High Frequency Trading (HFT) - High/Mid Frequency Trading

Dear all,

Most High Frequency Trading firms (HFT) - that trade in 1 -15 seconds timeframe and High/Mid Frequency trading firms - that trade in 1 mins - 15 mins timeframe reported Sharpe ratios of 10+. They usually have a systematic edge that is realized many times in even a single day. and don’t think in terms of % return or initial capital, just daily PnL. The strategy is just getting edge on each trade, picking people off when they’re too slow to update quotes on an underlying tick, etc

However according to the research below for most others (especially retail), intra-day trading is hazardous to your wealth unless you are in the top 0.1% traders


When researchers analyzed the performance of 18,000 regular gamblers in casino games, only 13% won over a two-year period.

But less than 1% of intra-day traders reliably generated a positive return two years running.

By gambling, you have a 13x better chance of making a profit than when you are doing intra-day trading that turnover multiple times per day.

For the study, researchers evaluated the long-term performance of 450K+ intra-day traders from 1992-2006. The data contained 3.7 billion transactions with a transaction value of $10 trillion.

The results were eerily similar to gambling.

In a given year, 20% of intra-day traders earned a profit net of fees. But less than 1% of traders from this group could generate a profit the following year.

The critical question then is whether the alpha produced by this 1% of intraday-traders is a result of luck or skill.

This is where it gets interesting.

The data shows that the most successful traders continue to earn strong returns, highlighting that some HFT traders are indeed skilled.

The top 500 traders (0.1% of the population) had clear performance persistence and earned outsized alpha of 61 bps per day before costs and 38 bps per day after fees.

Unless you are in the top 0.1% of intraday-traders (mostly HFT firms) based on skill, you are much better off gambling.