Something Interesting in Financial Video - page 11
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Tradays Economic Calendar for iOS
Download the free economic calendar. 500+ indicators of the largest global economies, detailed descriptions in 9 languages, historical data of each indicator with charts and tables.
Download: https://itunes.apple.com/us/app/tradays/id1434281988
Tradays Economic Calendar for Android
Download the free economic calendar. 500+ indicators of the largest global economies, detailed descriptions in 9 languages, historical data of each indicator with charts and tables.
Download: https://play.google.com/store/apps/details?id=net.metaquotes.economiccalendar
This is just an example of the market analysis for S&P 500
A brief look at the terminology, signals and methods for taking trades using Ichimoku Kinko Hyo.
The Idiots Guide to High Frequency Trading
First, let me say what you read here is going to be wrong in several ways. HFT covers such a wide path of trading that different parties participate or are impacted in different ways. I wanted to put this out there as a starting point . Hopefully the comments will help further educate us all
1. Electronic trading is part of HFT, but not all electronic trading is high frequency trading.
Trading equities and other financial instruments has been around for a long time. it is Electronic Trading that has lead to far smaller spreads and lower actual trading costs from your broker. Very often HFT companies take credit for reducing spreads. They did not. Electronic trading did.
We all trade electronically now. It’s no big deal
2. Speed is not a problem
People like to look at the speed of trading as the problem. It is not. We have had a need for speed since the first stock quotes were communicated cross country via telegraph. The search for speed has been never ending. While i dont think co location and sub second trading adds value to the market, it does NOT create problems for the market
3. There has always been a delta in speed of trading.
From the days of the aforementioned telegraph to sub milisecond trading not everyone has traded at the same speed. You may trade stocks on a 100mbs broadband connection that is faster than your neighbors dial up connection. That delta in speed gives you faster information to news, information, research, getting quotes and getting your trades to your broker faster.
The same applies to brokers, banks and HFT. THey compete to get the fastest possible speed. Again the speed is not a problem.
4. So what has changed ? What is the problem
What has changed is this. In the past people used their speed advantages to trade their own portfolios. They knew they had an advantage with faster information or placing of trades and they used it to buy and own stocks. If only for hours. That is acceptable. The market is very darwinian. If you were able to figure out how to leverage the speed to buy and sell stocks that you took ownership of , more power to you. If you day traded in 1999 because you could see movement in stocks faster than the guy on dial up, and you made money. More power to you.
What changed is that the exchanges both delivered information faster to those who paid for the right AND ALSO gave them the ability via order types where the faster traders were guaranteed the right to jump in front of all those who were slower (Traders feel free to challenge me on this) . Not only that , they were able to use algorithms to see activity and/or directly see quotes from all those who were even milliseconds slower.
With these changes the fastest players were now able to make money simply because they were the fastest traders. They didn’t care what they traded. They realized they could make money on what is called Latency Arbitrage. You make money by being the fastest and taking advantage of slower traders.
It didn’t matter what exchanges the trades were on, or if they were across exchanges. If they were faster and were able to see or anticipate the slower trades they could profit from it.
5. This is where the problems start.
If you have the fastest access to information and the exchanges have given you incentives to jump in front of those users and make trades by paying you for any volume you create (maker/taker), then you can use that combination to make trades that you are pretty much GUARANTEED TO MAKE A PROFIT on.
So basically, the fastest players, who have spent billions of dollars in aggregate to get the fastest possible access are using that speed to jump to the front of the trading line. They get to see , either directly or algorithmically the trades that are coming in to the market.
When I say algorithmically, it means that firms are using their speed and their brainpower to take as many data points as they can use to predict what trades will happen next. This isn’t easy to do. It is very hard. It takes very smart people. If you create winning algorithms that can anticipate/predict what will happen in the next milliseconds in markets/equities, you will make millions of dollars a year. (Note:not all algorithms are bad. Algorithms are just functions. What matters is what their intent is and how they are used)
These algorithms take any number of data points to direct where and what to buy and sell and they do it as quickly as they can. Speed of processing is also an issue. To the point that there are specialty CPUs being used to process instruction sets. In simple terms, as fast as we possibly can, if we think this is going to happen, then do that.
