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Comment by H8crilA | Hacker News Reader

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.

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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

If you want to be an active hobbyist investor, may I suggest Magic the Gathering or Pokémon cards or Lego sets?

Basically, pick anything that's too small and niche for the serious players to tackle.

(If you want to invest in stocks, just by an index fund.)

> Basically, pick anything that's too small and niche for the serious players to tackle.

It might not sound like it, but this is truly fantastic advice. Really. I suggest doing the same.

Well, I only meant it as very conditional advice. The if in 'If you want to be an active hobbyist investor,' is a very big if.

Other hobbies are less dangerous.

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.

Yes. So I would suggestion people not be active, hobbyist investors.

I suggest you get some hobby that's not in finance. And put your money in index funds.

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.

Yeah, it's a heavily optimized technical system, it simply has to attract nerds :)

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.

> Read the 10-Ks

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.

>(see the book "Confusion of Confusions", a pretty great read).

Out of print, but gwern has a pdf: https://www.gwern.net/docs/economics/1688-delavega-confusion...

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.

I feel like you could expand this into a book translating Buffett into programerese

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).

> HFT is pretty much as far from making markets "efficient" prediction mechanisms as you can

? HFT facilitates liquidity, liquidity facilitates efficiency.

Yes of course, but i meant as far as you can [while still being a market participant].

Nobody really cares (except for traders) if the US 10 year note is at 1.54% or 1.52%, but rather if it's at 1.5%, or 2.0%, or 3.0%. Or even 10%.

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!

> For example you could have a HFT stat arb strategy in which you are arbing higher dimensional factors that are pretty far from obvious.

What does this mean (HFT stat arb strategy)? What higher dimensional factors ? Ty!

https://en.wikipedia.org/wiki/Statistical_arbitrage

>Both of these assumptions are demonstrably false.

Can you demonstrate?

Yes solve any market equilibrium model and compare to the real deal.

Not the OP, but this book does a pretty solid job of arguing against it:

https://www.worldscientific.com/worldscibooks/10.1142/11484#...

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