This is strictly speaking not HFT but fairly close. Also shows it is still possible as an independent to hack it, though very hard. Some people might find the story inspirational. http://www.reddit.com/r/IAmA/comments/9s9d7/iama_100_automated_independent_retail_trader_i/
well, all these phd's are not traders and are bound to blow up. Proper trading education with real experience, long term beats these equation crunching guys. They are disaster waiting to happen. We all know that. Will you be there to benefit when this happens ?!?!
Criticizing without thinking is the hallmark of stupidity!! "We all know that" - Speak for yourself man, not for the masses! You are living in 18th century. Keep on dreaming. LOL. Even if the PhDs or these HF guys blow up in a disaster in 2020 or so, by then each of them would be personally worth many millions. Big deal they or their firm blows up. They will find another job because of their PhD degree and their 10 yrs work experience. Do you have any idea how much these guys get paid? Getco trader with 1-2 yrs experience takes home 300-500k per year. So if you don't like these guys, its alright, but you make a fool of yourself having registered so recently on ET and coming and making a proclamation of all these guys blowing up. Face to Face - the thread starter must have made at least 500k in 2012, how much did you make LOSER????
I know that they make what you say. And I know they get another job after they blow up. It is reflection of times we live in. However, if you give them your money to manage, I will laugh
There is some truth to what toolazy says, quantitative trading strategies and technology do not necessarily give you an edge over the long run. HFT edge relies a lot on the current state of regulation and will also fade as the inefficiencies they exploit get arbitraged away. And judging the value of HFT by the salaries made at these firms is stupid. I don't think you should choose your career according to the money you will make (reason why there are scumbags in finance) . HFT is probably where CTA's were in the 80's, their margins as the OP said will keep going down, which tends to confirm what some people say that as a group they are sheeps all doing the same thing.
I disagree on both counts. The manner in which you obtain HFT edge is dictated by regulations, but there is intrinsic value in the service we provide by making markets, and I think it's comparable to other retail businesses. I like to think that if locally-owned businesses were the equivalent of specialists on the trading floor, that Amazon and Walmart are the equivalent of HFT. We've providing the same service that the trading community requires, but we're using technology and intelligence to do it more efficiently than it was done before. And about not choosing your career according to the money you make, that's absurd. Sure, that might not be the only consideration, but it's obviously among them, unless you're a philanthropic freak. I've also known a few traders that have made a fortune in HFT and spend their entire lives doing charitable efforts as well. Not that it should matter, but my point is we're not cheating anyone as long as we're playing by the rules. I think margins have really reached a bottom-point in most competitive markets. Now it's really a shift towards becoming more efficient (cutting costs) while maintaining your business processes that allow you to keep doing what you're doing. Again, just like any other business.
1. Profit sharing. There's enough jitter and variation in the way you do things that no one absolutely dominates. Like others have said before me, the devil is in the details. Being faster just makes it easier. 2/3. Believe me I've considered it. You can get a pretty decent operation going for $500K - $1M. But big firms realize this too. Payouts are commonly approaching 50% for highly supported operations, and up to 80% for capital backing. And it's so easy to double what you're making with full connectivity vs. trying to keep 100% for yourself with a small operation that it doesn't make sense to go out on your own if you're highly technology-sensitive. It's really an economy of scale model. I can pay $100K/mth for a network line to trade on and keep all of the profit, or I can split that among 100 guys and get the exact same benefit. Then you've got research infrastructure and everything else that goes along with it that's not absolutely vital, but for the relatively small cost you're paying it makes sense. I'll gladly give up a chunk of my profits (~50%) for global connectivity and the cheapest fees available. That said, there are a few people that have struck out on their own and done ok or better also. Typically they're the ones that are either not that tech-sensitive (longer-term traders) or have huge backing to start (Teza). 4. Yes. It's not that sensitive from what I've seen. You can be slower and dumber in certain ways and just make less money, not none. There are so many variables involved it's hard to comprehend unless you've done it for some time. That's a concept that genius college grads have a hard time grasping. 5. It's really all variants of a main theory. Devil is in the details, and there are lots of details. 6. These days, economies of scale make a big difference. If you've got a large group of people making a good amount of money requiring resources that are similar enough that they can be shared, that gives you a big edge. Beyond that, it's like running any other business - being intelligent about strategic decisions, personnel management, areas of focus, etc. 7. We're always on precarious ground, and that applies to every HFT firm out there. See Getco for a good example. Kings a few years ago, bringing in a net loss of late. It's a constant struggle for improvement, not unlike other businesses. What makes it harder is that we're competing with what truly are the best minds in the world, dictated by compensation. When the career comes to an end, I will be very relieved to be rid of the golden handcuffs.
1. Yes absolutely. 2. No I wouldn't say so. It's a zero-sum game, but as market-makers we're getting paid by market-takers that compensate us for the risk that we're taking by making markets. So all market-makers can make money on any given day, paid for by the market takers. 3. Yes.
The range is really too wide to quote an average. 500% ROC could be considered normal - say making $100M/yr on $20M in working capital. I really don't know for certain what kind of return the best firms make since I don't work at one. I've heard of firms making $4M/day, and I'd be shocked if their capital requirements were over $100M. Honestly though, ROI's aren't at the top of HFT firm's worries. We're more worried about return vs. risk, where risk can be very hard to measure since it's more operational and anomaly risk than positional risk.