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26 votes

What open source trading platform are available

Definitely check out Quantopian and Zipline. Quantopian provides a free research environment, backtester, and live trading rig (algos can be hooked up to Interactive Brokers). The algorithm ...
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 ...
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16 votes

What open source trading platform are available

QuantConnect provides an open-source, community-driven project called Lean. The project has thousands of engineers using it to create event-driven strategies, on any resolution data, any market, or ...
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 ...
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14 votes
Accepted

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 ...
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12 votes
Accepted

Orderbook Arbitrage

A public order book gives traders information not only on the current price of a security, but also the volume and structure of the entire supply and demand schedule. Such information can be used for ...
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  • 286
12 votes
Accepted

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 ...
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11 votes
Accepted

Why would an exchange choose one matching algorithm over another?

Among matching rule, do not forget "auction calls", in most markets, you have one at the open and one at the close. To give you the main reasons to use one matching engine rather than another: ...
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11 votes
Accepted

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 ...
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  • 959
11 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 ...
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11 votes
Accepted

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 ...
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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 ...
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  • 1,626
10 votes

Orderbook Arbitrage

I am not sure Dark Pools (DP) have been created to avoid "market manipulation". They have been created by firms because they found an advantage to create them (see Market Microstructure in Practice, L ...
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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 ...
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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 ...
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9 votes
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Application of Control Theory in Quantitative Finance

Of course, optimal control is at the core of math finance. Take few applications: Option Pricing: you have an exposure to a time dependent combination of market factors; you have some knowledge of ...
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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. ...
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9 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. ...
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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, ...
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  • 460
9 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 ...
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8 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 ...
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  • 1,626
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 ...
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  • 7,652
8 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 ...
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  • 4,493
7 votes
Accepted

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 ...
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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: ...
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7 votes

trading exit strategy

There can be no rational trading entry or exit strategy based on your pnl, i.e. a function of past and current prices. The only way to make a "strategy" is to predict, one way or another, ...
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6 votes

Applications of Fourier theory in trading

I have created some Fourier Analysis of stocks here: http://www.gregthatcher.com/Stocks/Default.aspx I turn the raw data into a series of sines and cosines, show the Fourier approximation as a graph, ...
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6 votes

Efficient Markets Paradox

Making money is not the only reasonable objective to trading. Another common reason is to manage/reallocate risk. For example, this is exactly the objective of liability-driven-investors, such as ...
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  • 463
6 votes
Accepted

How to calculate the JdK RS-Ratio

Reading what I have, I can only offer a guess. 1: Let's say you're looking at 9 sectors compared to \$SPX on a daily chart. Foreach sector, compute relative closing price: 100 * Sector/\$SPX 2: It ...
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  • 76
6 votes
Accepted

How can index futures trade 24/7 when the index doesn't change?

Theoretically "information" about stock prices is still arriving (including information about developments outside the United States) and the futures market is doing its best in estimating what the ...
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