The output of the algorithms , the This Then That creates the trade (again this is a simplification, im open to better examples) which creates a profit of some relatively small amount. When you do this millions of times a day, that totals up to real money . IMHO, this is the definition of High Frequency Trading. Taking advantage of an advantage in speed and algorithmic processing to jump in front of trades from slower market participants to create small guaranteed wins millions of times a day. A High Frequency of Trades is required to make money.
There in lies the problem. This is where the game is rigged.
If you know that by getting to the front of the line you are able to see or anticipate some material number of the trades that are about to happen, you are GUARANTEED to make a profit. What is the definition of a rigged market ? When you are guaranteed to make a profit. In casino terms, the trader who owns the front of the line is the house. The house always wins.
So when Michael Lewis and others talk about the stock market being rigged, this is what they are talking about. You can’t say the ENTIRE stock market is rigged, but you can say that for those equities/indexs where HFT plays, the game is rigged so that the fastest,smart players are guaranteed to make money.
6. Is this bad for individual investors ?
If you buy and sell stocks, why should you care if someone takes advantage of their investment in speed to make a few pennies from you ? You decide, but here is what you need to know:
a. Billions of dollars has been spent to get to the front of the line. All of those traders who invested in speed and expensive algorithm writers need to get a return on their investment. They do so by jumping in front of your trade and scalping just a little bit. What would happen if they weren’t there ? There is a good chance that whatever profit they made by jumping in front of your trade would go to you or your broker/banker.
b. If you trade in small stocks, this doesn’t impact small stock trades. HFT doesn’t deal with low volume stocks. By definition they need to do a High Frequency of Trades. If the stocks you buy or sell don’t have volume (i dont know what the minimum amount of volume is), then they aren’t messing with your stocks
c. Is this a problem of ethics to you and other investors ? If you believe that investors will turn away from the market because they feel that it is ethically wrong for any part of the market to offer a select few participants a guaranteed way to make money, then it could create significant out flows of investors cash which could impact your net worth. IMHO, this is why Schwab and other brokers that deal with retail investors are concerned. They could lose customers who think Schwab, etc can’t keep up with other brokers or are not routing their orders as efficiently as others.
7. Are There Systemic Risks That Result From All of This.
The simple answer is that I personally believe that without question the answer is YES. Why ?
If you know that a game is rigged AND that it is LEGAL to participate in this rigged game, would you do everything possible to participate if you could ?
Of course you would. But this isn’t a new phenomena. The battle to capture all of this guaranteed money has been going on for several years now. And what has happened is very darwinian. The smarter players have risen to the top. They are capturing much of the loot. It truly is an arms race. More speed gives you more slots at the front of the lines. So more money is being spent on speed.
Money is also being spent on algorithms. You need the best and brightest in order to write algorithms that make you money. You also need to know how to influence markets in order to give your algorithms the best chance to succeed. There is a problem in the markets known as quote stuffing. This is where HFT create quotes that are supposed to trick other algorithms , traders, investors into believing their is a true order available to be hit. In reality those are not real orders. They are decoys. Rather than letting anyone hit the order, because they are faster than everyone else, they can see your intent to hit the order or your reaction either directly or algorithmically to the quote and take action. And not only that, it creates such a huge volume of information flow that it makes it more expensive for everyone else to process that information, which in turn slows them down and puts them further at a disadvantage.
IMHO, this isn’t fair. It isn’t a real intent. At it’s heart it is a FRAUD ON THE MARKET. There was never an intent to execute a trade. It is there merely to deceive.
But Order Stuffing is not the only problem.
