The future of trading

[$spreader]

$spreader. I fail to see that the number of daily trades made is relevant in evaluating the merits of automation but my equity / index future / options thereon transactions (which are all automated) have a mean daily transaction number of 57 with a standard deviation of 19 on a YTD basis. The system I set up for a third party a couple of years ago has averaged over 400 transactions per hour for 2 years with a >1 Sharpe on every rolling 12 month interval to date.

The non-automated stuff I do is on my 'fun' book which is simply some index future / SB, binary and spot FX punting.

This is not about the anatomy of my trading habits however, the point is that any (trading) decision that one can make can be preempted as a function of external inputs. Speculative activity should not be subjective to the degree that one simply 'feels' like executing an order.

On this basis there is no need for professional speculative traders, only algorithm developers / programmers with an understanding of market micro-structure and statistics. The loud mouthed man in red braces has died and been replaced by the young, educated and self made.

NQR

After what's happened this week with the quant funds reporting catastrophic losses blamed on their mathematical models,world markets in turmoil,do you still stand by your last paragraph?

 

[chump]

"The loud mouthed man in red braces has died and been replaced by the young, educated and self made.".....I remember reading that and laughing.....only until they ''fck up"...the only thing we never know for sure..is the expiry date on the 'can'

 

[Paulds11]

After what's happened this week with the quant funds reporting catastrophic losses blamed on their mathematical models,world markets in turmoil,do you still stand by your last paragraph?

Although Im just diving in here (please excuse me if I am digressing from the subject matter) I have to agree somewhat to this statement made by $preader.

Although there is a place for quantization and the removal of emotion from trading.. we must all remember that our brains are actually capable of much more adaptation on the fly than we give credit for. For example, can you imagine trying to scalp the FDAX using a quant/automated system... I cant.. and I wouldn't trust many algorithms at those time frames because my observation is that the smaller the time frame the more erroneous the results from indicators become (in general of course). Discretion I feel is critical at this juncture and we must remember.. there is a reason that some of the best traders around are discretionary scalpers (in the Futures markets at least.)

I think Algorithmic trading really comes into its own over longer time frames and in particular in options trading where such tools can be used to huge effect in selecting neutral or stocks for neutral strategies though.... but my personality just cant take all that waiting and analysis.. I need to be "at the coal face".. thats why I chose Futures scalping...

just my 2ticks worth

Paul

 

[dickiedickieg]

None of you seem to have yet grasped the difference between ALLOCATION models and TRADING models?

$preader, along with the majority of participants be they bank traders, hedge fund, locals or otherwise are sick to death of the ALLOCATION models "participating" (i use this word loosely) in the markets. They do not participate in all markets however only the STIR markets. This is because they are NOT trade decision models but ALLOCATION models (please see my previous post for definitions) and require a non volatile well supported bid offer spread to succeed. They are NEVER the first to bid or offer, indeed today with the credit crunch well and truly underway they were no where to be seen in the Euribor (>2M lots record by the way) and position building in any size one required was not an issue! HOORAY!

If you require proof please read from the biggest horses mouth: http://www.rsj.cz/docs/liffe/20070725.html i quote "RSJ says it enters large orders to ensure the best allocation on trades but that it usually wants to wait until after other Liffe members enter orders, to ensure support for certain contract prices"!!! In other words although it came last in qualifying it expects pole position....(For more ranting by this NON trading entity please see http://www.rsj.cz/docs/liffe/20070701_commentary_liffe.pdf)

LIFFE informed me me that the growth of "new blood", which is the MOST important trader for any exchange, is now non existent in its STIR pro rata markets which i can well believe because whilst its allocation algorithm is pro rata i shall no longer finance and train "new blood" to participate. It has adversely affected all types of STIR traders be they scalpers, hedgers or position builders like me, simply because it is not possible to gain a meaningful position at the price you wish.

Ultimately a successful trader will adapt and as such will trade different products like $preaders Bond/Note spread which is all well and good (i myself now position trade oil spreads- allocation is NOT a problem!) however this does not help the pro rata exchanges. LIFFE too little too late perhaps are amending their allocation algorithm this month although not to a random allocation with a FIFO cap which would treat all traders new, old, large and small alike!

 

[Paulds11]

dickiedickieg

seems like an interesting read this


cheers dickiedickieg
best regards
Paul

 

[Paulds11]

None of you seem to have yet grasped the difference between ALLOCATION models and TRADING models?

LIFFE informed me me that the growth of "new blood", which is the MOST important trader for any exchange, is now non existent in its STIR pro rata markets which i can well believe because whilst its allocation algorithm is pro rata i shall no longer finance and train "new blood" to participate. It has adversely affected all types of STIR traders be they scalpers, hedgers or position builders like me, simply because it is not possible to gain a meaningful position at the price you wish.

Ultimately a successful trader will adapt and as such will trade different products like $preaders Bond/Note spread which is all well and good (i myself now position trade oil spreads- allocation is NOT a problem!) however this does not help the pro rata exchanges. LIFFE too little too late perhaps are amending their allocation algorithm this month although not to a random allocation with a FIFO cap which would treat all traders new, old, large and small alike!

dickiedickieg
This is really interesting (after some time pondering it)

Ive just been researching Futures markets and based on liquidity I had STIR futures down as a possible focus but it would seem that from this information it may not be the best markets to focus on because of seemingly bad fills (as I understand it).

Is my thinking correct? (some of the best Traders in the world trade Eurodollar.. it would seem thier size gifts them an advantage at the expense of new entrants like me..

Looks like Ill focus in index Futures now and scalp the b-jeezus out of the DAX and CME eminis... (PS its tough to get a news source on these markets isnt it?.. one has to cast the news net very wide to get a feel esp since bloomberg and Reuters pro products are a bit pricey for newbie remote based traders)...

oh and yes..that was some huge loss of funds at Goldmans... 26% of a multi billiondoallar Fund.. so far this year....OUCH!! there will be a culling of quants (say that quickly..!) surely and a rationalization of Algorithmic based set ups of course.. and thats just one account we know of thats come clean so far..

Regards
Paul

 

[$spreader]

The situation in LIFFE's STIRS was indeed a sad one.The majority of the locals who really helped boost the contracts in the first place are now off doing something else - forced out by a back-riding allocation model,just trading the bid-offer spread relying on getting filled on the market orders that locals don't get and then putting the squeeze on them and all for a tick.Absolutely shocking,not only that they got away with it for so long but also that they've made a fortune.

LIFFE now face an uphill challenge,the order book/depth of market in the STIRS is virtually non-existent - it's almost worth taking a look just to see how pathetic it has become - and the people who run these allocation models think they've increased liquidity whereas in reality they've actually killed it off.

Also if they've found a loophole once and edged everyone out,they're going to keep looking for a new one,regardless of changes to the algorithm so why should people pit their wits in the market again only to find that a year down the line it's back to the fun and games?LIFFE should have acted a lot sooner in the first place,maybe they've left it too late,maybe not?It will be interesting to watch things develop.

It would seem we truly are in an electronic era and with the anonymity and opportunity to make money by whatever means it will attract parasites in all the markets for a long time to come.