Are financial markets fair.....
Discussion
I don’t want to ruin the “what’s your big gamble thread” as I know it’s an interesting read for many, myself included when I have the time to read it.
This post follows on from my comments on page 127 on that thread where the chat focuses on what Robinhood did to screw their clients by shutting down their ability to go long in Game and AMC on Thursday and Friday this week. IG also look to be doing the same from Monday. I’ve had an account with IG for ages which I use sometimes for what I’d call punting. I’ll be closing it on Monday as I fundamentally disagree with this. It’s not fair when the moment the man on the street starts to make money the rules are changed.
I’ve been trading financial markets for over 20 years as a full time career. I’ve learned a lot over the years and i thought it may be interesting to tell some stories about how the deemed “unsophisticated” investor gets legally screwed by the “sophisticated”. Even in my own game I’m a small player that has been able to fight the big boys (the hedge funds, the algo trading firms such as Jump trading, DRW, Vigilant, RSJ) and make a career out of this but the things I have learned over the years will surprise many.
I’ll also stick in some stories about how these companies battle each other so you can get an idea of how they make money, and how much money they make!
My first story will be about Economic Data. I’ll stick it up later this evening or in the morning. Excuse any spelling mistakes I often look at Pistonheads on my mobile.
This post follows on from my comments on page 127 on that thread where the chat focuses on what Robinhood did to screw their clients by shutting down their ability to go long in Game and AMC on Thursday and Friday this week. IG also look to be doing the same from Monday. I’ve had an account with IG for ages which I use sometimes for what I’d call punting. I’ll be closing it on Monday as I fundamentally disagree with this. It’s not fair when the moment the man on the street starts to make money the rules are changed.
I’ve been trading financial markets for over 20 years as a full time career. I’ve learned a lot over the years and i thought it may be interesting to tell some stories about how the deemed “unsophisticated” investor gets legally screwed by the “sophisticated”. Even in my own game I’m a small player that has been able to fight the big boys (the hedge funds, the algo trading firms such as Jump trading, DRW, Vigilant, RSJ) and make a career out of this but the things I have learned over the years will surprise many.
I’ll also stick in some stories about how these companies battle each other so you can get an idea of how they make money, and how much money they make!
My first story will be about Economic Data. I’ll stick it up later this evening or in the morning. Excuse any spelling mistakes I often look at Pistonheads on my mobile.
marky1 said:
what Robinhood did to screw their clients by shutting down their ability to go long in Game and AMC on Thursday and Friday this week. IG also look to be doing the same from Monday.
I’ve been trading financial markets for over 20 years as a full time career.
Presumably at some point in those 20 years you have come into contact with exchange collateral requirements and the reality of T+2 settlement? A load of directional volume on a small number of stock causes them to blow through risk limits and they don’t have a great deal of choice in how to react except reducing trading volume. I’ve been trading financial markets for over 20 years as a full time career.
Conspiracy theories about them colluding with Citadel to end the squeeze are just that.
NickCQ said:
Presumably at some point in those 20 years you have come into contact with exchange collateral requirements and the reality of T+2 settlement? A load of directional volume on a small number of stock causes them to blow through risk limits and they don’t have a great deal of choice in how to react except reducing trading volume.
Conspiracy theories about them colluding with Citadel to end the squeeze are just that.
You have your view, fair enough but Citadel have a very close relationship with Robinhood. All these guys are in bed with each other to profit from (or a sceptic would say screw over retail clients.) I don’t know the exact reasons they shut down the ability for their clients to buy these shares. Seems a bit convenient to me though. Melvin had to take an external cash injection from Citadel to keep their short open. Wonder why. Conspiracy theories about them colluding with Citadel to end the squeeze are just that.
Part I
So, we’ve all heard of economic data and I’m sure on the news sometimes most of us have heard about GDP being released or Unemployment figures. The famous American figure is Non Farm Payrolls which essentially measures how many jobs have been created or lost in a month.
This area is big money for some of the algorithmic trading companies. When I started out trading over 20 years ago you could watch these figures come out on a Bloomberg terminal and if you were quick enough buy or sell what you wanted and make a profit. It was relatively easy. The next phase of development involved traders automating this process. So by 2005/6 people were starting to scrape the data off a news feed and inject it into a model which bought or sold whatever product was selected based on what the data was (all this being done in under a millisecond). It was a natural progression where trading met technology.
