforms you currently support.

"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
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  #228 (permalink)
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Neo1 View Post
@DionysusToast

Auction Vista looks great. So much more aesthetically pleasing than looking at a Dom.

For people who trade equities, is it possible to connect to an IB data feed and call market depth from each exchange/MM eg ARCA, BATS, ISLAND/NSDQ, BEX etc

I know the likes of NT only supports depth from one exchange at a time. I'm not sure about MC, or any of the other platforms you currently support.

With a L2 feed, you get multiple NASDAQ Exchanges - but just the best bid/offer for each. So with a Kinetick L2 feed with Ninja you will see that.

Then you have what used to be called "totalview" - which is every bid/offer for each participant. For some reason that doesn't work with Ninja, it ALMOST works - in that it shows the data (using totalview on IB as an example) - but levels are off.

We do have future plans for support of Totalview (or whatever it's called this week).

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  #229 (permalink)
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DionysusToast View Post
With a L2 feed, you get multiple NASDAQ Exchanges - but just the best bid/offer for each. So with a Kinetick L2 feed with Ninja you will see that.

Then you have what used to be called "totalview" - which is every bid/offer for each participant. For some reason that doesn't work with Ninja, it ALMOST works - in that it shows the data (using totalview on IB as an example) - but levels are off.

We do have future plans for support of Totalview (or whatever it's called this week).

thats great @DionysusToast Pete. Looking forward to it and the newer innovations and capabilities in coming time

thnx n cheers

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  #230 (permalink)
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DionysusToast View Post
With a L2 feed, you get multiple NASDAQ Exchanges - but just the best bid/offer for each. So with a Kinetick L2 feed with Ninja you will see that.

Then you have what used to be called "totalview" - which is every bid/offer for each participant. For some reason that doesn't work with Ninja, it ALMOST works - in that it shows the data (using totalview on IB as an example) - but levels are off.

We do have future plans for support of Totalview (or whatever it's called this week).

Thanks, Pete

I follow the orderbook quite closely when I trade equities. The common perception is that Lv 2 is useless in equities, however, in my opinion, at times it can be more telling than in the futures market because it takes alot less size to move individual stocks...

Just keep in mind that Kinetick/ IQ feed only support Nasdaq "Open view" which is a basic L2 book. It would be pretty much useless in Auction Vista, since it would only show a small portion of the order book.

Also, keep in mind that "Totalview" will not show orders for NASDAQ stocks that are on BATS/BEX or NYSE Arca exchanges( which is where quite alot of orders will be).

"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
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