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location Hong Kong
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visits member for 2 years, 7 months
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1d
comment How do exchanges make money?
I think current investigations into proprietary (not available to all market participants) data feeds, proprietary order types, the way how exchanges nowadays derive a majority of their revenues despite divergent functions prescribed by regulations makes it crystal clear that you are in the minority who believes everything is sound and well in hft land. Of course I understand your motivation, any changes and modifications to the current wild west hft environment would reduce the bread that ends up on your dinner table.
1d
comment How do exchanges make money?
Its not about what you consider good, it is about what a large amount of execution traders at buy side houses and hedge funds use. If they do not have access to HNS then you can hardly claim that the majority of market participants has equal access. I stand by my claim (which I think I backed up sufficiently) that there are still a lot of hft industry practices going on that are at the very least highly unethical and some others that, while not outright illegal, clearly violate the mandate prescribed for exchanges by the law and regulations, which is to provide fair and equitable markets.
1d
comment How do exchanges make money?
Saying Bloomberg's and Charles River's execution modules to be subpar platforms disqualifies yourself entirely. Those are two of very widely used execution platforms by large buy side firms and hedge funds. And if you submit an HNS order vs repricing a buy lower gives the HNS clearly priority in the queue. It is unhidden way before the repriced order can be modified once the market is unlocked. I do not think we need to further argue at this point.
1d
comment How do exchanges make money?
...to be resubmitted. Not ethical and not fair and not equitable unless every market participant has equal access to such order type. It clearly does not adhere to price-time queue priority. And of course you referred to the issue of liquidity multiple times when you mention that "Your traditional floor trader wouldn't stand there waiting to get run over either." (I quoted). I do not throw any frustration around I just show you that you are at so many ends plain and factually incorrect.
1d
comment How do exchanges make money?
Hide Not Slide orders are unavailable on most professional trading and execution platforms. Bloomberg execution platforms do not have it, Interactive Broker's TWS does not have it (to my knowledge but I would not bet on it), Charles Rivers does not offer it either. None of the above are in any way subpar. Further, you are telling me that this order type is ethical (legal yes but...) just because it abuses a loophole in that markets can be locked as long as the order is hidden and when the market unlocks it basically is ahead of another order which price slid to a lower buy price and needs...
2d
comment How do I calculate Sharpe ratio from P&L?
I agree with you that Sharpe is a poor metric, there are better ways to assess risk adjusted returns. But certainly it is not to model the probability of an operational blowup. Its like heavily overweighting the jump probabilities in a jump diffusion model as part of option pricing, for example. And of course does a lot of the intraday volatility (hopefully) vanish when the law of larger numbers kicks in, that is precisely the central reason for the existence of hft shops ;-)
2d
comment How do I calculate Sharpe ratio from P&L?
@afekz, I disagree. Of course does anyone in this space primarily concern himself with trading risk not operational risk. You can't argue that just because every now and then an operational issue blows up everyone thinks all day long about how much it would cost if their servers or some tiny bit of code blew up. Yes maybe an operational manager. But firms like this are run and driven by those who generate revenues not those who keep costs down. Profit centers have always trumped cost centers.
2d
comment How do exchanges make money?
"Hide Not Slide." Must I say more? Really? This order type is fair? equitable? available to all? Funny because I do not see it in most any trading platform I came across. Your argument is entirely flawed. Its as if I say that only people who live in Washington DC can vote on any federal elections. Fair right? After all anyone can move to Washington DC. Even if due to popular demand rents surge a 10-fold still its fair. How so? Equitable means providing equal access even to someone with an e-trade web platform. And equitable is literally included in securities law and regulation in the U.S.
2d
comment How do exchanges make money?
And the poor argument that hft brought about tighter spreads and more liquidity is so loaded with spurious correlation. Have you ever thought about the possibility that other factors impacted spreads and liquidity? It's like saying that the internet thrived and is what it is today because of Netscape and Yahoo. Nonsense. Those 2 firms had some impact but were certainly not the main drivers. Nor are navigation systems the reasons we travel in cars and not horse carriages today. Most players in hft space use very poor arguments to make their case.