It gets interesting from here. The key to making money is speed. You have to be the first to trade or you can’t make money. The key to speed is knowing the process. Where does the data come from and where do you need to get it to trade. Most of these figures are public data. They are released by Governments. In the UK most are released in an ONS lock up in central London. In the US payrolls are released by the Labour dept in DC. There’s a problem with lock ups though. You have to be a journalist to be allowed into them. After all, the purpose of a lock up is to disseminate data to the public. Some smart trading guys in Canada had an idea. Why don’t we start a news organization so we can get into the lock up, and this is what happened. They set up an economic news company and gained access to some of the major lock ups. From here as soon as the embargo was lifted they would automatically send the data to their trading models. Because they didn’t have to disseminate to multiple clients they were always able to beat the main organizations. This went on for years until someone found out and they got booted from the lock ups. Although the organizations allowed into these locks ups is now more controlled, I am convinced this is still going on but in a more sophisticated manner.
Added to this, this is now what happens with this public data. These algo guys pay some of the news organizations hundreds of thousands of dollars a month to take the data from them. They take it from right outside the lock up and they then stick it on microwaves (quicker than fiber) and ship it across to wherever it needs to go. DC to Chicago, NY, Montreal etc. London to Frankfurt etc. DRW and Jump trading have spent hundreds of millions of dollars building the fastest Microwave systems to make sure they are the first to be able to trade data. There is nothing illegal about this but did we all realise that data we all have a stake in, released by our Government, is making these guys a few billion dollars a year? When you hear market making, liquidity providing, this activity comes under these terms. It’s total BS. What it should be called is epic money making. All perfectly legal and indeed very clever.
Here’s an interesting read about an auction for an ex US Army communications tower in the middle of Belgium. (The higher the tower the better).
https://sniperinmahwah.wordpress.com/2014/09/25/hf...
So, we’ve all heard of economic data and I’m sure on the news sometimes most of us have heard about GDP being released or Unemployment figures. The famous American figure is Non Farm Payrolls which essentially measures how many jobs have been created or lost in a month.
This area is big money for some of the algorithmic trading companies. When I started out trading over 20 years ago you could watch these figures come out on a Bloomberg terminal and if you were quick enough buy or sell what you wanted and make a profit. It was relatively easy. The next phase of development involved traders automating this process. So by 2005/6 people were starting to scrape the data off a news feed and inject it into a model which bought or sold whatever product was selected based on what the data was (all this being done in under a millisecond). It was a natural progression where trading met technology.
It gets interesting from here. The key to making money is speed. You have to be the first to trade or you can’t make money. The key to speed is knowing the process. Where does the data come from and where do you need to get it to trade. Most of these figures are public data. They are released by Governments. In the UK most are released in an ONS lock up in central London. In the US payrolls are released by the Labour dept in DC. There’s a problem with lock ups though. You have to be a journalist to be allowed into them. After all, the purpose of a lock up is to disseminate data to the public. Some smart trading guys in Canada had an idea. Why don’t we start a news organization so we can get into the lock up, and this is what happened. They set up an economic news company and gained access to some of the major lock ups. From here as soon as the embargo was lifted they would automatically send the data to their trading models. Because they didn’t have to disseminate to multiple clients they were always able to beat the main organizations. This went on for years until someone found out and they got booted from the lock ups. Although the organizations allowed into these locks ups is now more controlled, I am convinced this is still going on but in a more sophisticated manner.
Added to this, this is now what happens with this public data. These algo guys pay some of the news organizations hundreds of thousands of dollars a month to take the data from them. They take it from right outside the lock up and they then stick it on microwaves (quicker than fiber) and ship it across to wherever it needs to go. DC to Chicago, NY, Montreal etc. London to Frankfurt etc. DRW and Jump trading have spent hundreds of millions of dollars building the fastest Microwave systems to make sure they are the first to be able to trade data. There is nothing illegal about this but did we all realise that data we all have a stake in, released by our Government, is making these guys a few billion dollars a year? When you hear market making, liquidity providing, this activity comes under these terms. It’s total BS. What it should be called is epic money making. All perfectly legal and indeed very clever.
Here’s an interesting read about an auction for an ex US Army communications tower in the middle of Belgium. (The higher the tower the better).
https://sniperinmahwah.wordpress.com/2014/09/25/hf...
marky1 said:
Part I
So, we’ve all heard of economic data and I’m sure on the news sometimes most of us have heard about GDP being released or Unemployment figures. The famous American figure is Non Farm Payrolls which essentially measures how many jobs have been created or lost in a month.
