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Market-making HFT algorithm

  • #1
  • First Post: Jul 19, 2013 8:06am Jul 19, 2013 8:06am
Does anyone here have ever seen or coded parts of a constantly profitable market making algorithm used by a serious trading firm? For example, something that constantly creates liquidity in Hotspot or EBS orderbooks and can close until the end of day all the trades at the same place statistically profitable? Share ideas, i'm interested to participate in an experiment to code these myself, test it on my own money and share eventual profits (if any) with those that contribute with good ideas .

Thanks for reading,
Zmax
  • #2
  • Jun 3, 2014 1:10pm Jun 3, 2014 1:10pm
I'm working on something similar. If you are willing to code in MT4 for the strategy, then lets talk. I'll email you trade statements of the strategy which I am currently trading manually and if you like what you see, I'll mail you the basic logic of the strategy. My goal is for the EA to take a minimum of 500 trades weekly,starting on Monday and closing all positions on Friday while maintaining a reasonable drawdown and then returning the starting capital to net breakeven at the end of all trades. Buzz me if you're game.
  • #3
  • Jun 3, 2014 2:58pm Jun 3, 2014 2:58pm
"HFT algorithm" and "MT4" is contracditory ...
PM me with coding requests and I'll probably put you on my ignore list
  • #4
  • Jun 8, 2014 5:15am Jun 8, 2014 5:15am
Quoting Zmax
Does anyone here have ever seen or coded parts of a constantly profitable market making algorithm used by a serious trading firm? For example, something that constantly creates liquidity in Hotspot or EBS orderbooks and can close until the end of day all the trades at the same place statistically profitable? Share ideas, i'm interested to participate in an experiment to code these myself, test it on my own money and share eventual profits (if any) with those that contribute with good ideas . Thanks for reading, Zmax
Forex = No end of "day" really... HFT is a more equities/futures/options related problem (or solution if your one of the lucky bastards actually profiting from the scams)

Pippers have to be more worried about their broker/dealers and how they are screwing them over (in any of a number of ways, not too dissimilar from HFT. Remember, they profit when we lose, unless you have direct ECN or a similar solution) Remember, its us versus them. The 'front-running' and 'reg arb' aren't so prevalent because we dont even have access to the "real" exchanges, and theres no reg NMS. I could go on and on, and probably mistyped some stuff but you get the picture...
  • #5
  • Jun 8, 2014 7:50am Jun 8, 2014 7:50am
HFT is growing fast in FX.

Virtu, a HFT firm famous for having a SINGLE LOSING DAY IN THE LAST 4 YEARS of trading, had the biggest growth last year in FX:

http://www.zerohedge.com/sites/defau...%20Trading.jpg
  • #6
  • Jun 8, 2014 9:07pm Jun 8, 2014 9:07pm
What element of HFT? Theres so many strategies and types of HFT it gets a little convoluted. It's probably because they have a PFOF deal with FXCM. FXCM sells their executions/order flow out to most likely this firm. The details of the deal are not public, but it can be assumed that not only are FXCM running their own exchange (dealing desk), they take the other side of your trade in the interbank market, and sell your 'order flow' to Vitru for cash. So they REALLY profit on your losses. However with Reg NMS and the abundance of other hindrances with equities trading in north america you have to admit that HFT affects stock/option/commodity traders more than us forex guys. Just the way the currency market is structured (retail-IB) eliminates some of the more known HFT algos.

