Every shop that’s focused on using HFT seems to be a prop shop. E.g., Citadel securities, jump trading headlands, HRT. (The reverse isn’t true. For example, HFT isn’t a focus at Jane Street) As far as I can tell, HFT and prop shops are orthogonal concepts, but yet, we rarely see hedge funds focused on using HFT. Hedge funds like two sigma, citadel investments, Shaw have some strategies using HFT but it’s not the focus
Shorter-horizon strategies tend to have more capacity constraints. With too much capital you start to influence prices against you. Longer term strats scale better since you can be more patient in getting the price you need thus they benefit more from accepting external capital.
another newb question: is this why models at hedge funds seem to be more stats-y/sophisticated (but not necessarily more performant) than HFT strategies because hedge funds tend to use longer term horizons?
Generally, the more low-latency/HFT you get the less you have to worry about alpha/math. Latency arbitrage for example requires zero math/alpha. Of course there are exceptions, but that’s the general idea.
HFT isn't a focus to JS? They are mm/ prop not hf?
idk if they have any outside investors, but yes, they are considered a prop shop because most of their capital is from the inside
HFT infra also requires substantial investment to get set up and most hedge funds will be reluctant to bite the bullet at first, as for the more typical fundamental strategies they employ, you’re good to go with a Bloomberg terminal and a working landline
This very, very true.
Bloomberg terminal and a working landline? Damn, I have only one of those two.
HFT trading strategies are capacity limited meaning that you can’t deploy too much money on it. Hedge funds strategies work both with 500M or 5B. If you deploy too much money on a HFT you start to lose them all really fast
Curious on how much $ does HFT work with usually? Is the amount same for market making?
there are too many variables, you should take a look at investopedia for a nice glossary. Trading is a completely different career, it’s not like web tech
Very short horizon strategies are capacity limited. You can't deploy more than X million/billion. And the founders + employees have that. So it makes no sense for them to raise outside money and give 60-80% of the profits to someone else, when they could keep 100% of the profits themselves.
that doesn’t explain why prop shops use HFT
Educate me: what is diff between prop shop vs hedge fund?
yea and that pretty much answers the question. prop shops generally employ riskier strategies
disagree with 2s. hft strategies tend to have high sharpe from what I understand.