Aggressive HFTs in ES

Strange · Post by **Strange** » Thu Jan 17, 2019 10:57 pm

Eventually, we can spin-off the Weird and Downright Crazy groups!

ronin · Post by **ronin** » Fri Jan 18, 2019 3:23 pm

Adventures of Strange Point Asset Management

Day 27

"Boss, we have investors on the phone. They are complaining that our alpha is imaginary."

"Just tell them to rotate their laptops by pi/2 and try again."

Strange · Post by **Strange** » Sat Jan 19, 2019 6:04 pm

Strange capital would not have that issue - zero alpha is both real and imaginary.

ronin · Post by **ronin** » Sun Jan 20, 2019 10:54 pm

Aggressive.

Right now, 90% of the street would kill their grandmother for zero alpha.

Strange · Post by **Strange** » Mon Jan 21, 2019 3:53 am

flat is the new up, baby!

Back to the topic, now that I have looked at the paper and have some doubts.

First, here is a quote "the average Aggressive HFTs earns an annualized alpha of 90.67%, while the average Passive firm earns 23.22%". Doesn't that simply imply that so negatively selected passive providers make lower return on capital, but probably have better sharpe ratios due to higher number of trades. A liquidity provider can capture the spread and get negatively selected once in a while. An informed liquidity taker can make a lot when he's able to catch a large move (e.g. on the back of events, news etc), but he's only able to do that relatively infrequently so they trade size.

Also, he actually tries to back out profits and that's where the numbers confuse me: "trading revenues of over $18.6, $7.0, and $3.2 million for Aggressive, Mixed, and PassiveHFTs". Maybe I am missing something, but can 3.2 million even support a non-amateur MM operation in something like ES?