Regardless, number one rule to enforce in order to not feed our brokers and their hft pals is DONT USE STOPS ("seen" or exchange-side stops)
  • #7
  • Edited Jun 11, 2014 9:22am Jun 10, 2014 4:07pm | Edited Jun 11, 2014 9:22am
Quoting ch0c
What element of HFT? Theres so many strategies and types of HFT it gets a little convoluted. It's probably because they have a PFOF deal with FXCM. FXCM sells their executions/order flow out to most likely this firm. The details of the deal are not public, but it can be assumed that not only are FXCM running their own exchange (dealing desk), they take the other side of your trade in the interbank market, and sell your 'order flow' to Vitru for cash. So they REALLY profit on your losses. However with Reg NMS and the abundance of other hindrances...
I can't comment on whether a particular firm is a liquidity provider or not. However, I can state that on our No Dealing Desk (NDD) forex execution, FXCM never takes the other side of client trades either directly or indirectly. Instead, we are compensated based on the execution volume by adding a fixed pip markup (which acts as a commission) to the best bid/offer (BBO) we receive from our liquidity providers. The 16 liquidity providers currently on FXCM's NDD price feed include global banks, financial institutions, and other market makers. By contrast, many so-called ECNs in the retail forex industry use only a single market maker to offset their clients' orders and accept a percentage of their clients' losses as payment.

While we accept payment for order flow (PFOF) from certain market makers, this represents only 3% of revenues as we mentioned in our last public earnings call. Our main reason for accepting PFOF providers is to add more depth to our liquidity. BBO quotes that are very competitive are often for small sizes like $1 to $2M notional. Having several market makers that offer PFOF and match the BBO helps make the price good for much more size, routinely up to $10M. This allows more clients to execute at the BBO price.

A market maker paying for order flow must be at or better than BBO in order to receive the order flow. They can't get the order flow if their price is worse than BBO. That means PFOF benefits our clients by adding greater liquidity for better execution. Additionally, your orders are anonymous to the liquidity providers. They cannot see your stops, limits, or entry orders; they only see market orders coming from FXCM.
  • #8
  • Edited 8:05pm Jun 11, 2014 7:50pm | Edited 8:05pm
Quoting Jason Rogers
{quote} I can't comment on whether a particular firm is a liquidity provider or not. However, I can state that on our No Dealing Desk (NDD) forex execution, FXCM never takes the other side of client trades either directly or indirectly. Instead, we are compensated based on the execution volume by adding a fixed pip markup (which acts as a commission) to the best bid/offer (BBO) we receive from our liquidity providers. The 16 liquidity providers currently on FXCM's NDD price feed include global banks, financial institutions, and other market makers....
Well, of course PFOF only accounts for x% of your yearly income, how could you beat make a killing off of your large, notoriously slippery spreads? (the dollar amount of the profit earned from PFOF would be interesting) However I still have three gripes with your firm;

1) So you engage in the practice of PFOF which is a negative aspect in most traders eyes no matter what the reason you attempt to pin on it. You still don't explain WHO (what firm(s) you sell your order flow to. Do you own controlling shares in this firm? Is it owned by anyone associated with your firm? Is there any conflict of interest issues whatsoever?

2)You scale prices. The 'NDD' option (bigger deposit = better service) makes those who know a bit about mt4's platform-as-service inner workings worry a bit. Are those accounts located on a second server? Do they get their orders filled with less latency than the DD or "first in line"? We know you don't offer a true ECN or similar, only your NDD with bigger deposit, and still engage in PFOF. Greater Liquidity? You are the second biggest forex broker in North America. Liquidity is or should never be an issue. You run your own exchange which then places the orders on the IB market or shops them out to LP's. Watching the order flow for a currency pair on an Interactive Data stream can be interesting, but this doesn't mean your "price" to retail customers after spread is the same as the IB market. Other large firms offer much more transparent pricing, spread, and services. However unfortunately for those living in the United States, they are most likely stuck without due to the US forex broker oligopoly. It seems like the wording 'no dealing desk' is used to circumvent the need to ACTUALLY have to offer a true ECN or direct market access option or similar. Its like saying "Hey, were fair... sort of"

3)Your firm was already in hot water with a lawsuit and/or charges with the SEC regarding operating against the clients "best interests". Without a doubt some amazing work on behalf of a top notch legal team got your firm out of hot water there. Old habits die hard. Need I say more?

