

Ask HN: High-frequency trading (HFT) for individual investors? - markhall

As someone who is new and ignorant to the world of high-frequency trading, I am wondering if anyone is aware of any tools&#x2F;solutions that leverage today&#x27;s smart tools (machine learning, etc) to empower INDIVIDUAL investors.
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kohanz
HFT (high-frequency trading) is a buzz-word that's being thrown around, but
what I think you're really asking is whether _automated_ trading is possible
for individual investors.

The infrastructre and costs of HFT (hardware, co-location, etc.) are
enormously high and as far as I know only institutions can compete on this
level. However, if you have an algorithm that has an edge that does not depend
on millisecond level execution, you're just talking about automated trading
and this is very achievable by an individual.

Many brokers offer APIs to service this market. For example, Interactive
Brokers has a commonly used API that has a sizable community of people working
with it.

About 6 years ago, I developed an automated trading system with a friend who
was a self-employed day trader at the time. It was a very interesting project
and quite successful for a while. However, as time passed, markets changed and
so did the profitability of our algo. At our peak we were doing 10k
profit/month after commissions, but it was short-lived.

There are several communities, such as at IB, or Elite Trader, to discuss the
topic of automated trading, but don't expect the helpful atmosphere you get
here. It's an extremely competitive environment (even though you're almost
never directly competing with the small-time investors who post on those
forums) and there is much more misinformation and trolling than there is
useful reading.

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samfisher83
You have to have your server very close to where the trading occurs. If the
imbalance in the trade exists for a few microseconds and if your connection
takes 10's of milliseconds you have no chance. Secondly these trading firms
are hiring PhDs a lot of money to come up with these algorithms. So you need
to make sure you can come up with something a little smarter.

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dpweb
There's a small group of people out there consistently making money trading
and you can start with a rather minimal investment. Well, i believe 25k as a
retail daytrader. Less at a ..prop firm.. But that route has its own set of
risks and advantages.

What you need is an edge of course, but a real edge. The guys who make money
for a year or two or five and then lose it all in year six are also common.
They thought they had an edge and didnt. The problem of course is, as with
arbitrage, the market itself eliminates any edge for it participants. It is
possible to be successful, true its not easy, but im not sure what in life
thats worthwhile is easy. Guys who say, its impossible, you will lose. Thats
ignorance. HFT definately has an edge, but its not as much in their propietary
strategies as people think. HFT firms can make on average a tenth of cent
profit on every share traded, and be profitable. Of course they trade large
volume, and with their broker dealer relationships pay a very very low
commission rate, a rate so low its unavailable to the average joe. If they
paid what you pay to make a trade, they would go broke. Their other edge,
techniques to flash orders in high speed to the exchanges, are in part edges
based on their expensive high speed connections, but also in some cases lax
regulatory environment. Generally, markets have rules against ..manipulation..
Meaning showing or placing an order they have no intention of executing, but
placing it to manipulate the current price and there are a few ways to do
this. Exchanges overall have cracked down, but not always to the extent they
could. Some trading operations have been caught and fined by the sec for this
kind of activity. And then of course their strategies mostly based on
statistical methods which presumes the price movements are random and
statistics can be used to predict them. With the other advantages, high speed
connections, extremely low fees, high volume.. They dont need a crystal ball
in their strategy, but something just good enough to turn the 50 percent
chance of success to say 50.1 percent.

Recommendations for you, learn by doing and get a low fee broker. Not giving
away your profits in commissions is absolutely essential. Interactive Brokers
is a common choice for the retail trader and pretty good choice overall. With
trading, its tough as you may have to go bankrupt a couple times to learn what
works. More than many people are willing to tolerate.

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akg_67
HFT Trading is an expensive proposition even for trading firms so I doubt
individual investors can participate. Last I heard that it can cost you upward
of $10K/mo to locate a HFT server in a low latency location (a primary
requirement for HFT).

If by HFT, you are referring to quantitative trading then there are several
sites like Think or Swim, Ninja Trader, etc that you can use. There is lot of
research literature available online for Quantitative Trading ideas.

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taproot
Like playing the ends, I believe you need substantial bankrolling to turn a
profit as your betting on the smallest gains with a very large amount of
money.

For the individual you would either need to be very good (best of the best) or
do it for a very long time. You would still require a sizeable bankroll.

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thejteam
To elaborate a bit on what others are saying, while software algorithms are
important the real advantage in HFT comes from physical server location that
reduces the latency between you and the exchange. And like all real estate,
prime location is expensive.

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gourneau
[https://www.quantopian.com/](https://www.quantopian.com/) is an amazing place
to both learn and actually write algos that can make real trades.

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asselinpaul
renting machines really close to multiple exchanges and keeping them running
would be cost prohibitive for most individual investor.

I'm currently taking
[https://www.coursera.org/course/compinvesting1](https://www.coursera.org/course/compinvesting1),
it's quite basic but the next course, 'Computational Investing 2' will go
through Machine Learning for investing (scheduled for January I think).

Hope this helps.

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markhall
Thanks everyone for your comments and feedback. It definitely provides more
details around my question/interest. If you have any further info, don't
hesitate to share.

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davidlbatey
There is a really good blog
[http://www.quantstart.com/](http://www.quantstart.com/) if you know how to
code.

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brubaker
Just outright take a match to your money, it will be a more efficient way of
losing it.