This area is big money for some of the algorithmic trading companies. When I started out trading over 20 years ago you could watch these figures come out on a Bloomberg terminal and if you were quick enough buy or sell what you wanted and make a profit. It was relatively easy. The next phase of development involved traders automating this process. So by 2005/6 people were starting to scrape the data off a news feed and inject it into a model which bought or sold whatever product was selected based on what the data was (all this being done in under a millisecond). It was a natural progression where trading met technology.
It gets interesting from here. The key to making money is speed. You have to be the first to trade or you can’t make money. The key to speed is knowing the process. Where does the data come from and where do you need to get it to trade. Most of these figures are public data. They are released by Governments. In the UK most are released in an ONS lock up in central London. In the US payrolls are released by the Labour dept in DC. There’s a problem with lock ups though. You have to be a journalist to be allowed into them. After all, the purpose of a lock up is to disseminate data to the public. Some smart trading guys in Canada had an idea. Why don’t we start a news organization so we can get into the lock up, and this is what happened. They set up an economic news company and gained access to some of the major lock ups. From here as soon as the embargo was lifted they would automatically send the data to their trading models. Because they didn’t have to disseminate to multiple clients they were always able to beat the main organizations. This went on for years until someone found out and they got booted from the lock ups. Although the organizations allowed into these locks ups is now more controlled, I am convinced this is still going on but in a more sophisticated manner.
Added to this, this is now what happens with this public data. These algo guys pay some of the news organizations hundreds of thousands of dollars a month to take the data from them. They take it from right outside the lock up and they then stick it on microwaves (quicker than fiber) and ship it across to wherever it needs to go. DC to Chicago, NY, Montreal etc. London to Frankfurt etc. DRW and Jump trading have spent hundreds of millions of dollars building the fastest Microwave systems to make sure they are the first to be able to trade data. There is nothing illegal about this but did we all realise that data we all have a stake in, released by our Government, is making these guys a few billion dollars a year? When you hear market making, liquidity providing, this activity comes under these terms. It’s total BS. What it should be called is epic money making. All perfectly legal and indeed very clever.
Here’s an interesting read about an auction for an ex US Army communications tower in the middle of Belgium. (The higher the tower the better).
https://sniperinmahwah.wordpress.com/2014/09/25/hf...
It might be worth making clear that this applies to firms whose strategy relies on low latency. I know firms with automated trading strategies that have holding periods measured in days, so certainty not (particularly) latency-sensitive.So, we’ve all heard of economic data and I’m sure on the news sometimes most of us have heard about GDP being released or Unemployment figures. The famous American figure is Non Farm Payrolls which essentially measures how many jobs have been created or lost in a month.
This area is big money for some of the algorithmic trading companies. When I started out trading over 20 years ago you could watch these figures come out on a Bloomberg terminal and if you were quick enough buy or sell what you wanted and make a profit. It was relatively easy. The next phase of development involved traders automating this process. So by 2005/6 people were starting to scrape the data off a news feed and inject it into a model which bought or sold whatever product was selected based on what the data was (all this being done in under a millisecond). It was a natural progression where trading met technology.
It gets interesting from here. The key to making money is speed. You have to be the first to trade or you can’t make money. The key to speed is knowing the process. Where does the data come from and where do you need to get it to trade. Most of these figures are public data. They are released by Governments. In the UK most are released in an ONS lock up in central London. In the US payrolls are released by the Labour dept in DC. There’s a problem with lock ups though. You have to be a journalist to be allowed into them. After all, the purpose of a lock up is to disseminate data to the public. Some smart trading guys in Canada had an idea. Why don’t we start a news organization so we can get into the lock up, and this is what happened. They set up an economic news company and gained access to some of the major lock ups. From here as soon as the embargo was lifted they would automatically send the data to their trading models. Because they didn’t have to disseminate to multiple clients they were always able to beat the main organizations. This went on for years until someone found out and they got booted from the lock ups. Although the organizations allowed into these locks ups is now more controlled, I am convinced this is still going on but in a more sophisticated manner.
Added to this, this is now what happens with this public data. These algo guys pay some of the news organizations hundreds of thousands of dollars a month to take the data from them. They take it from right outside the lock up and they then stick it on microwaves (quicker than fiber) and ship it across to wherever it needs to go. DC to Chicago, NY, Montreal etc. London to Frankfurt etc. DRW and Jump trading have spent hundreds of millions of dollars building the fastest Microwave systems to make sure they are the first to be able to trade data. There is nothing illegal about this but did we all realise that data we all have a stake in, released by our Government, is making these guys a few billion dollars a year? When you hear market making, liquidity providing, this activity comes under these terms. It’s total BS. What it should be called is epic money making. All perfectly legal and indeed very clever.
