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ronin


Total Posts: 407
Joined: May 2006
 
Posted: 2019-01-21 13:25
I finally read it now too.

The bit I find confusing is that the entire narrative is goes in the direction that aggressive HFTs pay the spread, but they make a few ticks in subsequent price moves. Fair enough.

But then, the average profit of aggressive HFTs is one dollar per contract? That's a fraction of a tick. And it's not that somebody got their units wrong, because the same table has the profit per contract of passive HFTs at 40 cents, which is in the right ballpark.


"There is a SIX am?" -- Arthur

prikolno


Total Posts: 37
Joined: Jul 2018
 
Posted: 2019-01-22 17:14
@ronin Not that it answers your question entirely but I think they got the fee calculations wrong:

> median trading volume greater than 5,000 contracts per day
>While we know such direct costs of trading as trading fees ($0.15 per contract),

I don't have fees going back to 2012 but the earliest I have is from Oct 7, 2013, where the 106J rates were actually $0.345 per side and not $0.15. They may have missed this because the Globex fee used to be in a separate column from the exchange fee? I don't think they'd have cleared the discount tier at 5k per day either.

gaj


Total Posts: 36
Joined: Apr 2018
 
Posted: 2019-01-23 04:54
One thing to keep in mind is that not all HFTs try to make money in ES. As ronin said, many HFTs make markets in other products and hedge in ES, they should expect to lose money in ES on average. Those who do have alpha in ES should make a lot more than the quoted numbers.

loltrading


Total Posts: 10
Joined: Feb 2018
 
Posted: 2019-01-25 07:18
anonq, do you know some of the smaller, under the radar firms running trades like this? If you don't want to post here, do you have a throwaway email?

Tyrannosaurus


Total Posts: 4
Joined: Jan 2019
 
Posted: 2019-01-26 07:09
Ronin: If aggressive HFTs make a fraction of a tick net of exchange/clearing fees and losing 1/2 spread instantaneously, isn't that a pretty sweet deal?

ronin


Total Posts: 407
Joined: May 2006
 
Posted: 2019-01-28 11:19
> isn't that a pretty sweet deal?

Of course. Good work, if you can get it.

My point was that the elements of the story in the paper don't really add up, so I'm not really 100% buying its conclusions.

If you want me to play the devil's advocate, it's $18 mln in revenue before infrastructure costs, which are not zero. And what ever information you need to make that that, it probably doesn't scale to other markets.

So it's a sweet deal if you are a $50 mln prop shop. If you are even a $1-2 bln fund, it's probably not worth your while.

Thinking about it some more, it's actually pretty high risk. $18 mln per year at $1 per contract is 1.5 mln contracts per month. ADV is around 2 mln contracts, which puts you around 3-5% of ADV. To make a fraction of a bp per contract in aggressive trading. You are probably making your fraction of a bp by pushing the market on short timescales. That sounds like another Nav Sarao, just waiting to be noticed by the regulators.


"There is a SIX am?" -- Arthur

loltrading


Total Posts: 10
Joined: Feb 2018
 
Posted: 2019-01-30 03:57
Why wouldn't the infrastructure spend scale? CME trades a ton of liquid products. I agree it's a prop game, but anyone with the data, speed, skills and smarts to aggressively trade ES can find *many* easier tables to play at on CME and elsewhere. A trade like this scaled out to all liquid futures could sustain an entire firm.

I doubt the big players are gaming or pushing the market. High market share with astronomical sharpe means you're either clairvoyant & making enormous bets, or have a minuscule edge making enormous amounts of tiny bets. Doing the later seems more feasible.

It's easy to predict something is likely to tick, so it's not inconceivable that someone smart could layer additional indicators atop that and predict when it will likely tick and stabilize around the new price. If you guess that better than chance, clipping a fraction of a tick is easy. You're basically market making except instead of buying on the bid, you lift an offer that's about to go bid and vice-versa.

Manipulators smell weakness and gun the market in leader products, or push a bunch of correlated products at once, and some probably make a lot long-term, but I bet they have enormous losses sometimes.

Craig


Total Posts: 43
Joined: Oct 2008
 
Posted: 2019-01-30 05:40
Is "loltrading" the return of "loltrader"?

loltrading


Total Posts: 10
Joined: Feb 2018
 
Posted: 2019-01-30 05:55
No this is my first and only account on the site.

Do you think I said something untoward? I generally like ronin's posts, but IMO painting all aggressive traders in futures as manipulators is a bit offensive. I know there are a few notorious players out there, but IME most of the reputable shops in this area either have superior speed or predictive models, that's it.

Craig


Total Posts: 43
Joined: Oct 2008
 
Posted: 2019-01-30 07:14
No, sorry, I didn't mean to give that impression! I just used to know a guy who had the handle 'loltrader' and he talked on many of the same subjects. I was just wondering if it was the same guy :) Nothing more.

ronin


Total Posts: 407
Joined: May 2006
 
Posted: 2019-01-30 09:59
> IMO painting all aggressive traders in futures as manipulators is a bit offensive.

I don't think that's what I said, and it's certainly not what I meant. I think you misunderstood the reference to Nav Sarao - imho he never did manipulate anything. He and his prosecutor were like two Napoleons in a mental institution. "I am the master manipulator." "You are the master manipulator."

However. The combo of aggressive trading + high participation + tiny margin does raise eyebrows. And I don't necessarily mean anything untoward.

Say a level looks a bit weak and you decide it's about to disappear. Better take the liquidity while it's still there. You take it. The last remaining clip or two, if there is a remaining clip, cancels. The market duly ticks.

Was that legit or did you move the market? Or a little bit of both? Exactly what % of your pnl is attributable to trades like this? How exactly would it look if another aggressive prosecutor wants a market abuse scalp on his cv?

"There is a SIX am?" -- Arthur
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