Tag Archives: market making

Market Making and Mean Reversion research paper PDF

Market Making and Mean Reversion research paper PDF

This came in from my Telegram private group

https://www.cis.upenn.edu/~mkearns/papers/marketmaking.pdf

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

2 Sigma buys Interactive Brokers market making division

2 Sigma buys Interactive Brokers market making division

Does this mean that it will affect current IB customers moving forward? If so, that would could potentially mean that all customer order flow is being sold to this HFT operator which results in manipulation

Note: https://www.elitetrader.com/et/threads/is-interactive-brokers-selling-timber-hill.304185/

Two Sigma to Buy Interactive Brokers' Options Trading Unit
https://bloom.bg/2pwKAoB

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Spread volatility volume relationship with market making

Spread volatility volume relationship with market making

This is one of the best research papers I have seen in a while. So many such little to implement.
Big thanks to Sholom B for sending

Join my FREE newsletter to learn more about these papers for automated trading

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

HFT: market making vs bond scalping strategy

HFT: Bond scalping vs market making strategy

On Friday I posted an interesting article about scalping versus market-making. These are the usual tactics that high-frequency trading shops use to make boatloads on a daily basis. A well respected researcher has revealed the difference in opportunity of these strategy types as well as posted source code.

 

Check out this article here

 

The final dance? High speed trading software architecture

Lastly, tonight I’ll be doing what I call my final dance on an architecture for hopefully my high-speed trading system which is being currently worked on. Personally I’m challenging any technical person on my view on how to build this out of the gate. I am also designing with high-frequency trading potential. Personally, I only want to do this right one time only versus all the other crybaby stories I hear about how people’s Home built automated trading systems are slow. Here are the login details via my GoToMeeting account:

 

1. Please join my meeting, Apr 25, 2016 at 8:00 PM EDT.
https://global.gotomeeting.com/join/124017157

2. Use your microphone and speakers (VoIP) – a headset is recommended. Or, call in using your telephone.

Dial +1 (647) 497-9379
Access Code: 124-017-157
Audio PIN: Shown after joining the meeting

Meeting ID: 124-017-157

 

 

You should in fact join any of my  Meetup groups listed here.

 

And, I cannot stress the importance of this presentation.

 

Lastly, I am presenting all the different data visualization options that you can get with open source trading language Python. I will also be doing a quick demo of a QT application that has C++ source code as well. You may be seeing more of this software in future trading demos.

 

If you immediate access to this account join here

 

Get more details here

 

The next 48 hours shall be a good time for those that want to get involved by attending one of these live online events

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

HFT: Bond scalping vs market making strategy

HFT: Bond scalping vs market making strategy

Scalping is better and is now made available on Collective2?

Join my FREE newsletter to learn more about these HFT strategies for your automated trading

A High Frequency Scalping Strategy on Collective2

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Canada kill market making rebate system?

Canada kill market making rebate system?

I think this will even out the market exchanges to kill this practice. I call it blame it on Canada!

The Toronto Stock Exchange and its sister markets announced a step to curb one of the most controversial aspects of modern equity trading: the system of rebates and fees exchanges use to spur and reward transactions.

http://www.bloomberg.com/news/articles/2015-05-04/toronto-exchange-confronts-controversial-trading-rebate-system

Join my FREE newsletter to learn more about this practice killing HFT

 

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

High Frequency Trading aka HFT & Market Making Heaven For Traders

High Frequency Trading aka HFT & Market Making Heaven For Traders

Article divided into various parts by which High frequency Traders can understand BSE In-depth.

http://algotradingindia.blogspot.in/2014/09/high-frequency-trading-market-making.html

Join my FREE newsletter to learn more about HFT

 

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Haha! Funny timing on how Goldman Sachs is selling market making business after FBI investigating predatory practices in HFT

Haha! Funny timing on how Goldman Sachs is selling market making business after FBI investigating predatory practices in HFT

Bloomberg reported this:

http://www.bloomberg.com/news/2014-04-01/goldman-said-to-pursue-sale-of-nyse-market-making-unit.html

Funny timing if you ask me as we all know that the market makers are the predatory sharks jumping the order queue and reselling those to others at a blink of an eye. They make millions. Can anyone say Abacus call over again? Do you really trust these guys at Goldman Sachs? I don’t

Join my FREE newsletter to learn about stuff like this 

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

More on most profitable in HFT among market making, event driven and stat arb? C++ vs C# vs Matlab vs Java and RenTec low latency

 

More on most profitable in HFT among market making, event driven and stat arb? C++ vs C# vs Matlab vs Java and RenTec low latency

 

there were discussion about c++ or matlab and java/c#. Everybody accepted that matlab is powerful to solve issues of numeric and statistic, etc. But when they use it in HFT situation, it’s recognized very slow. Then some people thought c++ was better and others thought a combination of matlab and java or c# could get speedier. I thought many were doubtful about connectivity between the two. A few were successful and said they used their own one for HFT. What do you think of this discussion?

