Rise Of The Quant - High Frequency Trading
- Thread starter Enigmabomb
- Start date
Could QUANT traders really do enough volume to replace the morgans?
Imagine if there were nobody left on wall street at all, and the only traders were QUANTing... How could their algos predeict a trend then, when there's no big volume traders to BE the trend?
You're saying things will dead lock? I think not. If you consider all the 401k, funds, and other shares out there moving around, nobody is going to lock up the market with algorithmic trading. Remember, the idea behind this all is to take up the slack so to speak. Consider:
I'm a BIG FUND. I want to buy 5000 shares at $100.
Your computer program sees I want to do this just a few milliseconds before it hits the rest of the exchange, and gobbles up all the remaining shares. OM NOM NOM NOM
The price of the shares are now 100.01.
You then sell me 5000 shares at .01c profit each.
5000 * .01 = $50 .... in about 500 milliseconds.
I'm a BIG FUND. I want to buy 5000 shares at $100.
Your computer program sees I want to do this just a few milliseconds before it hits the rest of the exchange, and gobbles up all the remaining shares. OM NOM NOM NOM
The price of the shares are now 100.01.
You then sell me 5000 shares at .01c profit each.
5000 * .01 = $50 .... in about 500 milliseconds.
I went to school / uni with some people who are quants / traders, and some people who are academics.
Both groups are very smart. The quants are much richer, but most fucking hate their jobs, and only do it for the money, then spend it on booze + coke at the weekend to anaesthetize themselves.
The academics are much more fulfilled, even if they have less cash.
Of course, far smarter to run your own business, and combine more cash + happier
Both groups are very smart. The quants are much richer, but most fucking hate their jobs, and only do it for the money, then spend it on booze + coke at the weekend to anaesthetize themselves.
The academics are much more fulfilled, even if they have less cash.
Of course, far smarter to run your own business, and combine more cash + happier
@enigmabomb,... Theoretically you are correct with your explaination of HF trading. However, I feel that this method will not be sustainable for two reasons.
1.) Eventually the diffrence in speed between the people that can pull this off and those that cant will narrow due to technological improvements.
Just like when we were bound to 56k, while some were able to get cable/dsl before it was available in our area... Remeber those days?
2.) A case will eventually be brought up on the fairness of these methods. IMO The "Big Fund" should not be able to see the bid/ask spread that has not been displayed to the gerneral public even if its only miliseconds before. For the most part I feel this way because if many "big Funds" adapt to this method, securities will no longer be valued at a fundemental level, put purly on price, witch will not represent the actual value of the company. People forget that there are actually people/employees behind these companies. If a company is performaing poor it deserves a lower valuation in terms of pricing than one with optimal performance. A wide adaption of High frequency trading will give little to regard to valuation and almost all regard to price, witch really means nothing. All they will care about is buying low selling high at any price no matter what.
1.) Eventually the diffrence in speed between the people that can pull this off and those that cant will narrow due to technological improvements.
Just like when we were bound to 56k, while some were able to get cable/dsl before it was available in our area... Remeber those days?
2.) A case will eventually be brought up on the fairness of these methods. IMO The "Big Fund" should not be able to see the bid/ask spread that has not been displayed to the gerneral public even if its only miliseconds before. For the most part I feel this way because if many "big Funds" adapt to this method, securities will no longer be valued at a fundemental level, put purly on price, witch will not represent the actual value of the company. People forget that there are actually people/employees behind these companies. If a company is performaing poor it deserves a lower valuation in terms of pricing than one with optimal performance. A wide adaption of High frequency trading will give little to regard to valuation and almost all regard to price, witch really means nothing. All they will care about is buying low selling high at any price no matter what.
Ok so let's say they stop with bid ask spread. Hook up a high speed language bot to Twitter, and get a jump on word associations before they hit CNN, Fox news, Reuters et al. Imagine if you knew that South America had an earthquake, and that would drive up Oil Prices etc etc. Algorithmic trading is here to stay, just maybe not in the way conventional way we know it today.
I'd still prefer to have humans double checking the link before making BIG trades (If the trade didn't risk a large portion of my money, then i'd keep ti automated).
E.G: The tweet says "8.2 magnitude earthquake predicted to hit South Africa", yet my bot reads "8.2 magnitude earthquake" + "hit South Africa" and buys up a fuck ton of oil for no reason.
You wouldn't look at one Tweet. You'd look at keywords, once triggered and then keywords/time.
Example:
8.2 magnitude earthquake predicted to hit South Africa - BOOM BOT IS TRIGGERED LOOK FOR EARTHQUAKE TWEETS OM NOM NOMN NOMN NOMN
3 minutes later only 4/min earthquake tweets.
No action.
If however it were 40/min and increasing exponentially 160/min -> 25,600/min
SHORT OIL
Example:
8.2 magnitude earthquake predicted to hit South Africa - BOOM BOT IS TRIGGERED LOOK FOR EARTHQUAKE TWEETS OM NOM NOMN NOMN NOMN
3 minutes later only 4/min earthquake tweets.
No action.
If however it were 40/min and increasing exponentially 160/min -> 25,600/min
SHORT OIL
Is anybody here interested in networking/working on something like this (not just talking about it)?
I've written algorithmic programs (not quite like these, the stuff I've built are neural nets) to look at the stock market and I find working on this stuff really fun/exciting/cool and I'd love to talk to and work with other people about developing more stuff like this. (One of my long term goals is to create a successful AI powered mutual fund.)
The flaw in this is that you fail to realize that prices will eventually not be as sensitive to news because retail stock buyers will feel that the "new news" is already priced in the stock before they can get in(beacuse of the evental growth of HF trades being triggered). Even if it could work for a certain period of time, i think only firms with high amounts of financial resources will be anle to take advange of this. Just as they are currently the only ones effectivley able to exploit arbitrage opportuinities these days when they pop up here and there. I mean, has anyone on here ever profited from an arbitrage in the securites market? Im an active trader for many years and i have never beeb able to.
If you can create a bot to do this, then i assume that someone can also create a bot to spread fake news that can spread expotentially as well or even better. Ultimatly this will make your approach obsoulete. Im not trying to talk you out of developing anything, but you must look at all consequences when you think of reveloutionizing stock market dynamics. The outcomes may make things worst off than how things are now. Remeber we can still profit off of favorable news on a stock these days.