Friday, 12 August 2016

Bear Stock Market And High Frequency Trading

SINGAPORE (Aug 13): Pacific Radiance has reported a net loss of US$57.7 million ($77.7 million) for 2Q16, compared with earnings of US$2.2 million in 2Q16. For the half year period to June, the group reported net losses of US$64.5 million, as revenue fell 42% to US$38.4 million.

Revenue in the quarter to June fell 42% to US$20 million, as its offshore support services business recorded a 42% decline to US$18.9 million on the back of lower utilization and lower vessel charter rates.

Generally, HFT is about making markets and profiting from lots of volume in the market. An HFT's profit is in the spread of orders through buying and selling at more advantageous prices.

Customer sells 100 xyx @ 22.01 (HFT firm buys)
Customer buys 100 xyz @ 22.02 (HFT firm sells)
Retail spread 22.01/22.02

The more times an HFT firm is able to execute this transaction the more profitable it is. Therefore, since "bear markets" tend to have much higher volume than "bull markets" or "flat markets" HFT's profitability is increased tremendously by a bear market as well as many volatility traders, such as myself.It can be good or bad. The more important factor is volatility. With increased volatility, spreads increase and firms can take in more profit per trade. Trading volumes can increase as well with an increase in volatility.It does not. HFT is affected by volatility. The direction of the market does no change most HFT strategies. But it is proven that bear markets are more volatile.HFT is a subset of algorithmic trading.

Algorithmic trading is basically use of mathematical model for making trading decisions. They are used for: 

Developing Trading strategy
Algorithms are used to generate trading signals. 

Order placing
A large order might not be absorbed immediately or it might cause a knee jerk reaction in price in either direction. So an algorithmic system can be used to split the order into smaller orders and execute them over the course of the day keeping the average cost of transaction  minimum.

Selecting the exchange/venue
If more than one exchange are available the system might be used to pick the best available. ( example: the one which has the maximum liquidity.)

You can use Algorithmic trading buy short/medium/long term trades.

Now an HFT system might also perform all these functions but the focus  is on making very short durations trades, seconds or even fraction of seconds. The idea is to make very small profitable trades tens of thousands of time everyday.
The transactions take place at very high speed and hence are handled completely by computers. Example: Stat Arb HFT

1) The part of bonds. 

I have come to value the nearness of retail bonds in my portfolio. Almost all benefit classes accessible to the regular retail financial specialist will fall in a bear market ( with the exception of US treasury charges, USD,JPY e.t.c) however unleveraged non-garbage retail securities will fall less. My bonds go about as a stabilizer, it hoses returns in bull times and hoses misfortunes in bear times. Starting now, my securities could be sold to add to my money warchest, having helped me acquire a higher rate of return when contrasted with settled stores in the previous 5 years of ultra low financing costs . Presently, the US Central bank expanding rates is something i have to keep an eye out for as it will influence my securities. 

2) The part of slant. 
As much as crucial examination is essential, the part of assumption is similarly or even significantly more so. I truly like the article composed by Howard Characteristics of Oak Tree Capital prescribed by investment moats and there is a sentence that says" a typical behavioral quality among financial specialists is their propensity to disregard negatives and downplay their criticalness for some time, and afterward in the long run to give in and go overboard to them on the downside..". I am currently sitting tight for the eruption persistently. 

3) My brain research 
I know beyond a shadow of a doubt that making an arrival of $50,000 brings me less happiness than the "xian-ness" of losing $50,000. A shocking error is the inability to apply this information. I should now continue letting myself know, it is never a wrong time to take benefits. NEVER. Disregard the crap of offering for a benefit and later lamenting when the value shoots much higher. A benefit is a benefit. 

4)The significance of business sector cycle contributing 
Warren Buffet said " Never become hopelessly enamored with your stocks". I read yet didn't disguise. Crap man. He is darn right. obviously. Purchase and hold is a significant trendy expression however does one truly know what it implies? Market moves in cycles, it had, has been, will dependably everlastingly move that way. This is just nature. I became hopelessly enamored with my stocks and now i'm dumped! I need to thank the late Dennis Ng for his insight partook in his gathering, Master your finance. 

Anyway, if my memory is correct, i recalled 2008/2009 we saw resource administrators like Franklin Templeton, Schroders offering en mass, day by day or week after week as their unit trust holder froze however i don't see it this time which may clarify why i'm not as quiet and gathered this time as i was then. This may be a long drawn procedure, no rush to purchase, so gives up to rest , life goes on.

I will not go into any of the controversies of HFT as described in Flash Boys. These practices (fair or not) are bundled under market making and/or proprietary trading.

Key Partners
Data providers (can be exchanges)
Telecommunications provider (for high speed connections)
Online Brokers (can route their traffic to HFT firm)
IT support partner

Key Activities
Making markets on securities
Moving securities between exchanges
Proprietary trading
Developing and maintaining trading algorithms

Value Propositions
To exchanges: providing liquidity
To online brokers that route their trades exclusively to HFT: cheap and reliable execution of trades, paying a fee to the online broker
To other brokers: providing liquidity (see comment below)

The customer interaction on exchanges is different from other businesses. The brokers that route the trades of their clients to the exchanges do not know whom they trade with. Hence the interaction between HFT and brokers (that do not route their trades exclusively to HFT) are very limited outside trading.

Customer Relationship
Making markets on trades on exchanges
With online brokers that route their trades exclusively to HFT there is more of a support like business relationship

Customer Segments
Traditional Brokers (IBs etc)
Online Brokers

Key Resources
Trading algorithms (IP)
IT set up
Data feed
High speed connections

Making markets and trading on exchange
Getting online brokers to route their trades exclusively to the HFT

Cost Structure
Paying for 
real time data
high speed lines
potentially for premium access to exchanges
trade flow from online brokers
state of the art IT system
salaries for traders/quants
salaries for support personnel
rent, utilities etc

Revenue Streams
Getting rebates from exchanges for providing liquidity
Making money on the market maker spread (any alleged front running would be included here)
Proprietary trading.

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