[zelly]

What they actually do: colocated servers next to the exchange collecting $0.0000001 per trade with nanosecond latency.

Create mystique of doing spooky AI to get more capital which they use to hedge even more trades/second, making more money, which they then attribute to AI which gets them even more capital.

[vecter]

If you knew anything about HFT, you'd know that speed got arbitraged out more than a decade ago. Everyone is fast now. In order to make money, you need true alpha and predictive ability. It's sad to see you disparage their impressive achievements when what they've done is incredibly difficult to accomplish, especially as such a latecomer. I know because I tried it myself ten years ago when it was even less competitive and couldn't make it work.

[PopeDotNinja]

The real money is probably made by you renting out the server racks close to the exchanges!

[kasey_junk]

Lots of exchanges now capture that themselves.

[rrauenza]

When you say “speed got arbitraged out” — what does that mean?

[smabie]

It means that it’s no longer profitable for the vast majority of firms that used to do latency arb. Most of those firms have either gone out of business or managed to discover less obvious signals

[continuations]

How does XTX differ from a firm like Renaissance Tech?

[qeternity]

Impossible to really say without splitting RenTech into its different funds (you're probably referring to Medallion) and knowing what the underlying strats are. But at a high level the difference between MMs and quant funds are AUM which means different time horizons. An MM might have a time horizon measured in mics to seconds, and might be focused on micro market analysis like the balance of order book over the next 1,000 microseconds. RenTech (likely) can't deploy all of their capital in these types of strategies so they focus on strats with better liquidity and almost certainly longer time horizons (minutes to hours and days, possibly weeks for more CTA style strats). And at the opposite end of the spectrum, Berkshire can deploy tens of billions in a single trade, but that means an investment horizon of years to decades.

[nicoburns]

> you need true alpha and predictive ability

Surely all high-frequency signals are "follow what the market does, but slightly faster", and thus provide no actual value to society. It might be technically impressive, but it's useless work for personal gain. I reserve the right to be disparaging.

[throwawaymath]

That's part of it, but HFT is also a pretty saturated field. It's typically not enough to be fast and physically near the exchange these days; that's a necessary but insufficient condition. A lot of nontrivial math and CS is still poured into HFT at places like Two Sigma, Jump and Hudson River Trading.

[mjfl]

I like that it's become a common understanding that AI research is most effective in the marketing department.

[anonu]

So much negativity in this thread.

[Abishek_Muthian]

In India, the exchange was bribed to have the servers within the exchange for algo trading by some high profile institutional traders!

[1]https://wikipedia.org/wiki/NSE_co-location_scam

[zorked]

Is this fraud in India? I think most stock markets sell this as a service.

[Abishek_Muthian]

At that point SEBI (SEC equivalent) didn't permit exchanges to do it and were in the process of forming co-location guidelines, but this exchange went ahead and gave preferential treatment to few traders.

[smabie]

You can’t make less than a cent per trade in most markets. The bid-ask spread can never be less than a cent. I guess you could make less than cent with commissions, but you certainly can’t make $0.0000001.

[notavalleyman]

This is a result of the common Maker/Taker pricing model. [1]

Those who "make" liquidity by publicly quoting ask/bids are rebated fractions of a cent when their orders are filled, and those who "take" liquidity by exercising the Maker's position are charged.

This is separate to the spreads. The book Flash Boys has a very good explanation of the model.

[1] https://www.investopedia.com/articles/active-trading/042414/...

[cheez]

* Number of trades = 100000

* Number of successful trades = 1

* Number of unsuccessful trades = 999,999

* Profit on successful trade = 1000000

* Loss on each unsuccessful trade = -1

* Net profit: $1

* Net profit/trade: $0.00001

[smabie]

Well if we’re averaging, sure. But that’s not what the parent is talking about. Moreover, what you’re describing isn’t a HFT strategy, it’s an investment strategy.

[cheez]

No, that is how you think about high frequency trades. Lots of trades in a small amount of time, with a tiny positive expectancy.

[smabie]

https://www.reuters.com/article/2014/11/13/us-markets-virtu-...

So Virtu profits on 51-52% of its trades. The type of math you are describing does not make any sense. Unless Virtu is significantly different from every other HFT firm, your idea of high asymmetry of profit and losses is not true.

[cheez]

I meant about how you make 0.00001 per trade is possible. I just didn't want to figure out the 50-51% of trades numbers.

[skunkworker]

Time to make your own microwave network