Stock Market and Game programmer

There are some places, there are rivers and lakes, where there are schools. In the investment community, Jobafite, Petrinch a case is nine Yang Canon, martial arts, to endless internal force and simple moves to command the world, that muddy water, citron and short company, is the martial arts, the bitter repair of the star Dafa, Rob people money in short, people see people fear, but can not ignore it. In addition to these vicious and evil, there are a group of high-frequency tantra, really high wall (perhaps the strongest of the financial circle of equipment), broad-grain (stuffy sound big Wealth), slow the King (Low-key nameless), the world is rare to know its existence but do not know their own transactions may have been through its system.

Talk about how their equipment is strong, how much money, how quite unruly people can not touch the nature of high-frequency trading-why to do high-frequency trading, do not talk about the nature of the phenomenon of light, it is easy to become Wolf of Wall Street This entertainment ring for the local tyrants of the soft text.

The high-frequency trading branch is so complex that I can only comb a line here, but its essence cannot leave the core issue of Market micro-structure. A high-frequency trader's obsession with market microstructure is like a defense lawyer's obsession with the details of the law, or the obsession of political structural arbitrage with the flaws of the social system-a loophole that can create a round of wealth or power.

From China to start contact with the securities market is very difficult to be sensitive to the market micro-structure, such as me, because the Chinese market is born top-down market, the SFC as God, God said to have a market, so there is a market, the SFC said to have the rise and fall of the board, so there is a rise and fall, the SFC said to +1 of the current system. But the U.S. market is the opposite, is the bottom-up market, the first discrete brokers, we each help customers to do transactions, chaos to a certain extent, the big guy lead, gathered in the plane tree, Constitution several, only today's Wall Street and NYSE-the embryonic form-this world without exchanges, trading more people, only the exchange. Therefore, this bottom-up system is inherently open and radical, is the product of the interests of all parties, it is difficult to avoid a variety of loopholes-the simplest form of a different faction of the various people, another open hill set up the exchange traded the same securities, so the spreads between the two exchanges appeared. In China, under the current system, it is difficult to have another exchange trading the same securities-the differences between the two systems derive from their genes, which do not need to be differentiated and are beneficial, and I personally think that the current system in China is the best choice for a conservative style of closed financial systems.

The embryonic form of high-frequency trading is discretionary arbitrage, that is, explicit arbitrage, or we are more grounded gas say-moving bricks. The simplest example is that before the price of the bitcoin renminbi exchange is above 50% higher than the US dollar exchange, the local tyrants have been dispatched to buy in the US at low prices, send them home, and then sell them at high prices. This strategy is not low-end, in the 70-90 years of the United States, because of exchanges, such as the Chicago Stock Exchange, the Pacific Stock Options Exchange, the Philadelphia Exchange, the New York exchange, and so on, the same subject in order to finance convenience, may be issued more, spreads often appear. Before the 90 's, because Internet technology was not popular, many individual traders could simply move bricks between multiple exchanges, artificially "high-frequency" transactions. The previous generation of geek was also very creative, developed a robotic hand and other "automated" under the single system (not a program, is a real manipulator), to achieve that era of high-frequency trading.

But if you look at the micro-structure of the market, you will find that some spreads are hard to eliminate-the simplest example is the spread of a, H-shares, than if a stock is always higher than another on an exchange. There are deep-seated reasons behind these spreads-such as a A-share purchase that cannot be sold in the HK market. Or, for example, in the United States, where a market might be expensive to trade, with a low trading volume, the price could be higher than the market B, to supplement the difficulty of making a city (and possibly vice versa). In this case, the simple move brick is not, you need artificial correction spreads-or go to the dynamic arbitrage-do statistical arbitrage, the knowledge is very deep, and then touch back.

Back in the US market, there were a few major events in 87 and 99. The first was the day of the October 87 stock market crash, which created a historical decline in the index and allowed exchanges to embark on a massive introduction to electronics. The second is to start the National consolidated Order book in 99, and put all the exchange limit orders into a table. These two things have greatly reshaped the brick-and-tile industry and made it necessary for high-frequency trading to be optional. The introduction of electronics has caused some computer-savvy brokers to start experimenting with machines for automated trading, which naturally pushes up trading speeds in the industry, while consolidated Order book makes it difficult for you to make explicit cross-exchange arbitrage on the physical body- Because a look at the national exchange has become an exchange.

I believe that China's stock index futures arbitrage practitioners also experienced a similar process, the early futures and stock index gap often to about 40 yuan, and now intraday high may be around 20 yuan-and a short-lived, that is, you want to rob that price difference of 20 yuan, you need to have the advantage of speed. So I heard that a lot of high-frequency trading began to be used in stock index futures.

