
Ask HN: Any high frequency trading hackers - astroguy
What are the current challenges in high frequency trading?<p>Can anyone suggest me few tasks [like implement foo algorithm], so that I can directly jump into those tasks during my free time
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achew22
There are a lot of problems with HFT (high-frequency trading) that basically
boil down to proximity to the exchange. If you haven't paid for a colo inside
their datacenters you can't well expect to use the usual HFT tricks of putting
in requests for things you don't want and then never making actions on them
because your 40ms latency to the exchange will mean that the guys in the colo
have acted on your move. I heard someone say that they got a colo for 10,000 a
month (sorry, I don't have a source for that) so that kind of edges you out of
really good HFT. Another thing to know is that you are running around like a
chicken with your head cut off trying to grab pennies off a railroad track
that is running bullet trains (I love that analogy). i.e. very dangerous.
Slight mistakes can cost you hundreds of dollars ever 20ms until you hit
ctrl+C in your script! I do wish you the best of luck and I hope you will
write about your progress/experience in HFT on HN in the future.

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astroguy
Thanks for alerting me! I am a newbie to this field, but love to explore the
pros and cons of the current algorithms used in HFT. Sure! I will.

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retube
HFT is, as the name suggests, all about speed - sub-millisecond latency in
some markets. It requires a lot of physical and expensive resources, not to
mention an extremely deep knowledge of the mechanics of whatever contracts you
wish to trade and the exchanges they are traded on. Basically there's a reason
this field is played only by the big banks and hedge funds. (I bank I know
spent at least $10m setting up an HFT desk)

Algo trading is probably a much better option: basically trading off the back
of quant/stat analysis you have done with respect to prices (or relative
prices). You'll learn lots about whatever contracts/instruments/markets you're
interested in, plus get to flex your geeky skills. And you can do it from a
laptop at home over a regular intenet connection with some cheap, if not free,
trading platform or api.

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wladimir
Is it actually still possible (with that I mean realistic) to make a profit
that way? You'd say the banks have seized all algorithmic trading
oppertunities, if you try something like that at home you'll always be second
violin.

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a904guy
I've been working on an algorithmic trading system using machine learning, it
is not HFT currently. It is currently daily (24h+ held equities), the intra-
day side (~5-60 minute held equities) will come very quick after I feel
comfortable with the machine learning side of things. The source of data will
change, and a few tweaks to the actual trading system and it will be running
intra-day. The HFT will only come around once I can get a small colo that can
achieve the necessary <40ms transactions to get the benefit of the pre-window
before orders actually hit the open market.

<http://edwardworthington.com/>

Sorry the interface was thrown together over a weekend (The actual back-end
application was the primary focus for the last year as it was just me looking
at it via command line) and quickly designed it with a large AJAX load at the
beginning, I'll eventually change it to a static load then do ajax polling to
update the data.

I cannot recommend any particular reading sources as I've been working with my
financial buddies, that have been feeding me tips and doing my own discovery
on the internet.

This was just a side project of mine but has turned into a really nice
application. It is always calculating the better strategies (out of over 50
possible different methods/functions with variables ranging from 0-260 that
are used to indicate open and close signals in any number of combinations). It
has improved its strategy over the last week taking it from estimating ~60% to
~70% gains YTD. I have no doubt it will eventually get over 100%.

I'd love to collaborate with anyone wanting to get into this stuff as I'm
flying solo.

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ajays
Where do you get the data? I've found that access to (inexpensive) sources of
data to be a problem. For backtesting, I'd love to get historical data; even a
sample would do. A long time ago, Island used to make their data available.
Then they were bought out by NASDAQ, and no more data :-(

~~~
a904guy
I've been collecting data from various places, originally while I was building
the framework I simply downloaded yahoo daily data to test against.

Now I've been downloading and recording tick changes from my broker,
Optionshouse.com.

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tiffani
Hadn't started implementing any systems yet, but earlier this year I ordered
these and they've been ultra-educational at least for figuring out how to get
started, vocabulary, etc.:

High-Frequency Trading: A Practical Guide to Algorithmic Strategies and
Trading Systems <http://www.amazon.com/gp/product/0470563761>

Inside the Black Box: The Simple Truth About Quantitative Trading
<http://www.amazon.com/gp/product/0470432063>

Quantitative Trading: How to Build Your Own Algorithmic Trading Business
<http://www.amazon.com/gp/product/0470284889>

~~~
astroguy
Add to the list <http://helwr.posterous.com/trading-354>

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SandB0x
You won't find a better place to ask than:
[http://www.wilmott.com/index.cfm?&forumid=1](http://www.wilmott.com/index.cfm?&forumid=1)

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jeffmiller
There is a fledgling Hacker-News-for-quants at <http://quant.ly>.