Everyone in the HFT business wants to get to the front of the line. THey want that guaranteed money. In order to get there HFT not only uses speed, but they use algorithms and other tools (feel free to provide more info here HFT folks) to try to influence other algorithms. It takes a certain amount of arrogance to be good at HFT. If you think you can out think other HFT firms you are going to try to trick them into taking actions that cause their algorithms to not trade or to make bad trades. It’s analogous to great poker players vs the rest of us.
What we don’t know is just how far afield HFT firms and their algorithms will go to get to the front of the line. There is a moral hazard involved. Will they take risks knowing that if they fail they may lose their money but the results could also have systemic implications ?. We saw what happened with the Flash Crash. Is there any way we can prevent the same thing from happening again ? I don’t think so. Is it possible that something far worse could happen ? I have no idea. And neither does anyone else
It is this lack of ability to quantify risks that creates a huge cost for all of us. Warren Buffet called derivatives weapons of mass destruction because he had and has no idea what the potential negative impact of a bad actor could be. The same problem applies with HFT. How do we pay for that risk ? And when ?
When you have HFT algorithms fighting to get to the front of the line to get that guaranteed money , who knows to what extent they will take risks and what they impact will be not only on our US Equities Markets, but also currencies, foreign markets and ? ? ?
What about what HFT players are doing right now outside of US markets ? All markets are correlated at some level. Problems outside the US could create huge problems for us here.
IMHO, there are real systemic issues at play.
8. So Why are some of the Big Banks and Funds not screaming bloody murder ?
To use a black jack analogy , its because they know how to count cards. They have the resources to figure out how to match the fastest HFT firms in their trading speeds. They can afford to buy the speed or they can partner with those that can. They also have the brainpower to figure out generically how the algorithms work and where they are scalping their profits. By knowing this they can avoid it. And because they have the brain power to figure this out, they can actually use HFT to their advantage from time to time. Where they can see HFT at work, they can feed them trades which provides some real liquidity as opposed to volume.
The next point of course is that if the big guys can do it , and the little guys can let the big guys manage their money , shouldn’t we all just shut up and work with them ? Of course not. We shouldn’t have to invest with only the biggest firms to avoid some of the risks of HFT. We should be able to make our decisions as investors to work with those that give us the best support in making investments. Not those who have the best solution to outsmarting HFT.
But more importantly, even the biggest and smartest of traders , those who can see and anticipate the HFT firms actions can’t account for the actions of bad actors. They can’t keep up with the arms race to get to the front of the line. Its not their core competency. It is a problem for them, but they also know that by being able to deal with it better than their peers, it gives them a selling advantage. “We can deal with HFT no problem”. So they aren’t screaming bloody murder.
9. So My Conclusion ?
IMHO, it’s not worth the risk. I know why there is HFT. I just don’t see why we let it continue. It adds no value. But if it does continue, then we should require that all ALGORITHMIC players to register their Algorithms. While I’m not a fan of the SEC, they do have smart players at their market structure group. (the value of going to SEC Speaks :). While having copies of the algorithms locked up at the SEC wont prevent a market collapse/meltdown, at least we can reverse engineer it if it happens.
I know this sounds stupid on its face. Reverse engineer a collapse ? But that may be a better solution than expecting the SEC to figure out how to regulate and pre empt a market crash
10…FINAL FINAL THOUGHTS
i wrote this in about 2 hours. Not because i thought it would be definitive or correct. I expect to get ABSOLUTELY CRUSHED on many points here. But there is so little knowledge and understanding of what is going on with HFT, that I believed that someone needed to start the conversation
Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Forex Video May 2013
newdigital, 2013.05.09 16:54
High Frequency Trading Explained (HFT)
Dave Fry, founder and publisher of ETF Digest, and Steve Hammer, founder of HFT Alert, discuss high frequency trading operations, fundamentals, the difference between algorithmic trading and high frequency trading, fluttering, latency and the role high frequency trading had in the May stock market flash crash in 2010.
