This is one of the better overviews of HFT I have come across. It hits on all the points I consider to be important (having worked in HFT for over six years); especially the Techno-Leviathan, trader psyche, and the perception of constant "war". I interviewed at Ronin once, and at the time I was super impressed by the beauty of their offices. Reading this helped me realize what a fucking circus it really is.
One facet which always fascinated me was the dispersion of trading ideas, including the code behind algorithms and any sort of research. Successful ideas are constantly being updated, adapted, and often times stolen. Traders are generally hired for the trading strategies they have been exposed to and the potential value within. There are very few individuals who create new and successful ideas. The rest are just copying what they have been exposed to and hoping that it sticks when they throw it all the wall, which eventually runs each successful idea into the ground as the value being captured disappears quickly.
Either way, it was a great school for learning how to program and use statistics effectively.
As my interviewer at Ronin told me after a I failed the interview (we both knew it): "This is all a game, you just need to learn the rules"
> This is one of the better overviews of HFT I have come across.
Really, I found it to be long on words and almost completely devoid of any content what so ever.
I mean this in all seriousness, What specifically can one point to in this article that has any actual content and isnt' just a collection of links to other sites for common definitions.
At no point did the article actually say how HFT firms design their systems or even how their algorithms might work.
> t hits on all the points I consider to be important (having worked in HFT for over six years)
It's not technical, that's true, but I really appreciate the philosophical take. It describes the foundation of everything and how the industry works from a high level very well. It was fun for me to read.
It's not a perception though. Short-term trading opportunities are zero-sum. To win trades you either must undercut your competitor by trading for less edge, or beat him to realizing the opportunity by either predicting better or getting faster, usually some combination of all those. All of that means effectively working your ass off to take food off another man's table before he takes it from yours. That probably happened less in the pit days because there was a camaraderie between the locals facing off against paper. Nowadays I never see the guy I'm trying to beat into the queue. We aren't going out for beers. It's just business.
I'd say being successful in this business feels less like war and more like riding a bear. You never get to rest and there's a constant fear that someone, somewhere is hungrier and smarter than you are, plus the bear might snap and eat you.
>Traders are generally hired for the trading strategies they have been exposed to and the potential value within. There are very few individuals who create new and successful ideas.
The better firms tend to hire people out of school and train them up so they can do novel research. It's a smarter long-term play. I agree that few people are up to the task, even the best and brightest. It does amuse me that some guy a couple blocks away probably runs a super similar model with a different cool code-name and we battle each other for years in Sisyphean fashion. I'll never even know his name. A zipless fuck.
I don't like the author's characterization of HFTs as "parasites." Someone can be a middle-man and still add value. Market users don't need to trade with HFT dealers. They can easily work their own orders or wait around in a block trading facility hoping to find a natural match instead. For most of them, it's a bad trade-off. Even though the HFTs make money on average, trading with them costs less than becoming an expert in market microstructure, finding good hedges, facing non-execution risk, etc. CarMax makes money when they buy/sell your car in the same way, but it's usually more convenient or cheaper than doing it yourself.
In a way, HFT is like insurance in that they only provide a valuable service when they lose, but overall people prefer paying for certainty. Almost every winning trade I make is one where two natural counter parties could have found one another had they waited a short period of time or were in the right place/product, but I lose on a huge % of trades as well. If HFTs weren't in a competitive environment or if one firm had a clairvoyant pricing model, this would be problematic but unfortunately for me, that's not the case.
> To win trades you either must undercut your competitor by trading for less edge, or beat him to realizing the opportunity by either predicting better or getting faster, usually some combination of all those.
On the other hand, at least in theory, the rest of the market benefits from smaller spread (a lot), and faster execution time (a bit).
I trade in stocks that aren't constrained by the tick size. Latency still matters a lot.
I agree the rule isn't sensible though. Much of the fragmentation in the US is driven by exchanges with inverted rebate structures (maker pays, taker gets paid to hit/take) + midpoint trading that are effectively a back-door way to quote sub-penny in stocks where the true competitive spread should be less than 1c.
> One facet which always fascinated me was the dispersion of trading ideas, including the code behind algorithms and any sort of research. Successful ideas are constantly being updated, adapted, and often times stolen. Traders are generally hired for the trading strategies they have been exposed to and the potential value within. There are very few individuals who create new and successful ideas. The rest are just copying what they have been exposed to and hoping that it sticks when they throw it all the wall, which eventually runs each successful idea into the ground as the value being captured disappears quickly.
Successful ideas in general work this way, but I am impressed with the SPEED in which this dispersion takes place in the trading world. All this brain and computing power cycles through ideas as quickly as possible to find new sources of income. It's a giant complex network trying to find an ever-changing optimal solution to the current market state. Quite incredible.
One facet which always fascinated me was the dispersion of trading ideas, including the code behind algorithms and any sort of research. Successful ideas are constantly being updated, adapted, and often times stolen. Traders are generally hired for the trading strategies they have been exposed to and the potential value within. There are very few individuals who create new and successful ideas. The rest are just copying what they have been exposed to and hoping that it sticks when they throw it all the wall, which eventually runs each successful idea into the ground as the value being captured disappears quickly.
Either way, it was a great school for learning how to program and use statistics effectively.
As my interviewer at Ronin told me after a I failed the interview (we both knew it): "This is all a game, you just need to learn the rules"