Hot answers tagged hft
20
I'll just add that with Interactive Brokers you have to be aware of their cancel fees. Remember, Interactive Brokers owns Timber Hill, a very large and active market maker. They will discourage you from competing with Timber Hill through monetary disincentives, among other things.
For example, if you send a directed order (i.e., you don't allow IB to SMART ...
19
You could for example look at this research paper released by Deutsche Bank's Research group just yesterday which defines both high-frequency and ultra-high-frequency trading.
In the paper it says
Typically, a high frequency trader would not hold a position open for
more than a few seconds. Empirical evidence reveals that the average
U.S. stock is ...
16
The lead paper in the January 2011 Journal of Finance (Hendershott, Jones, and Menkveld) addresses algorithmic trading (AT). In short, they find that AT improves liquidity as measured by bid-offer spreads. Taking the econometrics as correct (it is in the Journal of Finance) the next question is if bid-offer spreads are a sufficient statistic for measuring ...
14
Look at Genesis Trading. Most of the sales guys there are kinda like used car salesmen but they will work with you. Starting up with 50K should not be a problem for them. The offer full depth of book feeds if you are colocated with them.
They do offer DMA and you can specify all routing instructions for your orders rather than getting stuck on IBs router.
...
14
I'll take a stab at it, but this is a really broad question.
A direct answer: Bayesian models often use "probability that the counter-party is informed."
Indirect answers:
I think your assumption is that the algorithm operates on each stock individually, and has no knowledge of what it's doing in any other stock. But, it is likely that the algorithm is ...
14
A survey by FinAlternatives in 2009 concluded that "86% believe that the term “high-frequency trading” referred strictly to holding periods of only one day or less." (Aldridge 2009):
There are two problems with this survey for our present discussion: (1) the meaning of the term has been clarified significantly since that survey and (2) it surveyed a wide ...
14
My definition is not pretty, but it's practical: If you trade based on 5- or 10-minute bars, I call that high-frequency trading. If you trade based on tick-by-tick data, including bids and offers, I call that ultra-high frequency trading.
(Trading 1-minute bars is somewhere in between. Trading more slowly than 10-minute bars is "day trading".)
I make this ...
13
This has nothing to do with IB in particular. The primary issue with retail data feeds is that they run over the Internet. That means dealing with a shared line and all of the latency spikes that comes with it.
Institutional traders, even when they aren't co-located, build a private network pipe to their data vendor since that's the only way to prevent ...
12
Holding period and trade frequency are two different things. If you have a high trade frequency, the name of the game is negotiating lower commissions. That being said, the TWS API gives you the same quality feed as you get using TWS itself.
From Article on HFT Provided by Dirk Eddelbuettel in this question about HFT:
High-frequency trading (HFT) is ...
11
All HFTs are event driven. In the most basic sense, they have some model that is a function of order book events. For every order book event the model calculates some micro price that is the HFTs perceived fair value. This is often a function of the current bid, ask, depth, last n trade prices, inventory, etc. Given the most up to date view of fair value, ...
10
I. Re: # of trades...
According to WK Selph (former quant turned blogger) @ WK's High Frequency Trading How To:
To give some idea of the data volumes,
the Nasdaq TotalView ITCH feed, which
is every event in every instrument
traded on the Nasdaq, can have data
rates of 20+ gigabytes/day with spikes
of 3 megabytes/second or more. The
...
8
This answer is my ongoing attempt to consolidate some recent commentary on this hot topic.
A good place to start for anyone thinking about this question is the Economists's Buttonwood: Not So Fast, which mentions recent research by Biais and Woolley (2011) and Dichev, Huang, and Zhou (2011).
Does Algorithmic Trading Improve Liquidity? This paper claims ...
8
Some cynical but functional definitions:
It's what you can't model if you're not using tick by tick data
It's what proper quant pricing theory doesn't know how to model yet
It's information (order book behavior) that reflects momentary fluctuations in the supply/demand of a given contract, rather than its underlying value (eg an arbitrage free price)
...
7
There are rigorous econometric definitions, as has already been eluded to by others. For practical purposes, microstructure noise is a component of a price process that exhibits mean reversion on some (possibly time-varying) frequency.
This reversion is particularly attractive to liquidity provisioners, who seek to profit from this noise component (along ...
7
The term has a different meaning to different people.
to econometricians, microstructure noise is a disturbance that makes high frequency estimates of some parameters (e.g. realized volatility) very unstable. Generally this strand of the literature professes agnosticism as to the its origin;
to market microstructure researchers, microstructure noise is a ...
