This is great, but remember that if you're interested in investing, and not the markets themselves and trading, then this whole landscape is already so over-optimized to the point of being irrelevant. You could've achieved everything you wanted in investing even in the pre-computer era, like for example Buffett did. In fact you could've done everything you wanted already in the 1600s Amsterdam - see the book "Confusion of Confusions", a pretty great read.
Read the 10-Ks, think about what people (will) need, what kind of margin pressures and competition dynamics will play out across the economy, read finance history books, play with pricing models. Focusing on market structure is kind of like focusing on network adapters and packet switching details, focusing on valuations/pricing/finance is like building deep ML models. Of course you need the damn networks to work, but guess what - some pretty clever people have already solved that for you.
Or you can be a Boglehead and in general not try to pick individual stocks and not try to time the market: https://www.bogleheads.org/wiki/Getting_started
"Bogleheads® emphasize regular saving, broad diversification, and sticking to one's investment plan regardless of market conditions. We follow a small number of simple investment principles that have been shown over time to produce risk-adjusted returns far greater than those achieved by the average investor. They have been further distilled and explained in thousands of posts on the forum. ..."
That said, sometimes people get lucky so YMMV. And the Boglehead philosophy and success (following by Jack Bogle, the creator of the first Index fund) has been forged primarily over the last few decades of US markets and people can question if anything substantial might change and when. Always lots of discussion about such things on that web board.
https://en.wikipedia.org/wiki/John_C._Bogle
The thing about the stock market is that there’s incredibly powerful incentives for the market to keep growing year after year. These niche markets could crash overnight and no-one would care.
I'm not so much interested in investing at all, but I'm fascinated by market structure details like these; it's like an Internet of money. It has extreme nerd value, regardless of its utility for profit seeking. :)
Also, the details in this article are implicated in all sorts of HN threads, so it's useful to have a place to link to when people start debating how market makers work or things like that.
I love geeking the orderbook flow with a visualization tool (bookmap etc)
you can see thousands of orders being placed, removed, eating other orders.. buying skirmishes, resistance lines... and to top it all off you can place an order and see it show up on the battlefield
I’ve been out of trading for a long time and don’t normally miss it. What I do miss is seeing a full depth book feed when _weird_ things happen in the market.
Shameless plug for my site https://last10k.com that has tools to read 10-Ks more efficiently. 10-Ks contain a wealth of information including lots of disclosures, business ongoings and management discussions but 10-Ks can be 100+ pages and are very verbose.
It sounds like you’ve had success with this approach. Is this what you do for a living or just invest on the side? My issue is that I have a day job and have limited time to do sufficient research to feel confident with any investment decision aside from using index funds and the like.
had to do a double take (as I read your comment before reading the article) and I think its important for me to reiterate (as you said) that this is an entirely different topic.
that intern wrote a very well and modern view of market microstructure, which many people lack knowledge of.
You seem to be implicitly assuming that financial markets are efficient and that market makers and high-frequency trading firms are the ones making that happen. Both of these assumptions are demonstrably false.
I'm making neither of those assumptions. Also, HFT is pretty much as far from making markets "efficient" prediction mechanisms as you can. HFT is a part of the plumbing of financial markets, they arb out the tiny but obvious things. For example they're the people that make ETFs possible - Vanguard or what have you doesn't actually go and buy all the thousands of securities that they have in their products, they outsource it to so called Authorized Participant (read: some org with HFT skills).
I wouldn't say that HFT arbs out only the "obvious" things. We try to arb the non obvious things as well, with more or less success.
HFT just means you trade a lot and you have low tick to trade latency. It doesn't say much about why you are trading.
For example you could have a HFT stat arb strategy in which you are arbing higher dimensional factors that are pretty far from obvious.
In general, the speed wars are over and everyone is reaching deep to become as smart as possible. Or in the other words, just being fast is no longer an edge, it's a commodity.
> In general, the speed wars are over and everyone is reaching deep to become as smart as possible. Or in the other words, just being fast is no longer an edge, it's a commodity.
I'm curious what the best techniques for being "smart" are when you have to have such quick turnaround. Are these rules-based techniques, statistical but interpretable, or black box?
I would say all of the above, with a general transition from rules -> statistical -> black box as time goes on.
But you're right that being fast and smart is pretty hard. You almost always have to sacrifice one for the other. Different firms operate on different spectrums of this speed vs smarts divide: some are faster and dumber (relatively), some are slower and smarter. But everyone is trying to up skill (analogous to moving up on the value chain), because the markets have gotten fiercely competitive at the nanosecond to millisecond scale, especially on american venues (CME for example is a straight shark tank).