Offer an ECN or DMA option and then you can claim to be transparent. Don't offer scaling service level accounts, many of us have high net worth, however we don't feel the NEED to put large amounts of capital into a forex trading account when its not necessary. It forces us to make accounts within accounts to offer us safety against large drawdowns without the use of market placed stops.

Until then, I'll stick with Dukas or another ECN/DMA solution (there are a few) with a higher level of transparency and better track record. Besides, why would a FXCM rep troll forums if not for any other reason to see the most popular strategies and plan against them, all the while spreading propaganda of sorts.
  • #9
  • Jun 12, 2014 1:58am Jun 12, 2014 1:58am
Summed up nicely ch0c. +1
My comments are not to be taken as trading advice, not a financial advisor
  • #10
  • Jun 17, 2014 8:06pm Jun 17, 2014 8:06pm
Quoting cogs
Summed up nicely ch0c. +1
Thanks dogg
  • #11
  • Jun 27, 2014 3:36pm Jun 27, 2014 3:36pm
Ouch...I wonder what Jason Roger's FXCM response will be to your hard facts...
Truth be told, even the refund that FXCM has been forced to repay for banking positive slippage while passing negative slippage to clients is questionable as they haven't given an order by order account of the money deducted from the poor pricing they gave clients. I tried accessing my refund via bank wire and they are deducting 30% of the refund in charges!!! On a refund!!! Lol...

As for the HFT/MT4 oxymoron, well the strategy is not really HFT...and it doesn't use limit orders. I enter at market price, and slippage really doesn't affect the outcome of my Rebate Trading Strategy because it's edge is not based on trying to predict direction, but in hedging.

I have discussed with a couple of pure STP brokers who give as high as $10 per lot in rebates. My goal is to take a minimum of 2000-3000 trades monthly and close all trades in breakeven plus spread. I have manually traded/tested several versions of this my rebate trading strategy and at first glance it looks like it can produce 10 to 15% of the account's equity via rebates, but it is exhausting to trade. On a $1,000 account, I took 2,000 trades of 0.01 lots each, averaging about 20 lots monthly earning $200 in rebates. So, coders that are willing to collaborate, kindly pm me for the details of the various versions of the strategy.
  • #12
  • Jun 28, 2014 1:03am Jun 28, 2014 1:03am
Quoting FXTriumph
Ouch...I wonder what Jason Roger's FXCM response will be to your hard facts... Truth be told, even the refund that FXCM has been forced to repay for banking positive slippage while passing negative slippage to clients is questionable as they haven't given an order by order account of the money deducted from the poor pricing they gave clients. I tried accessing my refund via bank wire and they are deducting 30% of the refund in charges!!! On a refund!!! Lol... As for the HFT/MT4 oxymoron, well the strategy is not really HFT...and it doesn't use limit...
How do you propose to do that for ALL trades?
  • #13
  • Jun 28, 2014 7:12pm Jun 28, 2014 7:12pm
Quoting Mingary
{quote} How do you propose to do that for ALL trades?
I do not close every single trade in breakeven. However, I close an overall basket of open trades in breakeven plus spread plus negative swap.
  • #14
  • Jun 28, 2014 11:45pm Jun 28, 2014 11:45pm
Quoting FXTriumph
{quote} I do not close every single trade in breakeven. However, I close an overall basket of open trades in breakeven plus spread plus negative swap.
Does this mean you would have to average losing trades with the expectation you can close them at BE?
  • #15
  • Jun 29, 2014 3:38am Jun 29, 2014 3:38am
Quoting Mingary
{quote} Does this mean you would have to average losing trades with the expectation you can close them at BE?
Well, I decided to think like a market maker. Actually, the idea came a few months back when Virtu the giant Marker Maker firm wanted to IPO.
I realised that if I sell an individual currency, and buy the same individual currency ( using different currency pairs, but targetting the same individual currency) like triangular arbitrage, but with a correlation hedging twist) eventually, all the positions will move sufficiently to allow you move to breakeven.

