Barjon's Money Machine

DionysusToast

Legendary member
5,963 1,501
Yeah, it's just normal intra-day /intra-week (however long it takes) variance, and a damm site safer strategy than most employ.

Why is it safer, exactly? Why is it not just another Howard Cohodas/Spanish89 waiting to happen?

The reason I ask is that arb opportunities tend to exist for very short periods.

Look @ the title of the thread "Barjons Money Machine". Whilst tongue-in-cheek, that is exactly what this looks like.

As did Howards option strategy to many. I got shouted at for being one of the first to point that out....

Jon - do you have any numbers on this in terms of what you are potentially risking on a trade, what your hit rate is, when you dump a trade and what a winner would yield?
 

scose-no-doubt

Veteren member
4,630 954
It would take a massive event that caused a decoupling of the US/UK economies to make this kind of strategy approach HoCo risk profile, wouldn't it. Ain't as many historical black swans there afaik cos they've normally got the same vested interests. Plus we have this issue of of asset beta, ADR pricing and FX arb and EMH that I've become obsessed with lately :)

As long as you're safely leveraged of course. I'd think diminished relative returns would be a foregone conclusion.
 

ChocolateDigestive

Experienced member
1,153 281
As for why index arb guys are flat @ the end of the day, it's because the opportunities are fleeting in markets like S&P Futures vs Cash....

yes that is one reason. In the automated HFT algo space you either need to be first or the fastest (or both). another reason is they focus on high value sharpe ratio returns and the preference is for a high number of intraday trades. another reason is the risk is much higher holding overnight and there clearing partner will place many more constraints on them for overnights.

there is some really good stuff in this up to date book on HFT - see below link. I dont trade automated HFT but it is def important to stay abreast of HFT so you know what is going on in your chosen market.

Book « The Speed Traders, The Newest High-Frequency Trading Book by Edgar Perez
 

DionysusToast

Legendary member
5,963 1,501
you are clearly searching for a reason why this method could work. stat arb traders looking at stat relationships so they are less concerned about the why.

So you are saying that institutional stat arb traders pay no consideration to WHEN they should trade & when they shouldn't?

Interesting.
 

DionysusToast

Legendary member
5,963 1,501
scose

I don't think it's a question of mispricing - as is the case in a true arb - but more a case of DOW leading the way as far as FTSE is concerned in terms of general sentiment. Conditions in UK cause the FTSE to deviate from that relationship for periods but the pull of the DOW brings it back towards the mean even if it doesn't make it the whole way.

So the DOW is the dog & the FTSE is the tail?

How long have you been running this Jon?

Have you considered the possibility that what you have actually manufactured here is a synthetic USD/GBP directional trade?
 
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DionysusToast

Legendary member
5,963 1,501
yes that is one reason. In the automated HFT algo space you either need to be first or the fastest (or both).

And cheapest of course.

I think 'first' encapsulates this but it's worth pointing out that being willing to accept a smaller spread (which really requires lower costs) is what gets you in first.

Hence, large obvious arb opportunities being as rare as a Howard Cohodas losing trade!
 

ChocolateDigestive

Experienced member
1,153 281
Why is it safer, exactly? Why is it not just another Howard Cohodas/Spanish89 waiting to happen?

The reason I ask is that arb opportunities tend to exist for very short periods.

Look @ the title of the thread "Barjons Money Machine". Whilst tongue-in-cheek, that is exactly what this looks like.

As did Howards option strategy to many. I got shouted at for being one of the first to point that out....

Jon - do you have any numbers on this in terms of what you are potentially risking on a trade, what your hit rate is, when you dump a trade and what a winner would yield?

well I would hardly call what Barjon is doing an arb trade, certainly not a true arb. more accurately it is a spread trade.

why is it safer? because you are somewhat insulated from extreme events. lets say someone launches a nuclear missile at new york later today then both components are going to tank however the spread is likely to tank less relatively speaking. CV is not the only person to think they are safer, if you take a look at the trading margins required for spreads versus single instuments you will see they are way lower.

check it Performance Bonds | Margins Requirements for CME Group Products
 
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DionysusToast

Legendary member
5,963 1,501
It would take a massive event that caused a decoupling of the US/UK economies to make this kind of strategy approach HoCo risk profile, wouldn't it.

