Dear all,
This is an interesting article that compares the risk adjusted return of Citadel and S&P 500.
Regards
James
Dear all,
A Prop Trading Firm is looking fo an experienced HFT Crypto Trader with a documented track record with a 7+ Sharpe ratio.
Although HFT is effectively different from what we do in P123 which is low frequency (daily) or ultra low frequency (weekly), apparently there are some skilled traders that has such a sustainable high Sharpe ratio operating in the market.
Below is a brief description of the different types of Quantitative trading (high/mid/low frequecy) for reference.
Regards
James
Types of Quantitative Trading
Their speed and trading goals typically distinguish different quantitative trading strategies.
When distinguishing by speed, you have a few classes of quantitative traders. There are no hard and fast rules when applying these labels, but our explanations below are quick rules of thumb.
Low-Frequency Trading
Low-frequency trading typically refers to trading that uses end-of-day data, rather than intraday data in their models. Trades tend to last more than one day.
Various strategies exist within this time frame.
One example of a simple strategy, even accessible to retail traders, would be a swing trading strategy based on mean reversion. Perhaps the core idea of the strategy is to buy pullbacks within uptrends.
We can use trend identification criteria to establish our universe of stocks to trade, then apply our entry, exit, and risk management criteria and build an algorithm around it.
Low-frequency trading can still get quite sophisticated. One example would be trading based on purchasing trends in anonymized credit card data. Through massaging this data, an analyst might conclude that Walmart might beat or miss their future earnings expectations.
Point72 Asset Management, a hedge fund run by Steve Cohen, is an example of a firm applying credit card data to their trading.
Medium-Frequency Trading
Medium-frequency trading refers to trading that takes place intraday, usually within minutes to hours. Two critical differentiators between MFT and HFT is that MFT doesn’t generally take advantage of market microstructure, and the importance of market impact is significantly smaller.
The use of special order types, minute differences between exchanges, or order latency doesn’t play much of a role in MFT strategies like they do in HFT.
MFTs focus less on market impact because their trades last longer, and they’re taking advantage of more significant price moves, requiring less capital per trade.
High-Frequency Trading
High-frequency trading is characterized by trading on time frames impossible for humans to trade on (ranging between picoseconds and seconds), and the need for considerable infrastructure and talent investment, making the barrier to entry very high.
HFT strategies generally have very high Sharpe ratios, which necessitates many firms to stop raising outside capital quite quickly at all.
The strategies of HFTs are based primarily on taking advantage of inefficiencies or inequities in market structure. To simplify things, there are three aspects that HFTs use to get an edge in these tiny time frames:
- Speed
- Access
- Exclusivity
Speed
When you hear about HFT in the media, the speed advantage is the most often mentioned. They achieve this advantage through colocation, efficient code, and exclusive data feeds.
They have their computers plugged directly into the data centers of stock exchanges, which reduces the latency between order sending and delivery, they hire the best programmers and purchase exclusive data packages from exchanges.
Access
HFT firms have access to things the rest of the market doesn’t. The most notable difference in access they have is special order types. They’re given access to special order types by exchanges, often consulting with the exchange in the creation of the order.
An example of a special order type that we saw highly reported in the media was the “hide not slide” order.
Exclusivity
Through relationships, access to capital, and the ability to colocate, HFT firms have exclusive access to specific data feeds. Market structure expert and software developer Eric Hunsader of Nanex determined that HFT firms have a 500-microsecond speed advantage in their Nasdaq data feeds. In the HFT realm, this is a lifetime.
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