Forum on trading, automated trading systems and testing trading strategies
Something Interesting in Forex Video May 2013
newdigital, 2013.05.09 12:31
High frequency trading in action. This video is about 4 minute. CNN's Maggie Lake gets a rare look inside the super-fast trading industry.
This High frequency trading (HFT) is particularly interesting for traders at the present time, for example: there is some thread in russian part of mql5.com about HFT of 82 pages. Some poeple said that it is impossible to create any signal with HFT EA ... who knows ...
Forum on trading, automated trading systems and testing trading strategies
Something Interesting to Read May 2014
newdigital, 2014.04.28 10:33
Chan: Algorithmic Trading: Winning Strategies and Their Rationale (Wiley Trading)
Engaging and informative, Algorithmic Trading skillfully covers a wide array of strategies. Broadly divided into the mean-reverting and momentum camps, it lays out standard techniques for trading each category of strategies and, equally important, the fundamental reasons why a strategy should work. The emphasis throughout is on simple and linear strategies, as an antidote to the over-fitting and data-snooping biases that often plague complex strategies. Along the way, it provides comprehensive coverage of:
- Choosing the right automated execution platform as well
as a backtesting platform that will allow you to reduce or eliminate
common pitfalls associated with algorithmic trading strategies
- Multiple
statistical techniques for detecting "time series" mean reversion or
stationarity, and for detecting cointegration of a portfolio of
instruments
- Simple techniques for trading
mean-reverting portfolios—linear, Bollinger band, and Kalman filter—and
whether using raw prices, log prices, or ratios make the most sense as
inputs to these tests and strategies
- Mean-reverting strategies for stocks, ETFs, currencies, and futures calendar and intermarket spreads
- The
four main drivers of momentum in stocks and futures, and strategies
that can extract time series and cross sectional momentum
- Newer momentum strategies based on news events and sentiment, leveraged ETFs, order flow, and high-frequency trading
- Issues
involving risk and money management based on the Kelly formula, but
tempered with the author's practical experience in risk management
involving black swans, Constant Proportion Portfolio Insurance, and stop
losses
- Mathematics and software are the twin languages
of algorithmic trading. This book stays true to that view by using a
level of mathematics that allows for a more precise discussion of the
concepts involved in financial markets. And it includes illustrative
examples that are built around MATLAB© codes, which are available for
download.
While Algorithmic Trading contains an abundance of strategies that will be attractive to both independent and institutional traders, it is not a step-by-step guide to implementing them. It offers a realistic assessment of common algorithmic trading techniques and can help serious traders further refine their skills in this field.How Trading On Margin in Futures Works
Trading on margin very simply means the ability to control a certain size position without having to put up the full value of that position in cash. Margin allows a trader to magnify both the potential gains, and the potential losses on an account. In this lesson we are going to cover margin as it relates to futures trading, so if you need a basic overview of how trading on margin works, see the links below this video for more information.
There are two primary advantages of trading futures over trading stocks which relate specifically to margin. The first, is that futures traders generally have access to much lower margin requirements than most stock traders. Generally the maximum leverage available in the stock market is 4 to 1, meaning that you have to put up at least 25% of the value of the position in order to remain in the trade, which would magnify your gain or loss by 4 times, compared to a position without margin. In the futures market, intraday margin levels can go to 100 to 1 or greater. This means that a trader only needs to maintain as little as 1% of the position value, in order to remain in the trade, potentially magnifying gains and losses on a trade by up to 100 times. While the ability to magnify potential gains is generally seen as an advantage to futures traders, it also comes with an added level of responsibility, as loss potential is also magnified by the same amount.
The second advantage of trading futures over stocks as it relates to margin, is that you do not have to pay for the use of margin as you would in the stock market. While you only have to put up a portion of the trade value when trading on margin in the stock market, ultimately the full position value is needed to place the trade. Because of this stock traders must borrow the rest of the trade value from their broker, and as this is a loan, they pay interest on the money they borrow. In the futures market, margin is seen as more of a "performance bond" or as money that you have to put up to make sure that you can make good on any losses incurred on a trade. Because of this you are not required to have the full position amount in order to place a trade in the futures market, which means there is no interest paid when trading on margin.