I am so glad for all this work that HFTs are doing, let's me buy ETFs and all kinds of things cheaply. But maybe not now, I need the valuations, rates, risk premia to get a little more attractive. Maybe even next year, who knows when's the next March/April 2020 coming. I am hoping for a much better selloff next time!
Does anyone remember starfighter.io/stockfighter.io that Kalzumeus put up years ago? It was based around coding market making strategies based on the structures presented in this article.
I still kick myself for not completing that when it was up. I'm always hoping that that will make it's way back up one day
I sure do - I finished all the stockfighter levels and loved the experience.
There were some people who reverse-engineered stockfighter and had at least some of the code on github. You might try looking around for it.
I sometimes look around for companies that use hiring challenges like that now but haven't had much luck.
I think fly.io is using some type of challenge in their hiring process which makes sense given tptacek, patio11, and elptacek were the stockfighter cofounders.
We do exclusively use work-sample hiring at Fly.io right now, though it looks a lot different from Starfighter (Microcorruption, Starfighter's predecessor, also wasn't the work sample we used at Matasano; both Starfighter and Microcorruption were about outreach). It'd be neat to come up with something Starfighter-y/Microcorruption-y that meshed with what we're doing at Fly.io.
(I don't want to get too far off on a tangent here, though, because I also nerd out about market structure stuff and that's what the thread is about.)
I loved Stockfighter. I played through it as preparation for starting my first job out of college, at an HFT. No comment on whether it was good preparation. :)
My assumption would be from a little perspective of it being good HFT job training that it probably isn't but that it's still probably a very valuable learning experience just in terms of getting your head in that domain.
This looks really interesting! I am relatively new to a tech role in finance and am still learning all the terminology. Does anyone know of a book that teaches markets from a historical, narrative perspective? I have found textbooks explaining the main asset classes and so on, but I think it would be really interesting to see an explanation of eg the repo market, invoice swaps etc as the evolution of solutions to problems.
I've worked as a quant/dev in finance for nearly two decades now, and I've been fortunate enough to touch every major asset class on multiple time scales.
You have to start with the fundamentals, on two abstraction layers. The two layers are the financial abstractions (instruments, entities, ecologies) and technical ones (programs, networks, databases).
Since you're asking about the markets, let's leave the technical ones for now. They're a whole universe in themselves.
The fundamentals of instruments are things like the time value of money and optionality. Read Hull and Willmot, and maybe Natenberg. Whether you're a Venetian banker during the Renaissance or staking the newest, fanciest cryptocurrency, these books will illuminate how the instruments work. They are technical books, not so narrative as much as math. But from a few building blocks you will be able to understand how all sorts of things work, eg convertible bonds, rights issues, dividends (this is a surprisingly insanely deep rabbit hole), interest rate swaps, mortgages, ETFs, employee option grants, stablecoins.
The narrative perspective is absolute useful too. It's more reading per nugget, but Reminiscences is one of those things that shows you how regardless of how thing are done technologically (boys running around vs computers) there's a way the ecology works with the participants' incentives. There's also the stock market wizards books, interviews with mostly macro traders IIRC. Ed Thorpe's memoirs are pretty good at tying a certain kind of mathematical thinking to the markets. The Renaissance Technologies book that recently came out is excellent too. Poker Face of Wall Street, another one of those about connections between games and markets.
This would provide a grounding in being able to understand the kind of stuff Matt Levine writes, he writes good stuff but it's so diverse that without a foundation it just feels like a whole bunch of different things.
This is really useful, thank you (and the same to recommendations in sibling comments). I enjoy Matt Levine’s blog and feel like I follow what he’s writing about, though it’s been very crypto-heavy lately so maybe due to that. I don’t think I’ve worked before in an area with so many conventions and multiple meanings.
(Also if you ever have to expand on the technical layer, I’d be very interested.)
If you are into this kind of stuff, you might enjoy Neal Stephenson's Baroque books. It's essentially a love letter to early modern capitalism and finance. It's set around the time of the Dutch Golden Age and the (English) Glorious Revolution.
Financial shenanigans are major plot points.
Otherwise, you should also sign up to Matt Levine's Money Stuff.
George Selgin has some great books on history. His Good Money is a great start, but he also has things about more modern history.