Market makers do not profit from trying to predict direction. They simply offer liquidity, buying and selling simultaneously and hedging the risk of the losing position. Is it possible to be profitable without trying to predict direction? Virtu showed me that yes it is. So I'm trying to create my own market making strategy...easier said than done though...
  • #16
  • Jun 30, 2014 6:57pm Jun 30, 2014 6:57pm
Quoting FXTriumph
Ouch...I wonder what Jason Roger's FXCM response will be to your hard facts...
Thanks for your post, FXTriumph

I actually hadn't noticed that ch0c edited his post to add new comments. I'm happy to address these.


Quoting ch0c
{quote} Well, of course PFOF only accounts for x% of your yearly income, how could you beat make a killing off of your large, notoriously slippery spreads?
On our NDD forex execution, FXCM makes the same fixed pip markup regardless of the spread. If the spread widens, then it's because the liquidity providers competing with each other have all widened their spreads due to market conditions. This is not something specific to FXCM. Furthermore, if by slippery, you're referring to slippage, then it's worth noting the following stats regarding execution at FXCM which have been reported to the NFA.

  1. 73% of all orders had NO SLIPPAGE.
  2. 15% of all orders received positive slippage.
  3. 12% of all orders received negative slippage.
  4. Over 60% of all limit and limit entry orders received positive slippage.
  5. 53.32% of all stop and stop entry orders received negative slippage.

FXCM platforms provide traders with tools to minimize negative slippage and maximize positive slippage. In just the 6 months between August 2013 and January 2014, FXCM clients received $15.5 million in price improvements.



Quoting ch0c
(the dollar amount of the profit earned from PFOF would be interesting)
As I mentioned previously, PFOF accounted for only 3% of revenues. While I don't have the exact dollar amount, that's only because revenue sources below a certain percentage threshold are not individually itemized in our quarterly reports. However, since we are a publicly-traded company (NYSE ticker: FXCM) you can email [email protected] to request more details if you're interested. This highlights the fact that PFOF is not a major revenue source for FXCM, and our main reason for having PFOF liquidity providers competing with banks to quote prices is to add more liquidity depth.


Quoting ch0c
You are the second biggest forex broker in North America. Liquidity is or should never be an issue.
Second? Below is a table comparing our retail volume to that of other forex brokers. The numbers shown are in billions of dollars.

http://i.imgur.com/bo7Nbgz.png


The stats above are from the Forex Magnates industry report for Q4 2011. I would post something more recent, but that's the last report that's available to non-subscribers. However, as you probably know, volumes were down across the board in 2013 due to lower volatility. I hope the authors won't mind me revealing that despite this even their latest report for Q4 2013 confirms FXCM's lead over the firms listed above in terms of monthly trading volume along with another you mentioned which didn't make the top 10.


Quoting ch0c
You scale prices. The 'NDD' option (bigger deposit = better service)
Active Trader clients qualify for a lower spreads/commissions by virtue of their higher trading volume. It's a standard practice in most industries to offer a discount for larger orders. However, it's worth noting that Active Trader client orders are not executed before the orders of other FXCM retail clients. All client orders both for Active Trader accounts and those on retail spreads are executed on a first come, first served basis through the same NDD price feed. Below is a breakdown of the services available to our different account types.

http://i.imgur.com/c35sxLj.png



Quoting ch0c
Your firm was already in hot water with a lawsuit and/or charges with the SEC regarding operating against the clients "best interests".
I believe our CEO Drew Niv said it best with this comment he made regarding the case you mentioned:

"It is a regrettable fact of public company life that even a temporary stock price decline often leads to class action litigation. FXCM will always defend itself against these types of meritless claims."

As expected, the case was dismissed later that same year on November 29, 2011.