Well yes - if the indices were the same currency & in 2 stable untroubled economies....

You have both currency risk & risk that the US & UK economies are not hard linked.

A devaluation of the FTSE is hardly going to bring down the US for instance.

Your original question of 'why' is an important one.
 

scose-no-doubt

Veteren member
4,630 954
Have you considered the possibility that what you have actually manufactured here is a synthetic USD/GBP directional trade?

US GDP is comprised mainly of domestic demand whereas Uk is highly reliant on EU exports so if anything I think the first line would be USD/EUR rather than USD/GBP. Oviously there's be more too it than that but given the majority of currency transactions are USD JPY EUR GBP I think that cross would be more relevant.
Personally, as we're talking about globally diversified companies, I'd guess we're looking at an the aggregate beneficial/adverse exposure of the index constituents to global growth trends rather than being in an eggs in a single basket scenario.


A devaluation of the FTSE is hardly going to bring down the US for instance.

Your original question of 'why' is an important one.

But I think that a devaluation of FTSE would (could) not occur independently to the Dow due to globalisation and the general nature of modern corporate structure and interests.
 

ChocolateDigestive

Experienced member
1,153 281
So you are saying that institutional stat arb traders pay no consideration to WHEN they should trade & when they shouldn't?

Interesting.

not sure what you been smoking toasty. I said 'stat arb traders looking at stat relationships so they are less concerned about the why.

this means they are less concerned with the fundamentals as other team members will look at that. often maths and physics phd's are not the best to consider fundamentals anyway they do the maths.

Institutional HFT algo traders work in teams, programers, traders, stat arb guys.

not sure where you got the WHEN they should trade, that is the exact opposite of what they do.

vendors should be banned from posting lololol
 

ChocolateDigestive

Experienced member
1,153 281
And cheapest of course.

I think 'first' encapsulates this but it's worth pointing out that being willing to accept a smaller spread (which really requires lower costs) is what gets you in first.

Hence, large obvious arb opportunities being as rare as a Howard Cohodas losing trade!

no not the cheapest this is not mission critical, not saying you don't need to be cheap, clearly you need to be cheap, volume cheap. The institutions self clear their HFT but volume HFT firms can clear 1000 shares for 5c or less. I pay 20c for my manual trades.

first does not encapsulate this sorry. I am referring to 1st in the queue, the right ECN queue. Most HFT algos operate in US stocks, having lower costs does not get you in first, this is just plain wrong.

without being disrespectful I would suggest you read the speed traders book then perhaps we could have a sensible discussion on the matter.

what you paying on the ES, $3 a round turn lolololololol
 

scose-no-doubt

Veteren member
4,630 954
Choccy,

I would have though that if anything, HFT could be beneficial to people trading this type of spread. I'd guess there are more algos that are operating and adding to trends that would throw this further out of kilter than those looking to earn from the close.
 

DionysusToast

Legendary member
5,963 1,501
Vendors should be banned and so should idiots. Be a bit quiet then....

As usual, a 'pot of gold' thread on T2W will turn into a "burn realists at the stake" event...

Stat Arb traders of course will not take trades blindly. If you pair traded a couple of stocks for instance, you would not trade them if one stock had an earnings announcement the next day.

Knowing WHEN to take the trades is key.

With SB and holding overnight positions, you have an interesting dilemma. You have nothing to get you out of a trade that goes wrong when you are in bed.

You have Jon holding positions overnight. He can't have a stop loss on an individual trade. There is no upper or lower boundary for any side of his position as long as the two move in unison. His bucket shop doesn't understand the relationship and cannot exit both sides when they go out of whack. If there is a major shift in GBPUSD when Jon is asleep, he could be waking up to a very sorry looking account, similarly if there is an overnight UK event.

In effect, you have a trade with no risk management. As I mentioned earlier, Howard Cohodas, Spanish89.
 

ChocolateDigestive

Experienced member
1,153 281
Choccy,

I would have though that if anything, HFT could be beneficial to people trading this type of spread. I'd guess there are more algos that are operating and adding to trends that would throw this further out of kilter than those looking to earn from the close.

no HFT algos will not be in this space, for reasons already stated. There may be a few but there preference is high sharpe ratio and volume round turns intraday. Remember being able to play a good edge many many times per day is much preferable to playing an ok edge a couple of times a week.
 
 
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