It was also during the 1987-1999 that a large number of high-frequency trading legends began to emerge, most notably Getco, Knight and Jane Street. Here's a very interesting question--the same time the order and the video game programmer. When Getco was originally founded, it was not the financial wizards of Wall Street that were recruited, but the top video game programmers across Chicago. Because the first high-frequency trading is the most critical issue of the asynchronous order-seemingly simple, in fact, the knowledge is very deep: now assume that the exchange A and B have a price difference, you need to buy the next sell orders and pay to earn this difference, how do you place the order?

The simplest way is to order the serial, I first go to exchange a deal, and then according to the number of transactions to Exchange B under the same number of orders, if the B opportunity has disappeared, then the order to ensure that the position is closed. This is obviously not conducive to capturing the fleeting opportunities. What if we order in parallel at the same time? At the same time the biggest problem is, God only know the last two sides will deal how much, such as a, B, a unit of the single, a deal 0.8,b deal 0.7, this 0.1 difference how to do? In this respect, video game programmers are much clearer than Wall Street financiers--in online games, if you and others PK, only 1 blood left, all issued an attack instructions, who the hell? In this regard, every day video game programmers dealing with network communication and parallel data exchange have a natural advantage.

This era, do not need a strategy can also make a considerable profit, we would say that the method is pure Arbitrage (pure arbitrage), but the threshold of the game, the number of players, the final profit than the street open the shop is still low. Since then there has been a statistical arbitrage intervention, I believe this is the main motive of the question. The biggest difference between the high-frequency trading of statistical arbitrage and the pure arbitrage is that statistical arbitrage allows for a period of time and a certain level of active positions in the case of signal confirmation, while the greatest similarity is the use of low-frequency traders ' insensitivity to subtle prices and the low rate of quotations.

Or an example to illustrate, such as you in the high-frequency trading in Microsoft's stock of statistical arbitrage, your model tells you the index, Apple's stock and Google's shares of the three factors for the short-term price fluctuations of Microsoft stocks have a strong determination (statistically significant), then you in these three factors to determine the rise, You find that the factor forecast price is higher than the current market (the current market update is not timely), you buy Microsoft stock but not immediately short of the three factor portfolio, but wait for a period of time to make hedging, close the position of the behavior. This is a very simple example, but the model you need is no longer the price of a simple two exchange-you need a linear model that is often fitted and an immediate confidence estimate. Similar is the arbitrage between the futures contract and the forward contract in the middle of the future. At such times, there are some slightly more complex models involved. In the selection of the model, I think the final rule is to choose the most feasible in the current environment is the simplest, statistically speaking, the more factors the stability of the model is worse, and the investment itself is to take the road to Jane as the law of Passage.

In this case, you can see that the essence of high-frequency trading is to use the advantages of technology to capture temporary market errors-or, in narcissistic terms, I'm helping Mr. Market to correct his mistakes. If this is not the heart of the high-frequency and high-frequency, it is actually putting the cart before the horse-I personally feel a lot of long-term investment in the idea of forcibly transplanted to high-frequency trading, is very likely to create a tragedy.

Later in the United States in the development of high-frequency trading, the other two categories of products become mainstream-option Automatic market Making and convertible bond arbitrage (convertible bond Arbitrage), in fact, the principle of no two, you grasp the essence, is similar, except that you only need to hedge the price fluctuations of the first order, and now you may need to hedge against volatility risk (volatility risk) or credit default risk (risk). Jane Street is now trading in a large number of options automation markets, while Citadel, led by Ken Griffin, relied on convertible-bond arbitrage from his Harvard dorm to become the giant today. Here does not unfold, the heart of the person will certainly go to find out.

To this day, in fact, the United States in the major markets of high-frequency trading to a very sophisticated level of--colocate server, the model is more complex and more advanced procedures. And many companies are doing similar deals, so I personally feel that their business model has been similar to Bitcoin mining-everyone is desperately trying to get the next block (trading) reward, and the final winner seems to be in the general. This area, whether it is the de Shaw Giants or Manhattan Xiacheng emerging prop trading firm feel that money is not easy. However, at home, with the depth of the market (product type, quantity, liquidity) has increased, but there are many arbitrage opportunities, and this year's news on the official launch of options has given high-frequency traders a lot of expectations. This is a very good thing, as said in the movie Margin call – there are three ways to make money: Be the first,be smarter or cheat. In China, the story of cheat and dual-track, I believe that everyone is familiar with, and be the first generation in China because of active or passive venture capitalists, now slowly high-frequency traders this smart group can be in China's financial market, in fact, is the absolute gospel.

Stock and game programmers