Quoting FXTriumph
Truth be told, even the refund that FXCM has been forced to repay for banking positive slippage while passing negative slippage to clients is questionable as they haven't given an order by order account of the money deducted from the poor pricing they gave clients. I tried accessing my refund via bank wire and they are deducting 30% of the refund in charges!!! On a refund!!!
I've never seen another client mention such a problem regarding a refund. It got me curious, so I checked your forum profile and noticed that you live in Nigeria. That means a lot of the free withdrawal methods available to our clients in other countries aren't available to you and bank wire is the only option. If you haven't already completed your withdrawal, shoot me a PM and I'll see if I can get an exception for you to get that bank wire fee waived.
  • #17
  • Edited 5:22am Jul 1, 2014 5:02am | Edited 5:22am
Quote
The stats above are from the Forex Magnates industry report for Q4 2011. I would post something more recent, but that's the last report that's available to non-subscribers. However, as you probably know, volumes were down across the board in 2013 due to lower volatility. I hope the authors won't mind me revealing that despite this even their latest report for Q4 2013 confirms FXCM's lead over the firms listed above in terms of monthly trading volume along with another you mentioned which didn't make the top 10.

Wow, wow, and wow. I don't know how you think that portion of your post is some sort of rebuttal to my comment on how your firm should have ZERO problems with liquidity. You the LARGEST US RFED according to your table (I only thought 2nd largest, my data must be old) which confirms my original call on your B.S about partaking in PFOF for better execution/liquidity. "The firm I mentioned" yes, they are not an actual US RFED, so they wouldn't be on your thoughtfully placed table. Thanks for really researching that one. They also don't have these magical liquidity/execution problems that you seem to have cooked up on your stove of BS, instead they offer a true ECN solution. (DMA) Forumites seem to overwhelmingly recommend them for large lot sizes.... Hmmmm.... Although I don't give a damn about their firm, they could be a bunch of crooks too, just like (oh hell) your firm! (well, you are crooks according to the SEC violation and court case lost involving misrepresentation of your clients best interests, dont make me break out the reference URL's)


Quote
On our NDD forex execution, FXCM makes the same fixed pip markup regardless of the spread. If the spread widens, then it's because the liquidity providers competing with each other have all widened their spreads due to market conditions. This is not something specific to FXCM. Furthermore, if by slippery, you're referring to slippage, then it's worth noting the following stats regarding execution at FXCM which have been reported to the NFA.

Yes, that's on your NDD service, which is a premium service. This has stipulations or fee's, or deposit minimums that the customer needs to adhere to. It's a "tier 2" type of system that you have going on there and your not going to get the last word on this thread, not on my watch. I love how all of your carefully thought out rebuttals to my half ass-ed posts (your posts were probably cleared by your sales dept.) involve "facts" from the "NDD" service that is so wonderful and great, when the vast majority of your clientele do not have NDD accounts. Access to the NDD (tier 2/3) is reserved only for those with enough money or brains to not get fleeced by your very, very, suspect firm. OR perhaps your NDD accounts are mostly whales with no brains and lots of money, this is also a very likely possibility.

Its late and I've just noticed this now, I'm not done with this post, not by a long shot, your forum disinformation spreading days are done mr.fxc-m. (eat that word recognition)
  • #18
  • Jul 1, 2014 2:26pm Jul 1, 2014 2:26pm
Quoting ch0c
You the LARGEST US RFED according to your table (I only thought 2nd largest, my data must be old) which confirms my original call on your B.S about partaking in PFOF for better execution/liquidity.
It's precisely because our NDD price feed aggregates competing quotes 10+ providers including several of the largest banks in the world along with other PFOF firms, that we can offer excellent liquidity. That's why traders have entrusted FXCM with $1.245 billion in client funds.


