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21 votes

How do firms make money from "flow trading"?

Flow trading is in spirit very similar to market making - such firms make a profit by earning a spread. There are 3 common ways this is done. Suppose a client wants to buy 100k shares of XYZ, which ...
madilyn's user avatar
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16 votes

Trading interview gambling question

An alternative approach is to size your bet to maximize your expected utility, which is assumed to be given by a function $u(w)$ of your total wealth $w$. This could be a better approach than using ...
Chris Taylor's user avatar
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14 votes
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Why are there so few published research papers that apply Deep Learning to Algorithmic Trading?

I would say that most ML methods risk overfitting and it depends very much on the asset class. The only area where more sophisticated ML methods such as deep learning appear to make a major difference ...
NBF's user avatar
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13 votes
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Options Market Making Used Implied Volatility Surface

Your question is twofold How a market maker should adjust its quotes on a vol surface with respect to his inventory? How to adjust the vol surface when a new trade is observed on the markets? Let me ...
lehalle's user avatar
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13 votes
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How long do algorithmic trading strategies typically remain profitable?

Is there a typical "half-life" of a strategy? This is a really subjective question, and I don't think any singular answer will generalize well. That being said, I will give some examples ...
amdopt's user avatar
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13 votes

What is the point of mental arithmetic tests?

I'm not in the financial industry but, as a college math instructor, feel like I could share some insight. This is a type a question that we frequently need to answer regularly, so we wind up with ...
Daniel R. Collins's user avatar
12 votes
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What are the "sniffing" or "stalking" algorithms?

Sniffing (or stalking) algo indeed detects other algorithms. How does that work in practice? Imagine the order book for a particular equity is: Bid 1 = 99 (size 10,000), Bid 2 = 98 (size 25,000), Bid ...
Jan Stuller's user avatar
  • 6,118
12 votes

What is C++ used for when writing code at High Frequency Trading firms?

I ran all of the research and trading at a high-frequency market making firm with well over a million lines of C++. Now I'm at Databento, where we have about 1 line of Rust for every 1.5 lines of C++ ...
databento's user avatar
  • 2,468
12 votes
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What is gamma to do with realized volatility?

I like to think about this problem graphically. The pic below shows a call option value at some point before expiry as a function of the underlying. At the expense of stating an obvious fact, we note ...
Jan Stuller's user avatar
  • 6,118
12 votes

What is the point of mental arithmetic tests?

Years ago when I interacted by phone with floor traders at a Chicago options exchange I was very impressed by their mental skills (which I felt I didn't match). Not so much math operations (that too) ...
nbbo2's user avatar
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11 votes
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Trading interview gambling question

The Kelly criterion gives the fraction, $f$, of the current bankroll to bet in order to maximize the longterm growth. The criterion is given by $$ f = \frac{bp-q}{b}, $$ where $b$ is the winnings ...
RRG's user avatar
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11 votes
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Does the Integrity of Tick Data Vary by Vendor?

whether someone looking at a tick data vendor should be evaluating the underlying quality of the data in addition to e.g. price and API capabilities. Absolutely, you should evaluate the quality of ...
databento's user avatar
  • 2,468
10 votes

Deciding how many trades to make

As the problem is currently formulated, you have a binary decision (whether to buy the cards or not) and a single state variable (your current wealth). I'm assuming the deck is reshuffled every play. ...
Matthew Gunn's user avatar
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10 votes
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Market Making Strategy to Interact with IB API

Pete's seven year old answer is just as relevant now as it was in 2011. None of the limiting factors of their API has changed since then, so this is essentially an extensive reiteration. The ...
Theodore's user avatar
  • 1,172
10 votes

Criteria to assess the possibility of corporate bankruptcies in U.S. equity exchange markets

Since the stock is listed on NASDAQ, you have access to fairly standard 10Q and 10K financial statements. So you can apply the analysis pioneered by Ed Altman in his Z-score paper - compare this ...
Dimitri Vulis's user avatar
10 votes

Is this how stock trading works?

In January 2020, Matteo Aquilina, Eric Budish, and Peter O’Neill from Britain's Financial Conduct Authority published this study, illustrating how "low latency" market participants can make ...
Dimitri Vulis's user avatar
10 votes
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Inflation effect on FX rates

Edit: adding some references (main body is untouched) Kenneth Rogoff and Richard Meese received an incredulous reaction to their now-famous paper showing that random-walk (RW) forecasts outperform ...
AKdemy's user avatar
  • 9,079
9 votes

Why do Human traders make money?

First we have to clarify what we mean by profits: I think your question can only address the fact that some human traders beat the market (because you also make profit by just buying the market, e.g. ...
vonjd's user avatar
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9 votes
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Criteria to assess the possibility of corporate bankruptcies in U.S. equity exchange markets

I have been told: Bankruptcy is very controversial Google Scholar Researchers. You might track companies ratios (e.g., debt to equity ratio, ...
Emma's user avatar
  • 460
9 votes

What are the main types of orders on an exchange?

As @chrisaycock mentioned, there's many permutations of parameters, especially when it comes to venue routing instructions, so it's hard to write an exhaustive list. But most of the time, the ...
databento's user avatar
  • 2,468
9 votes

What is the point of mental arithmetic tests?

I can offer a personal anecdote for why these skills are sometimes needed. Stemming from my career as a professional trader making trades by hand--though this is far in the past and before I ran my ...
amdopt's user avatar
  • 4,738
8 votes
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Detect pattern from OHLC data in Python

As far as I know there is no library. With some other researchers, we implemented this 20 years ago in scheme (yes, it was long ago, when Lisp, and not python, was the language of AI). Our methodology ...
lehalle's user avatar
  • 12k
8 votes

Is this how stock trading works?

You would definitely have some advantage. High Frequency Trading is all about speed and the fastest traders wins. Oftentimes, winner takes all. The blog Sniper in Mahwah & friends digs into the ...
Bob Jansen's user avatar
  • 8,543
8 votes

What is the point of mental arithmetic tests?

There are two reasons that I can offer: A mundane reason is that the companies are testing for it in their interviews and to get the job you have to pass it. In that sense it is similar to Leetcode ...
Hans-Peter Schrei's user avatar
7 votes
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Cost of rolling futures contracts

Personally I hate the term "roll cost" and prefer "roll yield" or "effect of rolling". It is not really an out of pocket cost (it involves no outlay or receipt of cash). It has to do with contango ...
nbbo2's user avatar
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7 votes

Delta One Trading business

Delta one trading desks provide synthetic exposure to their clients. OK, so what does that mean? Delta One desks give their clients exposure to a product (stock index, ETF, or even a single stock) ...
JoshK's user avatar
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7 votes
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How to check if a portfolio has momentum bias

It kind of depends what your objective is. First, momentum 'bias' isn't well-defined. Are you looking to eliminate momentum exposure for some reason? Momentum itself isn't even well-defined really: ...
Chris's user avatar
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7 votes
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Algorithmic Trading: Python vs SQL

Python has lots of excellent libraries to compute Technical indicators for you, ta and ta-lib are great. These libraries have ...
Hamish Gibson's user avatar
7 votes
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How can we estimate new stock price after a large purchase?

There are a number of price impact models which seek to predict the bias induced on prices by trading. There are also issues with some of these models (which I will mention later). Models Probably the ...
kurtosis's user avatar
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