
Math Whiz Trades Without Humans - monsieurpng
https://www.bloomberg.com/news/articles/2019-12-05/math-whiz-trades-without-humans-to-build-a-700-million-fortune
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b0b10101
> XTX -- the name refers to a mathematical formula used in its trading
> algorithms

Wow so they do linear regressions?? Incredible.

But in all seriousness, for how long are we going to dress up statistics as
some new cool and exciting methods? Are VC's and bosses really this easily
fooled?

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zelly
What they actually do: colocated servers next to the exchange collecting
$0.0000001 per trade with nanosecond latency.

Create mystique of doing spooky AI to get more capital which they use to hedge
even more trades/second, making more money, which they then attribute to AI
which gets them even more capital.

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vecter
If you knew anything about HFT, you'd know that speed got arbitraged out more
than a decade ago. Everyone is fast now. In order to make money, you need true
alpha and predictive ability. It's sad to see you disparage their impressive
achievements when what they've done is incredibly difficult to accomplish,
especially as such a latecomer. I know because I tried it myself ten years ago
when it was even less competitive and couldn't make it work.

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PopeDotNinja
The real money is probably made by you renting out the server racks close to
the exchanges!

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kasey_junk
Lots of exchanges now capture that themselves.

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badfrog
What's the actual story here? This can't be the first trading firm that
doesn't have human traders?

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dcolkitt
The real story is that XTX is primarily a _currency trader_. Unlike stocks,
futures or options, currencies aren't tied to a single exchange. If you want
to go out and change your dollars to yen, there's not a single venue or even
federated system for doing that.

If you go out and build an amazing strategy for, say, index futures, all you
have to do is set up an account at the futures exchange. If you make a bunch
of money the exchange doesn't care. The exchange isn't your counterparty, so
your profits don't come at their expense. They're just happy to execute the
volume.

Whereas with currency, most trades are done through over-the-counter
"liquidity providers" (LP), traditionally major international banks. If you
make too much money, the LPs get pissed off. Since they're acting as your
direct counterparty, your profit comes at their expense. Consequently, a great
trading system alone isn't worth that much in currency space. If you make too
much money, you'll just get banned from all the LPs.

Like many others who tried to break into the space, XTX already had great HFT
trading models. But their real innovation become an LP themselves. Rather than
beg the major banking franchises to give them a seat at their table, they went
out and built their own. That required creating business relationships with
upstream sources of order flow, like retail forex brokers.

That customer base gave them the capability to capture market share without
worrying about counterparty risk. Combined with their superior HFT models, it
gives them a major edge over traditional banks and LPs. They can offer tighter
spreads and still make a profit at a price point that their competitors can't.

~~~
avn2109
This is much better than the article and should be the top comment.

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tobmlt
X transpose X inverse, X Transpose Y, it's the best linear unbiased estimator
(B.L.U.E. eh hem), and let me tell you whyyy,

Because ...

ah crap it's been to long, did anybody else learn this song in grad school for
econometrics (or similar) when studying Gauss Markov theory?

Here's to Professor Jackson at Auburn for this memory I can never quite
remember the second line of, and yet I can never quite forget the whole
thing...

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hikefast32
‘Member long term capital management?

I ‘member.