7
There are typically two important metrics:
Order to Accept. This measures the round-trip time it takes your application to send an order to the exchange and get an accept, cancel, or execute back. Think of it as the minimum amount of time required for you to ask the market to do something and know whether it's been done. This plays an important role when ...
7
The flickered orders are postonly bid at 15.16. The exchange slides it back to 15.15 to avoid a locked market. Submitting firm sees the slideback and cancels. Then tries again. When the 15.16 offer is executed or cancelled out, the offer moves to 15.17 then the postonly bid at 15.16 goes through at the targeted price and gains good queue position.
6
This answer summarizes some of my comments.
HFT is certainly a very hot topic these days, but it's hard to point to any one reason. A large part of it is the mystery and the profits, but also part of it is the relative novelty. Note that there is no lack of papers about medium and low frequency strategies, it's just that they are not labeled as such. Medium ...
6
My favorite culprit is quote stuffing, which can be used for a lot of things, including mapping the topology of the exchange servers themselves. The general idea is to look for bottlenecks which can then be lagged with more targeted quote-stuffing to create arb opportunities.
Nanex's flash crash analysis covers this to some extent: ...
6
You won't know who made the trade, so you'll need to look at the quotes. Specifically, you should look to see if there are a lot of cancellations in the full order book. That will tell you if there's higher "churn" for a particular stock since HTFs often have low fill ratios (<1% for some shops). But you'll need to control for volatility since wild market ...
5
Yes, there is a software application that you can purchase for $39.99 which stores all your tick data in a highly compressed format while still allowing maximum throughput and lowest latency data queries that I have ever seen. The package provides APIs to all languages under the sun but because they have a special sale going on it comes with the complete ...
5
What you are looking for is generally called "machine-readable news". Here are the ones I know about off hand:
Dow Jones Elementized News Feed
Thompson Reuters News Feed Direct
Bloomberg Event-Driven Trading Feed
NASDAQ OMX Event-Driven Analytics
Good luck getting reliable latency figures from any of those vendors though.
5
The "price protection" refers to RegNMS in the US. A stock exchange that does not have the best price must route all order flow to the exchange that does. The SIP in the figure is a consolidated feed that lists the best price among all exchanges.
Consider this example: a broker sends a market order to buy JNJ to NYSE where the best offer is \$86.97. ...
4
You might find the paper "Low-Latency Trading" by Hasbrouck and Saar useful. In it they discuss the episodic nature of some high-frequency flow and construct some useful measures of this flow.
Generally, I would think some model that relates the cancel rate with the quote rate is most useful.
4
Here's a discussion/conclusion about the Flash Crash:
http://www.nanex.net/FlashCrashFinal/FlashCrashAnalysis_Theory.html
Quoting the above link:
"....A sale (or purchase) of 2,000+ contracts which rips through one-side of the depth of book in 50-100 milliseconds, will immediately overload many systems....."
My point is, HFT currently takes place in ...
4
The defining characteristic of "high-frequency" is not the number of trades, but instead it is the number of orders you place, and in particular how often you are changing those orders. The scratch rate (cancel/fill ratio) is often very high. For every 1,000 orders you place, you might get 5 fills. This is the single most defining criteria of whether someone ...
4
It seems that your question refers to the microstructure noise defined in papers about intraday volatility estimates.
Originally, it comes from the bid-ask bounce, i.e. the fact that even if the volatility is zero, you have buyers and sellers at this price and consequently you observe prices at Bid or Ask prices, and not at mid-price. Because of that, if ...
4
HFT, when they implement market-making like strategies, are a key element of a fragmented market to build "arbitrage bridges" between trading venues.
There is a cost that for: we are all paying (probably around a fraction of the actual spread) to them, and the resiliency of the order books suffers because of their presence.
As usual, there are positive and ...
4
Check out Advantage futures and the algoadvantage service they offer. You'll need to colocate a server with them and either purchase exchange connectivity software or certify your own app (this is only for derivatives trading..)
Also check out mbtrading. No java api but they offer a FIX interface so you can use quickfix. If you trade enough you can get a ...
4
Servers co-located at exchanges for the purposes of low latency algo trading would primarily listen to the exchange's feeds.
The feeds would generally be disseminated via multicast on a fibre network. Certain exchanges charge a proximity fee based on the length of the fibre to the trading server and others make all the fibre cables equally long. The feeds ...
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