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Comment by rixed | Hacker News Reader

> The goal is to study how different LLMs interpret financial data and make decisions with real consequences.

I don't really buy this. If the goal was to study how different LLMs interpret financial data there would be no use for actual trades, since their interpretation cannot be influenced by the fact that the trading orders are passed for real.

I believe the goal is to see if AI can do better than rats [0]. There is no shame in that.

[0]: https://www.vice.com/en/article/rattraders-0000519-v21n12/

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Real trades have transaction fees, latency, slippage, etc. - you can simulate all this, but it's hard to know if it's being simulated correctly or not.

> their interpretation cannot be influenced by the fact that the trading orders are passed for real

It's not going to make much difference with $5 trades, but the impact on the market is non-zero.

> fees, latency, slippage

Whenever I trade, I somehow always get an adverse price. I figure it's the "no fee" brokerage chiseling a bit off for themselves. I compensate by being a buy and hold hold hold investor, so paying very little in aggregate for that.

What I don't understand is how day traders avoid being eaten alive by this.

Turns out most day traders are eaten alive. There's one study a few years ago that looked at Brazilian day traders and found 97% of traders that traded for more than 300 days were unprofitable [1]. I imagine this is due to a combination of factors which include 1) no real edge against the market and 2) fees. Of course unclear if their results generalize to other equity markets, but I think this is some evidence that the average day trader will have a difficult time beating the more sophisticated market participants over a large sample.

[1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101

"Free" transactions are free because they're not immediate. The broker buys the share themselves and sells it to you at markup... ie: there is still a transaction fee, you just have no idea what it is.

Day traders use platforms that are optimized for speed and minimal fees, and that don't charge fees based on lot size.

What your suggestions is front running. This is illegal for stocks and most assets (not FX!). This will get a broker in hot water.

The more nuanced practice that brokers use to monetize is payment for order flow. They sell your security order flow to algorithmic trading shops that buy and sell the securities you want to trade.

You’re correct in that most retail orders never make it to a regulated exchange, but that may not always be a bad thing. There’s been studies showing that HFTs often match retail trades even when the market moves against them since they are better able to predict market changes and can still profit off the trades.

Right. They sell the order flow to the dark pool who then front runs the order. I haven't looked at this since like 2018 but last I checked the only major brokerage that didn't sell order flow was Interactive Brokers.

They still have to guarantee best execution.

Is it execution or price? Iirc the broker cannot give you a worse price if it knows of a better one... But is the regulation that the price must actually result in an executed trade?

Generally speaking more volume is good. I’m happy I can buy/sell most of my stocks instantly and that I don’t pay execution fees. I don’t think most average traders operate on a horizon/scale that’s directly competing with institutional funds.

This is not true in the US

There’s no markup, regulations dictate that you must get NBBO or better

Probably not, they aren't allowed to do that and don't.

You can only get an adverse price on a market order

Do you know the difference between a limit order and a market order?

Yes, and it's irrelevant to my point.

Explain how you can get filled on a limit order and "get an adverse price"

It's zero for all practical purposes and it'd be completely undetectable to every single system on earth. I do agree many times studies about model performance break down as soon as you force the researcher to actually connect it to the market and have to eat fees and so on.

For the trades it's currently doing, sure, but if it for some reason decided to go after low-volume penny stocks it might start to be measurable.

> If the goal was to study how different LLMs interpret financial data there would be no use for actual trades, since their interpretation cannot be influenced by the fact that the trading orders are passed for real.

Technically every trade influences the stock, but I agree that it won't have any effect at all.

> I believe the goal is to see if AI can do better than rats [0]. There is no shame in that.

But even then you wouldn't have to perform real trades, you could still just calculate the profit as if trades would have happened.

I think the actual trading is just to make it more interesting.

> you could still just calculate the profit as if trades would have happened

Depending on the type of trades, the volume of the equities, etc.. it can be very difficult to simulate the ability to open/close positions with sufficient accuracy to evaluate the strategies.

You make fair points. Having them do actual trades is mostly to make it more personally fun and interesting to myself.

Looks great, well done

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