Directional HFT? you're wasting time

I've met a lot of aspiring traders/analysts who have spent (way too) much time looking for the secret magical formula, pursuing a directional edge within very small time steps; they assume that this is how HFT firms do it, and they are very much wrong.

Paying for liquidity makes it tough

There's only so much vol within short periods of time. If the trader has to pay the bid/offer spread, then the trader might have a negative expectation from the get go.

Transaction Costs

Yeah, there are other fees involved too.

Significantly large edge needed

Therefore, a significantly edge is needed to make this profitable; which is near impossible, unless you can see incoming orders, and get yours executed before theirs... i.e. latency arb it.

Simplest Solution

Stop trying to squeeze blood out of stones; this is a painful path to nowhere.

From my experience, some of the longer term trades make more money because of the low costs around IT infrastructure needs and etc.

It'll never be perfect, roll with it.

Work's been tough, developing trading solutions for Chinese financial products. There's been numerous software, network, and of course trading related issues, and I've realized that nobody has the perfect team of research, software guys, and traders, yet some manage to still make money. Reality remains, there will always be problems.

Frame adjustment

I have met a lot of people who had waited for "the perfect time" to start a business, put on that trade
, or leave a disadvantageous relationship. Having gone through this myself, it is highly unlikely that this "perfect time" would ever arrive. Waiting feels like a waste of time.

People're innately lazy, it is probably human nature to desire for minimal energy expenditure.

Maybe going forward in business, life is more about making +EV changes NOW, no looking back. It takes courage, diligence, and some practical planning, which might not be all that easy but definitely achievable.

Interview with a Chinese finance journalist

I did a talk about how foreign prop trading firms trade treasury derivatives, and met a journalist, Mac Jia, there. He in turn interviewed me around how I plan to trade Chinese treasury futures, and the article's gotten relatively known within the Shanghai finance community (unexpectedly, since I thought it was just small talk between him and I).

Here's the article:
"

合约间联动性较弱给高频交易提供了套利空间 　　
国债期货上市后虽然成交清淡，但部分私募的套利策略已经比较成熟，表现出较高的参与积极性，他们通过不同的算法来规避高频套利交易面临的流动性不足难题。而以趋势交易策略为主的私募对参与国债期货仍比较谨慎。 　　
国债期货自9月6日上市以来，成交一直比较清淡，但这并未影响部分私募机构参与的积极性。
上海弈泰资产管理公司高级策略师Rocko Chan告诉期货日报记者，公司的国债期货套利策略已经比较成熟，正在进行相关测试。资料显示上海弈泰资产管理公司是一家以量化投资为交易策略的公司。
相较国外以机构参与为主的成熟市场，国内国债期货参与群体以证券公司、私募和散户为主，市场的有效性并未得到充分的挖掘。虽然国债期货每日收盘价基本合理，但是从更高频度的时间周期和跨期的角度来看，合约之间的联动性较弱，给高频交易提供了套利空间。
“就是因为偏离价差的时间维度非常小，所以必须要用高频交易进行套利。”Rocko Chan对记者表示。
高频套利交易面临的流动性不足难题如何解决呢？Rocko Chan告诉记者，“我们通过不同的算法来规避这个问题，例如可以通过挂单进行交易”。
而如何用量化的策略进行挂单交易呢？对此，海通期货国债期货分析师徐莹分析称，应该是从与整体方向一致的那端先建仓。比如判断国债期货的整体趋势向上，当发现国债期货与实际价值偏差较大时，可以先建立买入的套利头寸，以规避流动性不足可能造成的卖出端逆市交易。
其实，许多有套利策略的私募都在积极参与国债期货交易。青骓1号债券对冲专项资产管理计划在国债期货上市首日就完成了首单国债期货交易。白石资产管理公司总经理王智宏也告诉记者，“我们也在少量参与国债期货交易，以对冲策略为主，包括趋势和套利等”。
国 债期货TF1312自9月11日创出新低93.494以来，近日一路振荡走高，但这却未能吸引部分以趋势交易策略为主的私募。上海新泰厚投资管理公司总经 理桑东亮告诉记者，目前并没有参与国债期货的相关交易，因为技术数据还不能给出趋势性的判断，至少30天均线出来以后才会考虑。
"

Interesting interview conversation

So this kid came in today for an interview, having done his post-grad in England, "Computational Finance" with lots of outdated machine learning techniques listed on the resume. So we figured we give him a chance, and here are some excerpts from the interview:

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me: "So, what kind of role do you want to pursue here?" 
him: "I want to get involved with High Frequency Trading." 
me: "What do you know about HFT?"
him: "well... " long pause, " isn't it just crunching historical numbers?" 
me: "OK, let's move on..."

a minute of small talk...

me: "Have you traded anything on your own?" 
him: "No... "
me: "OK... are you familiar with any particular products?" 
him: "Um... futures, and options!"
me: "Great. Can you tell me which Black Scholes Merton assumptions don't apply to the real world?"
him: "ohh... " more awkward silence, "I can't, sigh..."
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Another day in the hedge fund life.

Some interesting stuff about Chinese futures exchanges

Here're some things I've noticed with Chinese index/commodity futures.

• Heavy momentum effect: mostly due to difficulty around hedging since there are no trade-able options yet, and ETFs are relatively expensive and difficult to borrow for short-selling. 

• High speculative volumes: It seems like an overwhelming majority of the funds here take the pattern-recognition (curve fitting) approach to trading. There's this belief that directional trading is the only way to make good profit.

• Generally low understanding of exchange microstructure: This seems to apply to even many "professional" traders or money managers I've met thus far. Making the markets here quite juicy for guys like me who have an advantage with externally applied technology and trading logic around low latency trading.

Over all there seems to be a ton of inefficiencies still available on Chinese derivatives, even on the index futures thus far. As an old colleague had said of OSE products back in the 90's, "We made money all day; everything's outta line, EVERYTHING."