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nikol


Total Posts: 850
Joined: Jun 2005
 
Posted: 2019-10-31 11:11
Lame question I ask myself:

Given all this trading algo space with main categories (do we have more?)
MM - LOB dynamics,
(stat) arb - relative value
momentum - predicting the future

can I base my strategy entirely on signal from the market I trade on? i.e. not involving anything from other (reference) markets?

EDIT: I contradict myself, because stat.arb involves referencing. Also latency arb is about referencing too.
Perhaps, order execution on micro level uses only local info.

So, to summarize, the question is about the usability of local (within matching engine) vs non-local (global) info.

Its Grisha


Total Posts: 4
Joined: Nov 2019
 
Posted: 2019-11-21 22:13
I think there are a few very latency-sensitive signals you can use without a reference. One crude signal (that probably still works in some markets if you are literally the fastest) is simple book pressure. (Qbid*Pask + Qask*Pbid)/(Qbid + Qask), combine this with a trigger on incoming order.

There are some other "local" structural arbitrages on idiosyncratic exchange (micro)structure that I know some people are exploiting. E.g. unique opening auction dynamics, who gets what kind of confirm message first, etc.

nikol


Total Posts: 850
Joined: Jun 2005
 
Posted: 2019-11-22 21:00
> simple book pressure.

I would be happy if all my counterparts use this version :))

Its Grisha


Total Posts: 4
Joined: Nov 2019
 
Posted: 2019-11-22 21:19
Haha, I'm sure some still are with only light extensions. If hypothetically you only had access to a single instrument LOB though, I think you could be above break even with some extension of this signal and sufficient infrastructure. Whether it would ever make sense to do so without also referencing the same signal in correlated instruments is another question...
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