What I'd like to know: 1) what are some HFT strategies ? Do they mostly all use Level I or Level II data for instance ? 2) what is the typical average time-in-trade ? 3) what is the typical number of trades per day made ? 4) what is a typical win/loss ratio ?
I get the impression that the people who know these things aren't telling, because they want to continue using the edges they've found to make money. Quite logical. The people attending that HFT conference are all grudgingly rubbing shoulders with others who know the secrets -- they just all hope to do a little better, or find more edge, than the others. Now, I predict someone will try to give your questions an answer, but it will turn out to be a half-answer. Like, "Well, they just have to break even, and then pick up the liquidity rebates." This is all well and good, but picking up liquidity rebates doesn't break you even on your trading/clearing fees, *unless* you're trading for free. So if you're serious about an answer like this, then an explanation of why someone, even with the extreme volume that an HFT outfit has, could trade for free, is in order.
Traders, Crunching Numbers, Question Circuit Breakers' Impact May 26, 2010, 12:04 p.m. EDT By Kristina Peterson NEW YORK (MarketWatch) -- Market participants rattled by the May 6 plunge initially hailed the stock exchanges' proposed circuit breakers. But after crunching the numbers, some traders are starting to question how effective the proposed safeguards would have been in preventing the drop and how likely they are to prevent one from happening again. The exchanges plan a six-month pilot program designed to halt trading for five minutes in any stock within the Standard & Poor's 500-share index if its price swings 10% in a five-minute period. Yet had the 10% rule been in place on May 6, the Dow Jones Industrial Average's fall would have stopped only 50 points higher than its actual low, said Jeffrey Yale Rubin, director of research at Birinyi Associates. He calculated when trading would have been halted, based on the Dow components' movements that day, and found that the measure would still have reached a low of 9919.53, just slightly higher than its actual May 6 low of 9869.62. Rubin also noted that the circuit breakers would have constrained the Dow's quick recovery on May 6. Trading on five Dow components would have been halted on the way back up, he said. If put into effect, the circuit breakers might prompt traders to retreat from stocks sliding closer to the 10% move that would trigger a trading halt, Rubin worried. "Those 10% thresholds are beginning to act like magnets as traders want to get out of that stock sooner, rather than getting stuck with a position they can't sell for five minutes. Stocks will fall even farther and faster," he said. High-frequency traders, who prefer to keep market-neutral positions by darting in and out of trades, would likely be the first to shy away, Rubin said. Still, once the circuit breakers are in effect, they are likely to be employed fairly infrequently. Between January 2008 and May 15, 2010, but excluding the extremely volatile period of September through November 2008, the safeguards would have been triggered 10 times a day or fewer, according to an analysis from Credit Suisse. Trading would have been paused three or fewer times on 80% of those days and not at all on over half. However, in periods of extreme volatility, the circuit breakers would get more of a workout. In October 2008, the circuit breakers would have kicked in an average of roughly 40 times a day. While the proposal currently applies only to the large-capitalization stocks in the S&P 500, if a similar rule is put in place around small-cap stocks, trading halts could become far more frequent in the smaller, more volatile stocks. During October 2008's volatile trading, stocks within the Russell 2000 fell 10% intraday 7,432 times, with an average of 323 downward swings of 10% per day, according to Birinyi Associates. That activity declined in more stable months, with only 11 such moves on average per day in April 2010. Small caps may require a customized set of rules to account for their typically larger swings, investors said. "Ten percent is not going to be appropriate for every stock," said Matt Cushman, managing director at Knight Equity Markets. Still, he said the circuit breakers are likely to help more than hurt the market. "This seems like a reasonable step," Cushman said. "It's an opportunity for large players to come into the market to stabilize it and provide liquidity."
This is all just conjecture. If I were in a position that was going against me, I don't want artificial constraints preventing me from eliminating risk. The whole idea that circuit breakers help anything is an unproven farce.