There are several other nuances as it relates to margin that it is important to understand when trading futures. Firstly, unlike in the stock market where margin requirements are generally the same for most actively traded stocks, in the futures market margin requirements differ depending on what futures contract you are trading. The reason why is because in the futures market, margin requirements are set based on volatility and position size, meaning that the more volatile a futures contract is, the higher the margin requirement is generally going to be.
Just as in the stock market there is an initial and a maintenance margin requirement for futures contracts, meaning that you must have a certain amount of money in your account to initiate a new position, and then a certain amount of money in your account to continue to hold or "maintain" the position once it is initiated. These levels are set by the exchange and while a broker can require a higher margin level than the minimums set by the exchange most do not. Lastly, it is important to understand here that these initial and maintenance margin requirements apply only to positions which are held overnight, and most futures brokers offer a lower margin requirement to traders who open and close positions within the same trading day.
As an example, the current initial margin for holding an E Mini S&P contract overnight as set by the futures exchange is $6,188, and the current maintenance level is $4,950. The daytrading margin as set by the Apex Futures is $500 for both the initial and the maintenance margin.
So as most traders open and close their positions within the same trading day when trading the E Mini S&P, they need to have at least $500 in their account when trading with Apex in order to initiate and maintain a position, per contract traded. If a trader is planning to hold an Emini S&P contract overnight, as of this lesson they will need to have at least $6,188 in their account in order to initiate the position, and at least $4,950 in their account in order to maintain the position. If the trader drops below these levels then the broker has the right to liquidate their positions, and/or they will get a telephone call from the firms margin desk, to arrange to have additional funds to be deposited into the account.
While overnight margins are set by the exchange and generally the same from broker to broker, daytrading margins are set by the broker and therefore vary widely. One of the reasons why I have chosen to recommend Apex Futures, is because they offer $500 daytrading margins, which are among the lowest in the industry. Keep in mind however that leverage is a sword that cuts both ways, so while increased leverage amplifies the potential gain on a position, it also amplifies the potential losses.
Lastly it is important to keep in mind that although it is not a super common occurrence, margin requirements can be changed by the broker or the exchange at any time due to increased volatility in the markets. It is important to understand here that if requirements are raised, then traders will be required to have the set maintenance margin amount for existing positions, as well as any new positions which are initiated.
How To Trade AUDUSD
The audusd pair is one of the most important major pairs as it represents two of the biggest economies in the world: Australian and American one.
The pair is influenced strongly by what is happening on the commodity markets as Australian is one of the biggest exporters of gold, copper, iron, etc, so looking at how those markets are moving will make you having an educated guess about what the Australian dollar will do.
Also, one thing on the list of those that are making the audusd pair moving is the economic situation and monetary policy in China. This is because China is the destination of more than one third of Australian exports and this means that data regarding GDP, and how the Chinese economy is faring should make the Australian dollar moving.
The RBA (Reserve Bank of Australia) is the central bank and they are meeting on a monthly basis, usually on the first Tuesday of each month. The interest rate decision is followed by a press conference and the Governor is explaining the decisions and the next steps in monetary policy.
Kevin 'Huddy' Hudson - The Basics of Market Profile
Kevin “Huddy” Hudson is a full-time trader and coach to fellow traders specializing in the S&P E-mini futures contract. He has spent many years perfecting his entry and exit techniques using channels and trend lines along with critical Market Profile levels to find and trade both minor and major support areas. He has made a living trading the markets for more than a decade. As the founder of Channel-Trading.com, Huddy loves to pass along his thoughts about the market and trade ideas to subscribers and students. Nothing makes him happier than seeing a student actually “get it”.
In this webinar we will cover the basics of market profile
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An Introduction to R - A Brief Tutorial for R {Software for Statistical Analysis}
A quick introduction to R for those new to the statistical software.