This is nice but trading crypto is the only way I’d ever been able to retain any of this stuff. You sit on an exchange without need for a broker and see your order go on the books or if its a market order how much liquidity it absorbs and how much price moves… its a 100x learning. I used to read books about market structure but all this stuff only helps after doing it.
you can get direct market access in the equities markets too.
its kind of pathetic that crypto still doesn't have brokers like the structure described in this article, even sadder when you've sat on enough sales calls to realize that there are a couple vendors selling/sold the entire custodial crypto exchange software to many goto exchanges and that software has brokerage, dark pool, and cross exchange smart order routing all built in that nobody ever turns on. Its okay, Uniswap and composibility leapfrogged it and now there is non-custodial cross exchange liquidity.
Why do sites do this? Yes, I'm using Tor Browser to protect my privacy and stop big companies from tracking me. But I can just plug the URL into an archive service and read it from there.
Any major player with an actual security dept is going to have evaluated just blocking Tor - or they are wildly irresponsible. It's a relative low effort way to get a win on security with minimal harm to customers and particularly paying customers.
Their sec ops team will be subscribed to things like DHS CISA alerts.
Alert (AA20-183A)
Defending Against Malicious Cyber Activity Originating from Tor
They will evaluate the least effort approach and potentially follow it.
No. It's a blog post. End of story, I don't care who made it. Letting someone view a blog post is not a security risk, anyone who treats it as one is wildly incompetent.
I'm not really talking to you. I'm talking to some other HN reader who thinks this is an actual debate between two reasonable sides.
Every time a security practitioner has to make a new decision, that opens up the possibility of making a mistake. Therefore, it is good practice to limit the number of decisions that you have to make.
That's why the standard policy for firewalls is default deny, and you have to make an affirmative decision to let packets in.
That's why we make cost-benefit decisions about blocking policy.
Does it cost NASDAQ to block Tor exit nodes from reading their blog? Not materially. Anyone that desperate to read that material anonymously can ask the Internet Archive for it, or get some other proxy to pull it for them. None of their actual or potential clientele will feel the need to use Tor.
Does it benefit NASDAQ to have a general policy of blocking Tor exit nodes? Yes, it definitely does. If you want to probe a site's security, Tor and rented botnets are the sources of choice.
I don't know whether NASDAQs security people are competent or not in general, but in this specific example, they made a good choice.
I'm not the guy you were talking to, but let me make one thing absolutely clear. You can't read that blog post on Tor because nobody is interested in making things "actually work" for you, because you (and the other people who won't or can't not use Tor for five minutes) don't matter to them. It's not a security fetish, it's just sensible prioritisation. They'll get around to you after every other bug is ironed out, their desk is clean, they've been on their weekly 10k run, and they've flossed like they've been intending to for a decade now. They. Don't. Care.
The tor users / hackers / ransomeware folks? For sure - we agree there. Because claim handling costs are way up there is going to be building emphasis on following things like this DHS alert on how to protect your network.
We're rolling out tor blocking our sites where we didn't used to need that. I think more automated options as well will come (think cloudflare) which will help folks with this as well and maybe jam tor users into perhaps recaptcha loops or similar? Not sure what right solution is to filter out the tor users - hard block or try and detect and recaptcha etc.
Is letting me into your house to read a book on your shelf or a newpaper a security risk? It's just static content on a page you say. Well, this is nasdaq.com. Even their blog site is a source of security concern both as access to a domain that hosts a lot of critical content and even static stuff on nasdaq matters.
Imagine a bogus post ending up on their blog that crap cryptocoins have been approved by regulators for direct trading / custody and some random ETF has gotten approval for a direct coin ETF offering etc.
The cost/benefit of dealing with tor on your network for a place like Nasdaq is not even close - NO BENEFIT to allowing it. Literally no one they care about (ie, folks paying them big bucks) will complain if it is blocked. So it's blocked. Simple.
Everybody's a target for data collection, it's the very basis of the comprehensive tracking and ads industry. No need to get so defensive - this isn't exactly a stunning revelation.
Nasdaq.com will block you temporarily for the sin of not running all the JavaScript they want. It’s pretty annoying but I guess it mostly affects users they don’t care about. I don’t visit enough to know the exact mix I’d have to allow in noscript to earn their trust.
Read the 10-Ks, think about what people (will) need, what kind of margin pressures and competition dynamics will play out across the economy, read finance history books, play with pricing models. Focusing on market structure is kind of like focusing on network adapters and packet switching details, focusing on valuations/pricing/finance is like building deep ML models. Of course you need the damn networks to work, but guess what - some pretty clever people have already solved that for you.