Quoting ch0c
"The firm I mentioned" yes, they are not an actual US RFED, so they wouldn't be on your thoughtfully placed table. Thanks for really researching that one.
The volume table from the Forex Magnates industry report for Q4 2011 includes information from US and European brokers. The firm you mentioned doesn't appear, because it's not in the top 10.

http://i.imgur.com/bo7Nbgz.png


I would post something more recent, but that's the last report that's available to non-subscribers. I hope the authors won't mind me revealing that the full table in their latest report for Q4 2013 confirms FXCM's first place position with the firm you mentioned in twentieth place.


Quoting ch0c
you are crooks according to the SEC violation and court case lost involving misrepresentation of your clients best interests, dont make me break out the reference URL's.
As mentioned in my previous post, that case was dismissed in 2011.


Quoting ch0c
Yes, that's on your NDD service, which is a premium service. This has stipulations or fee's, or deposit minimums that the customer needs to adhere to. It's a "tier 2" type of system that you have going on there and your not going to get the last word on this thread, not on my watch. I love how all of your carefully thought out rebuttals to my half ass-ed posts (your posts were probably cleared by your sales dept.) involve "facts" from the "NDD" service that is so wonderful and great, when the vast majority of your clientele do not have NDD accounts....
The vast majority of FXCM clients trade on our NDD forex execution, and it's possible to open a Basic NDD account with as little as $50. There are no fees for maintaining this account type. The transaction cost is simply the spread with no additional commission.

http://i.imgur.com/c35sxLj.png

  • #19
  • Jul 1, 2014 5:16pm Jul 1, 2014 5:16pm
I'm not done with you yet. Not by a long shot. The case was dismissed because you paid the fines, and therefore got it summarily dismissed. Therefore proving your guilt, why pay fines for something you are not guilty of?

And are you blind, or illiterate?

I DO NOT CARE WHAT RANKING IN TERMS OF MONTHLY/YEARLY RETAIL VOLUME AN ECN/DMA FIRM HAS COMPARED TO YOURS, THAT'S PRECISELY MY POINT! YOU DON'T NEED TO ENGAGE IN PFOF, YOUR PRIME BROKER/LIQUIDITY PROVIDERS ARE MORE THAN HAPPY TO PROVIDE YOU WITH ANYTHING YOU COULD POSSIBLY NEED. WHERE'S THE TABLE ON WHAT FIRMS YOU SHOP YOUR ORDERS OUT TO?

Oh, and again,

If you are so transparent and wonderful, then why not offer an ECN/DMA solution? You run your own exchange, it would be easy peasy, possibly lemon squeezy. You would still get your commission, everything would be great! But no, you don't want your clients to profit, you want them to fail, because you profit from hedging their trades on the IB market(and still do, even if it isn't "as much" as before) Your spreads slide all over the place, you don't have DETAILED (read detailed in the dictionary) spread information on your website. (as far as max daily spread, average spread for different periods of time, spreadsheet information of spread history) You engage in PFOF. You lost (repeat, LOST!) a court case in 2011 requiring you to pay fines (I don't care if it was dismissed, you paid to have it 'dismissed', not just in your giant legal bill but in FINES)

I don't even need to waste my breath, everyone knows FXCM is shadier than a candy salesman in a cargo van outside an elementary school.

But don't you dare, don't you fucking dare come into other peoples threads and hijack it with disinformation just because the word recognition alarm goes off when someone types F-X-C-M. I don't see a rep from the other firm we were talking about coming in here. By your being here it just proves the fact that your firm is NG. (no good) Why would a rep from a broker troll forums if not for any other reason to see the most popular strategies and plan against them? I find it damn funny that on FXCM's mt4 some of the most popular systems on this forum don't seem to work at all, but when I use another broker with Fair Trading Technology's version of mt4 they seem to work fine. As a matter of fact they work perfect.

Don't piss me off
  • #20
  • Jul 2, 2014 6:19am Jul 2, 2014 6:19am
Choc...you really do know this industry, how come you are only just joining FF now? I have looked at all three threads you've started...do share some more trading insights...thanks
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