The site is still building critical mass, but most of the current users are
experienced quants & HF traders. (Disclaimer: I launched the site)

~~~
arram
I nearly launched quantly.com a year ago. Almost bought the .ly but held off
on it. Surprising to see someone using the domain here.

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ig1
I'd suggest maybe look at algo trading rather than HF, it's much more
accesible to outsiders, plus you can use the algorithms on places like betfair
and stand a decent chance of actually making money.

~~~
mdwrigh2
Do you have any suggestions on where to start reading on Algorithmic Trading?
Perhaps also a way that I could test algorithms against the market, without
actually risking any money?

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thinkingeric
You can buy historical 'tick data'. Be forewarned, however, that simulations
run on this kind of data are not the same as real trading since it doesn't
reflect the bid/ask. Also in my opinion and experience, price alone is
insufficient data for analysis. Also don't forget to figure in total execution
cost as it makes a huge difference in the evaluation of algorithms, not to
mention the 'bank roll' necessary to allow any 'edge' to play out. Trading
simulations are an engaging software problem, but they aren't such a great
approximation of actual trading, at least in my experience.

~~~
a904guy
You can also download daily tick data from Yahoo Finance for free, They offer
bid/ask, volume, and adjusted closes.

~~~
i2pi
"Tick data" refers to trade by trade execution data. Daily data is end of day
summary data. If you are doing HFT, you need tick data and the market depth.
Huge volumes of data compared to daily close data.

~~~
a904guy
Aye, Tick data is needed for HFT, no doubt there. I was actually talking
towards this thread which mentioned that they should try algorithmic trading
first. Which you can build a successful system around daily closes, as long as
you plan to hold your equity for over a 24hr period.

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JSig
In the big picture view it seems that HFT is becoming a crowded trade. I would
think the competition would be a huge challenge. Maybe you should try to start
off in foreign markets where there is some breathing room - if that's
possible.

Here is an article about about wall street programmers leaving the big boys to
go at it alone.

[http://www.forbes.com/2010/07/28/high-frequency-trading-
pers...](http://www.forbes.com/2010/07/28/high-frequency-trading-personal-
finance-programmer-pay.html)

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_grrr
Challenges:

* The need for speed, at every level of the architecture (network, tcp/ip, hardware, app)

* Reducing order (send/ack) round-trip times, this generally means putting your servers in a data cetre as close to the exchange as possible (co-located, if the exchange offers it). If your trading across multiple exchanges simultaneously it gets trickier.

* Sourcing market data - can you source direct from the exchange, rather than through a 3rd party like Reuters? Again, it comes down to how fast you can re-act to the market.

* Back-testing - you need historical data to test a model, then you need a way of testing the model - what are you going to test against? How are you going to simulate the exchange?

* Expense - it's expensive - market data, co-location etc etc all costs, as others suggested. HFT is generally short term positions, with some arbitrage strategies holding positions for less than a few milliseconds. A medium term (intra-day) type strategy requires less intensive (expensive) technology as your not trading to capture market prices that might only be extant for a few milliseconds.

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Vivtek
Light speed seems to be a pretty important problem - the added benefit being
if you crack that nut, further employment will be unnecessary.

~~~
pavel_lishin
Yeah, but causal loops would be a bitch.

~~~
Vivtek
Oh, well, what's one more type of pollution? I think a world with causal
pollution would be a more interesting one.

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pkghost
What value does HFT create?

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ggruschow
HFT provides liquidity which reduces everyone else's cost and/or exposure to
short term risk.

Low-latency trading though costs everyone. Nobody actually needs anything
faster than a fill in a blink of an eye. The only people who think they do
really need smarter match engines or to stop taking advantage of people

~~~
pkghost
Where does short-term risk come from? And what's the difference between HFT
and LLT?

If anyone knows of good high-level reading material on the subject, I'd
appreciate a link so I can spare you more dumb questions.

I admit to having drunk some of Mark Cuban's Kool-Aid, as well as Jon
Stewart's and that of some other liberal sources. Their argument, as far as I
understand, is that HFT doesn't provide value proportionate with that which it
extracts from a system designed to connect investors with entrepreneurs.

The idea has an appealing simplicity, especially given recent history, but
don't know very much about markets, so I thought I'd ask people on the other
side of the debate for their take.

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drallison
Maxeler Technologies (<http://www.maxeler.com)supplies> turnkey FPGA-based
acceleration that supports high speed trading with trading latencies on the
order of a few microseconds. Software development for the accelerated platform
begins with a client's "known to work" proprietary code, which Maxeler
accelerates. When latency is an important performance factor, the Maxeler
trading server needs to be collocated in the exchange.

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fertel
Get in touch with savvis to do a colo at NJ2.

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vijaymv_in
One of the best book I read about electronic trading is Trading and Exchanges:
Market Microstructure for Practitioners.