 

 

==

could you please expand the concept of predatory algorithms?
Is it just normal bid offer size manipulation that you are talking about?

 

==

About statarb there is a problem of decreasing profitability over time as more and more players do the same. I am talking about plain simple pair trading (any asset class) not more complex relationships with fundamentals.

 

==

http://cyborgtrading.com/institutional/app/files/media/brochures/anti_gaming_for_tsx_market%20Makers.pdf

 

MATLAB is great for developing and algo and testing In my experience they are powerful yet do not go hand in hand with HFT. If you have something you feel works, get it developed in another environment. Which environment? Well, it all depends on what you are trying to accomplish. If a program is written by a highly skilled C++ programmer (and I mean HIGHLY skilled), then yes it can be extremely fast. But is it scalable? How does it work on one processor vs 30 processors? How long will development take? How easily can you modify it? You need to consider all these things before giving a proper answer.

We program with C# in a .NET environment because it is extremely fast, highly scalable and what would take a good programmer 3 months in C++, takes us days to do the same thing because Microsoft has already pre-built a lot in C#. Everything in C++ has to be built from the ground up. We also have a PHD student working on a project that will prove F# is a far better language to scale algorithms with.

If you can’t win, change the rules of the game.

I hope this makes some sense!

 

thanks for information. I did not know that F# is that better.

it could be the case that the profitability of stat arb is decreasing. It’s a rat race. You have to always optimize parameters as mentioned that the ability to change your parameters to tweak your algorithms real time is crucial. If your watching asset classes be more widened, you could find another arbitrage opportunities, i.g. stocks and FX, stocks and bonds, etc.

 

A colleague used to work at RenTec. From what I gathered, they use a blend of market making combined with predictive algos. So when they don’t have an edge in predicting price they act like market maker, going for ticks. However, when they get a “predictive” signal, then they take directional exposure.
Some more facts…they are the largest user of Mini SP contract by a huge margin. Two russian ex employees quit and tried to start their own fund. Jim Simons hired lawyers to stop them. I never found out if they ultimately did, but considering they Russian I’d bet they eventually did. The annual research budget for RenTec is 200-300million. One ex employee described some of RenTec strategies as borderline “software hacking”.
RenTec holds the patent for parts of code that is used for some execution software.

Getco,tradebot is just brute force. They make more money because they have lower latency. That’s almost all of their game.

RenTec is light years ahead of them. They have slower connections but still outrade.

 

great comment! I would have never guessed RenTec is behind in the latency game.

BTW, what do you mean by borderline “software hacking”?

Also if they hold patents, then they must be publicly listed on the US patent website. Would be interesting to look them up…

 

I wouldn’t say RenTec is behind in latency game, they just don’t solely rely on low latency unlike the others. When you have a predicitive edge over everyone else, you don’t have to rely as much on brute speed. RenTec staff is still composed of mainly researchers not just programmers and IT staff. That pretty much says it all.

The ex employees said “software hacking”. They could just be angry, but who knows. Nothing would surprise me.

They still ahead of everyone else, no matter how you slice it.

The real takeaway is that there have been other shops with multi milion budgets and staff that never made it. It proves that it’s half art, half science.

The original article started here:

https://quantlabs.net/blog/2011/11/which-do-you-think-is-the-most-profitable-in-hft-among-market-making-event-driven-and-stat-arb/

 

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Which do you think is the most profitable in HFT among market making, event driven and stat arb?

Which do you think is the most profitable in HFT among market making, event driven and stat arb?

Many think HFT is profitable, but few only know which is the most profitable. Let’s discuss a piece of the fact.