2d
comment How do exchanges make money?
what you say about fx space is utter nonsense. This network facilitates the world's largest volume in terms of notional each single day and I pay spreads of around 0-0.3 pips (yes, sometimes 'choice' markets) for small volume and around 1.x+ pips for larger volume. I nor those who really buy and sell risk could not care less about speed. Speed does not equate health nor a thriving market. You are comparing apples and oranges here. My orders get filled instantaneously (no lookback) and I pay spreads the equity world could only dream of. All without (yet) much hft intervention.
Oct
16
comment How do exchanges make money?
Let's discuss this in a separate thread, please, should you express interest in further exchange of thoughts...
Oct
16
comment How do exchanges make money?
So you want to regulate ECNs and dark pools and keep BATS and all other "exchanges" untouched? Could you please indicate what that would change? In my book, nothing. Until we have one(1!!!) centralized market not much is gonna improve in terms of fairness. I can suggest to consider one prediction of mine: HFT shops will drive away regular players in spot fx and an old boy's network of large banks will evolve that trades amongst themselves (unless regulators will intervene earlier and reshape things). Sound familiar? Yes, same stuff that lead to multiple scandals over the past 30 years.
Oct
16
comment How do exchanges make money?
It can hardly be said that all such firms play by the rules (as you claimed) when certain proprietary feeds and/or certain order types are only available to a select few (such as institutional players). An equitable market (something the law and regulators prescribe exchanges to be) is one where a grandma and a hedge fund execution trader have equal access, at least in listed markets. You can hardly argue that it is fair because the grandma could also register as hedge fund.
Oct
15
comment How do exchanges make money?
Furthermore I think you may not fully appreciate why Reg NMS is in the spotlight. A financial market's most important property is the trust by investors and the knowledge that transactions are conducted in a fair, open, and orderly fashion. This can hardly be said of the current fragmented equity market in the US, or can it? I like how you extracted (yourself or from other source) how exchanges generate revenues, but your diversion into hft is misplaced and not entirely honest imho.
Oct
15
comment How do exchanges make money?
I find your line of reasoning re HFT quite flawed, at least as you presented it here. Some of the practices by some HFT players in equity space are not under scrutiny as a function of how exchanges generate revenues. The two are completely unrelated. And nobody denied HFT are middle men, well I would actually challenge that because a used car dealer is making markets in cars even during an economic crisis, hft firms are nowhere to be found during extreme market volatility, hence they hardly fulfill the classic definition of a financial market middle man.
Oct
14
comment Forex buying 2000+ pip difference
@rupweb, the scenario, outline by OP, clearly indicates were are talking about a retail broker and quite a shady one to say the least. If they already engage in keeping such pitfalls open for clients to fall into then chances are very high they are unregulated to start with which means they do not see a reason to let the client off the hook given such shady technique netted them money. An initial loss of 5k is way enough for most such brokers to justify ignoring the client's request. Just my 2 hunches but this question actually does not belong on this site.
Oct
14
comment Is there anyone still using Markowitz modern portfolio theory?
Of course do fund managers care about their performance. But it is shocking to see fund managers padding themselves on their shoulder just because they outperformed most of their peers by an average 2% while they may in absolute terms have lost 20% in a given year. Where did I hint at the possibility that fund managers might not care about their performance?
Oct
13
comment Forex buying 2000+ pip difference
I strongly disagree with your point. Many (if not most) currency retail brokers are unregulated and make no qualms about it. If someone funded accounts with them and got their .... ripped wide open then it is mostly the fault of the investor/"trader" because he/she signed contractual agreements. Even the most unethical brokers legally protect themselves by including contractual clauses that provide for the fact that investors agree with the price feeds and hence spreads they execute trades on. One can try to claw back money but the emphasis here is on hope rather than any certainty.
Oct
8
comment How to reduce fx currency pairs ? PCA or other tools?
What are you trying to achieve? You want to reduce to a basket of pairs that are uncorrelated to each other?
Oct
4
comment Looking for Research Paper on Creation of Currency Baskets
@PhilH, got it, thanks for pointing that out. Will keep that in mind for future searches. Thanks