Re:Insights into High Frequency Trading from the Virtu IPO [...
by tcbawo on Thursday May 04, 2017 @06:51PM
(#14269574)
Market makers typically have a requirement to be in the market a certain (high) percentage of the time. In return, they get rebates (which can be a significant source of revenue) and protections from the exchange against overfilling. This can help them for certain shock events.
Most likely, though, their profitability % is tuned by edge and risk parameters. They can adjust size, widen out, or tighten up the spread to tune trade frequency and profitability. They are finding a sweet spot between # of trades and profitability.
Re:Insights into High Frequency Trading from the Virtu IPO [...
by consz on Thursday May 04, 2017 @07:48PM
(#14269923)
Those number absolutely include payments. It's rare (in my experience) for an equity market making strategy to be positive in gross terms (prior to the maker-taker rebate). These numbers you hear from Virtu/KCG should be net of exchange trading costs/rebates.
Agree with you that HFT performance is not correlated with market direction. But given the volume of trades it would imply that many of the trades are occurring on a smaller pool of equity instruments. I'd think that given liquidity constraints and competition that there's a sweet spot in terms of number of stocks that a given strategy is actually efficient on.
So not entirely sure why we consider every trade to be iid - rapid shocks (flash crash), equity specific news etc would affect a number of trades at once changing the 51% probability?
Also does anyone know if the profitability numbers include payments to be a market-maker?