at penny ticks, and with co located bots 1000000000x faster than you, predicting the next tick is less than useless. they want you to predict it, so they can tear you a new one.
Without going into specifics on fees or products I think an individual can make about a grand a day with this setup fairly reasonably. With the experience I have, I'd probably aim for somewhere in the neighborhood of $5-10K/day on certain products...and most likely slip to about half that much...or into the red once I come across unexpected problems that I take for granted being resolved for me by other people now.
If you include data and port fees, it quickly adds up. Would you say these rising costs are a barrier to entry? Also do you find it easier or harder to trade on exchanges with better technology e.g. Nasdaq vs a slower platform like CME?
I think we're talking semantics here to some extent. I'd say it's easier to forecast the next 1-min interval than the next 1-year interval; the longer the forecasting period, the higher the likelihood for unanticipated events to happen. On the other hand, the shorter the time frame, the more noise - or more correctly, the lower the signal-to-noise ratio.
No, I don't think the hardware and intracolocation costs are a significant barrier to entry at all. They're paltry compared to the PNL potential of HFT. Intercolocation costs, however, are certainly a large barrier to entry. Simply put, the more money you make, the more you can afford to pay for better network infrastructure. It's an example of the rich getting richer. Smaller firms already can't compete at those levels any longer, and the situation will only get more drastic as we get deeper into microwave world. The largest, most efficient firms will win out at the top tier here. The other major barrier is simply the highly specialized knowledge and experience that is required to get an operation up and running. A lot of firms maintain a tight separation between departments and coming up with a team that can put together the pieces from end-to-end is becoming rarer. Add the fact that major firms already offer very competitive compensation to their best people and you're very hard-pressed to find any but the lowest performers leaving their employers. I personally don't find a correlation between the quality of technology and ease of trading at a venue. In fact, when the technology is worse there can be more sources of inefficiency to capitalize on. My ease of trading is directly related to the PNL potential of an exchange since that's where we face the stiffest competition.
When trading short term (trade duration in seconds and max minutes), there is info available that helps pin pointing trades accurately. For example, I can predict next up/down tick with a high degree of accuracy, granted I can not monetize it, but this is just one of the examples, where short term "momentum" can be predicted accurately.
how does your firm handle pre-trade risk? do you get a fixed allocation, and then are limited via a software routing library? or via a hardware check?
Is speed in the market making space more about sending orders quickly or more about cancelling quickly to limit adverse selection? So is low latency for you, more important when you remove liquidity or send orders to get good queue placement, or is it more of a cancelling game to avoid getting hit when the market ticks against you?