Here’s an interesting read about an auction for an ex US Army communications tower in the middle of Belgium. (The higher the tower the better).
https://sniperinmahwah.wordpress.com/2014/09/25/hf...
"It gets interesting from here. The key to making money is speed. You have to be the first to trade or you can’t make money."
Totally. I mean in this instance the key to making money is speed. There are two edges you need to profit from this particular strategy. Low latency and Deep pockets. There are automated strategies that profit from a multitude of scenarios. There are also automated strategies that only trade when I want to trade, and therefore can only profit when I trade. More about that another time.
Edited by marky1 on Saturday 30th January 19:22
marky1 said:
I don’t want to ruin the “what’s your big gamble thread” as I know it’s an interesting read for many, myself included when I have the time to read it.
This post follows on from my comments on page 127 on that thread where the chat focuses on what Robinhood did to screw their clients by shutting down their ability to go long in Game and AMC on Thursday and Friday this week. IG also look to be doing the same from Monday. I’ve had an account with IG for ages which I use sometimes for what I’d call punting. I’ll be closing it on Monday as I fundamentally disagree with this. It’s not fair when the moment the man on the street starts to make money the rules are changed.
I’ve been trading financial markets for over 20 years as a full time career. I’ve learned a lot over the years and i thought it may be interesting to tell some stories about how the deemed “unsophisticated” investor gets legally screwed by the “sophisticated”. Even in my own game I’m a small player that has been able to fight the big boys (the hedge funds, the algo trading firms such as Jump trading, DRW, Vigilant, RSJ) and make a career out of this but the things I have learned over the years will surprise many.
I’ll also stick in some stories about how these companies battle each other so you can get an idea of how they make money, and how much money they make!
My first story will be about Economic Data. I’ll stick it up later this evening or in the morning. Excuse any spelling mistakes I often look at Pistonheads on my mobile.
Bookmarked and watched!This post follows on from my comments on page 127 on that thread where the chat focuses on what Robinhood did to screw their clients by shutting down their ability to go long in Game and AMC on Thursday and Friday this week. IG also look to be doing the same from Monday. I’ve had an account with IG for ages which I use sometimes for what I’d call punting. I’ll be closing it on Monday as I fundamentally disagree with this. It’s not fair when the moment the man on the street starts to make money the rules are changed.
I’ve been trading financial markets for over 20 years as a full time career. I’ve learned a lot over the years and i thought it may be interesting to tell some stories about how the deemed “unsophisticated” investor gets legally screwed by the “sophisticated”. Even in my own game I’m a small player that has been able to fight the big boys (the hedge funds, the algo trading firms such as Jump trading, DRW, Vigilant, RSJ) and make a career out of this but the things I have learned over the years will surprise many.
I’ll also stick in some stories about how these companies battle each other so you can get an idea of how they make money, and how much money they make!
My first story will be about Economic Data. I’ll stick it up later this evening or in the morning. Excuse any spelling mistakes I often look at Pistonheads on my mobile.
marky1 said:
This is about the big players “manipulating” markets to benefit themselves while others pay the price. It’s not illegal but I don’t think many understand the true cost.
"Manipulating" in inverted commas is the right phrase. As you say, its not illegal, its just trying to gain a small advantage. I'd applaud their efforts, personally. It is what every trader and trading firm is trying to do all the time. Its your edge. The market is not (IMO) bent or manipulated, but more that the retail trader is competing against firms with billions of dollars to spend on information and technology, as well as contacts in places which the average Joe does not. It is much like putting a club rugby player against a Premiership starter - one trains twice a week and the other trains 5 days and has a full team of conditioning coaches, analysts and physio's behind them. Hardly surprising the professional gets better results.
Edited by Condi on Saturday 30th January 19:41
Agreed. It’s a murky old business though. Profiting off data released out of a government lock up in the interests of fairness. But then one firm always makes all the profits. Is it fair, I’d say no. Do 99.9999% of the public know what’s going on, no. Do they care, probably not? I don’t know. Does the ONS understand what’s going on, I’d say no. Does the Government, nope.
(Disclaimer, I used to do the same). I’m not bitter either I made good money out of it, legally, and I knew when the game had changed (ie it became too expensive to compete) and it was time to move on. I don’t mind spilling the beans now because I can’t make money on it anymore, and frankly trading is a dog eat dog world so sod them!