 

Interesting question! I think market making used to be a great form of income, yet now they are getting gamed by faster and more sophisticated predatory algorithms which take advantage of the rules they are forced to abide by. We are actually working to help market makers get their edge back with what we call combative algorithms. Event driven trading can really be limited to a couple firms that have the money for Ultra low latency algo’s, and unless you have that you are getting in the market while they are getting out! For the most part I would vote stat arb as being the “most profitable”, just because that is what majority of trading strategies

I found in Wikipedia that two HFT butiques occupy 15~20% of the whole equity transactions in the USA, which is surprising. They started as a market maker and made huge money in 2008. The profitability of market making seems to be dependent on market volatilities. In terms of HFT stat arb, are there giants like the market makers?

 

which 2?

 

they are GETCO and TradeBot.

 

In what sense most profitable? Return on investment? Absolute profits? The question could be formulated better.

Having said that, if I had to put my last savings into either of the HFT firms, I would choose market making. The source of income for market maker is the spread (and rebates). Only uninformed traders will give you the spread if the prices are predictable. If the prices are unpredictable you can prove that as a market maker you are guaranteed profit (in theory).

Event-driven arbitrage and statistical arbitrage require research and predicting. You are betting on statistical relationships, which acutally can break down. Profit is not guaranteed.

Finally, many market makers do in fact engage in statistical and event-driven arbitrage: they are not mutually exclusive. For example, your stat arb system tells you that the spread between Google and Apple is too large and you should short one and buy the other. You take these instructions to your market making part and adjust your quotes (price and size).

 

==

On my part, firstly absolute profits, then return on investment. If it’s small profits with high return of investment, it’s not enough for me. If its return of investment is very low despite huge profits, it’s not attractive for me, either.

As you said, a market maker seems to be guaranteed. But he still has a risk to be a uninformed trader in the case of trading with/against an informed (institutional) investor. In order to be more informed, what does he have to do? Research, accurate forecasting and brushing up trading techniques easily pop up. In reality, it’s rare to have all skills in one company. So some company has competents in one area and other has them in another area. That’s my general thought, so I asked “are there giants like the market makers?”. The giant market makers may do well in stat arb or event driven. If you know how they do well in both ereas, please let me know.

 

I don’t know many giants. I know RenTec is a giant in statistical aribtrage. They have to have world’s highest average IQ of an employee. Without a numerical phd you don’t have a chance with them.

Then there is Citadel. I think they’re big in market making, but I’m not sure. Googling will definately give you some answers.

You are correct that market makers have to reseach something, but it is still different that if you trade purely stat arb. Besides, if price are random, then there is nothing to research and you are guaranteed a profit.

 

I checked out RecTec webpages and reached to Job Openings page. They want quantitative finance candidates who they say ideally have “A Ph.D. in Computer Science, Mathematics, Physics, Statistics, or a related discipline”. There is no word “a phd in finance”. It seems like computer science is the most important for them. Then I understood the reason why they are a top runner in HFT field.

In terms of how they trade, I didn’t get a clue in the pages unfortunately, cause I couldn’t log in. But time is changing. In1980s, a high IQ guy dropped out from Turtles training course. Nowadays, high IQ guys seem to be successful. Things on the earth must not differ so much from the broard perspective. I am curious what kind of skills they, phds in non finance, have in general.

 

This thread at Nuclear Phynance is the best source on RenTec:

http://www.nuclearphynance.com/Show%20Post.aspx?PostIDKey=4851&PageIndex=12

Also, search for Jim Simmons, the RenTec’s founder. He does not like to give out info about his hedge fund, but there are some interesting interviews with him floating the interwebs.

 

==

Would PhDs in RenTec use regression to grasp a price behavior or pattern? Kinds of regression vary from ols (ordinary least square) to ridge. But almost all of them are based on the assumptions of normal distribution, which looks like to have relatively big estimate errors when implementing into practice. I have heard from some statistician that another methods could be better to forecast the future than statistical methods.

In a sense, PhDs in mathematics or physics are advantageous in utilizing regression, cause they understand the fundermentals on the mathematical ( or statistical ) tool. So they could modify or improve it to gain less estimate errors. But nobody knows how. Is there somebody who plays or will play a roll that Donchains did on Turtles.

 

I found another article about HFT houses and other players. A bit interesting.

http://www.thehedgefundjournal.com/magazine/201109/commentary/high-frequency-trading.php

 

thanks for the article. We know the race to zero is occupied by the few firms mentioned in this article and above. Going forward, the only way to compete is to have more flexible algorithms. The ability to change your parameters to tweak your algorithms real time, will ultimately be a longer term solution for success.

 

 

HOW DO YOU START A PROFITABLE TRADING BUSINESS? Read more NOW >>>

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!