“We made the difficult but necessary decision to reduce staff working in unprofitable areas of the firm,” said Tom Becker, an outside spokesman for the firm. He declined to discuss the number of jobs cut or teams affected, but said the company has about 100 employees. As many as 25 workers were cut, a mix of traders and support staff.
The reduction follows the decision by another Chicago-based high-speed firm, XR Trading, to let about 10% of its staff go late last year.
I'm not really familiar with HFT trading, as I've been only done mid-frequency for market making delta one products. How important is volatility to HFT? Because it appears a lot of these HFT firms been getting hit hard and shutting down due to low volatility. Would they not get crushed if the market was too volatile and possibly get run over if they're making market or is it because speed is their edge, they can do a round trip without taking a loss?
market making and HFT have really started to blur in the last couple of years. Market makers more and more are having to take on more risk. The days of pure maket making are over.
That's interesting to hear. I'm aware that many HFT firms are basically market makers nowadays. But I thought market making always entailed some level of risk (gap risk). What evidence is there to suggest that market makers today have to take on more risk than 5 or 10 years ago? I'm asking because I have a trading interview next week.
Having to take on more risk because of the tight spread, volatile markets, having to cross the market to hedge. All of this is something I faced with directly when trading. So how is the Jane Street, HRT, Citadel of the world killing it?
The low hanging fruit in HFT has gone - partly a function of low volatility but mainly a result of the arms race for speed/talent/tech. Volumes however are very high so while there are plenty of opportunities, all the gains are accruing to those at the top of the pile with the best infrastructure.
Some of the smaller Chicago shops might look like HFT compared to the average point-and-click but really aren't anywhere near the level of speed and technological sophistication as those you've mentioned that are killing it.
Can I ask you something because when these HFT firms are hurting due to low volatility, I'm not understanding the logic? Why is an advantage for HFT when market is volatility? Let me give you a scenario, so let's say they're quoting in the market, electronically. Let's say it's a futures contract, the front, so there is a lot of liquidity and the market is a usually a tick wide. Then news hit, market is sweeping down in matter of seconds, NOT a single bid in sight but they're getting longer and of course, they can't be hitting their own bid to get flat. So why is volatility good again? This is one of the issues I had to deal with, but we were no way a HFT firm, closer to mid. One of the logic we had was to pull the algos if the market was sweeping x ticks and in x seconds
That's one of the main reasons why speed is important, so you don't just sit there and get swept. It's less about picking people off quickly and more about avoiding loss faster than the next guy.
Volatility is important because in general, short-term aggressive price taking is good for market-making algorithms. If everyone works limit orders then nobody is crossing the spread. Obviously in the above example, volatility is harmful in the short term. But that's not to say there couldn't be an opportunity after the sweep to get back into the market and make money. The smart guys will have a way of dealing with this sort of scenario and potentially profiting from it. There are even HFT shops out there that specialize in single-instrument market-making - that is to say they don't need to hedge. Their algorithms have short-term directional edge.
I see what you're saying, so basically, they skew their market based on their directional bias using some quant trading strategy. So when the market is sweeping down and they believe it will revert back, their quotes will be skewed up so they can get hit? For me, I was mandated by the exchange to be a certain width, given, I was allowed to skew my market, but when you're quoting electronically, it's impossible to skew, given the speed of the market. When you're trading OTC or RFQ, it's gives me slightly more advantage but of course, I have to think of liquidity constraint due to the size. So typically, I separate my market making algos with my prop trades. It would be a slam dunk if I can combine the two. I'm just blown away by the amount PnL they're able to produce. Because they're HFT market making, I assume their directional bias is in milliseconds. seconds or minutes? This is probably arbitrary
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