It may not be bent because it’s not illegal, and in this example you could argue the manipulation point, but there are lots of examples of strategies that are pure manipulation. I’ll write about some in the coming days. What I’m trying to point out though is the spread that retail pays because of all the strategies employed by Wall Street who’s only purpose is to make money from ultimately, the public (or each other at times). Shutting down Robinhood buying of Game and AMC just stinks of them getting caught out and doing everything they can to save themselves from a crappy trade that joe public was winning on.
(Disclaimer, I used to do the same). I’m not bitter either I made good money out of it, legally, and I knew when the game had changed (ie it became too expensive to compete) and it was time to move on. I don’t mind spilling the beans now because I can’t make money on it anymore, and frankly trading is a dog eat dog world so sod them!
It may not be bent because it’s not illegal, and in this example you could argue the manipulation point, but there are lots of examples of strategies that are pure manipulation. I’ll write about some in the coming days. What I’m trying to point out though is the spread that retail pays because of all the strategies employed by Wall Street who’s only purpose is to make money from ultimately, the public (or each other at times). Shutting down Robinhood buying of Game and AMC just stinks of them getting caught out and doing everything they can to save themselves from a crappy trade that joe public was winning on.
Edited by marky1 on Saturday 30th January 19:58
Edited by marky1 on Saturday 30th January 20:00
Edited by marky1 on Saturday 30th January 20:01
This story reminds me of the guy sitting watching tennis games with a slightly slow umpire. In game betting allowed you to bet on each point, the guy had an ear piece and said the player that won the point as soon as he saw it. Someone at the other end had the bet setup and clicked the winner before the actual umpire had changed the score and the platform knew of the winner of the point!
The system was wise to it and would ban them reasonably quickly, but the guy was recruiting students to open accounts to keep it working.
The system was wise to it and would ban them reasonably quickly, but the guy was recruiting students to open accounts to keep it working.
Matt p said:
Thanks for starting and sharing Marky1. I’ve bookmarked this and look forward to more.
In this day and age there is no need for lockup’s. They were invented before the internet. Economic data should be released onto a website. Interesting side fact. Trump actually shut down the US lockup’s because of what was going on. I’m actually not sure of the exact details on how the data is released now but it’s probably through a website, and I’m sure someone will have found an edge (which probably involves breaking the scraping rules).
Sorry I quoted the wrong reply. This was in response to the comment about the financial ombudsman. The FCA are years behind what is going on, and always will be.
Edited by marky1 on Saturday 30th January 20:50
marky1 said:
Yeah heard that one too. Betfair eventually put in a delay to stop this occurring. I guess everyone else did too. I’m sure it was a great edge while it lasted.
Great thread, but I thought i would just point out as it may Interest others that the above is not entirely true. Tennis on the Betfair exchange for a long time used to be managed manually, from the office, by people watching the match on TV. TV pictures have a (roughly) 7 second delay. As such savvy punters started courtsiding - they would sit in the crowd at the match and bet with a 7 second advantage over everyone else watching and betting via the TV. The courtsiders accounted for millions in volume on each match and made huge profits. The key thing to remember is that this is the Betfair exchange (not the Betfair sportsbook), as such Betfair did not lose any money, only regular punters were losing money to the courstsiders. The exchange is risk free for Betfair, Betfair take a small commission from the winning bettors profit. Roughly 5 years ago Betfair started to use a feed to manage tennis. This feed came directly from the umpire. When the umpire presses a button on their keypad bets are settled automatically. This takes away the courtsiders advantage. Has this ended courtsiding? Not at all, it is harder but it is still prevalent. Now courtsiders look for umpires who are slow to press their keypad, also courtsiders are often good tennis payers themselves so they know when a ball is going out for example and can bet before the ball lands out.
If you watch the odds on Betfair as you watch a tennis match you can see this in action. The odds on the exchange will change very slightly before you see the point end on TV - this is the courtsider scraping some value from each point. Also it isn't just tennis where this happens, its golf, cricket and horseracing to name a few. Sorry for the long post I can talk about this stuff for hours
Edited by FastNLoud on Saturday 30th January 21:06
Edited by FastNLoud on Saturday 30th January 21:08
marky1 said:
In this day and age there is no need for lockup’s. They were invented before the internet. Economic data should be released onto a website.
What I used to trade used to be released on the web, but it didn't help retail traders. All that happened was the data scientists wrote software to scrape the data within fractions of a second and before we had even loaded the page the market had traded the numbers. Gassing Station | Finance | Top of Page | What's New | My Stuff