Taker v.s. Market Maker Alphas

A thread on how they differ

... This is just my own mental framework for it, and others may view it their own way, but I think this will be helpful regardless.

Anyways, let's define taker and maker alphas.

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Finding Alpha 101:

Accumulated Improvement

… What is accumulated improvement?

It’s the gains in performance you accumulate over time from tuning your strategy and improving it.

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Market Making 101 - Trade Impact

How to incorporate new trades into price.

… Let’s say a new trade has occurred on an exchange, if we have a latency edge we want to be one of the people incorporating it into price instead of one of the people reacting to price changes.

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QR0 - Fill Probability Analysis

A thread 🧵

... Fill probability analysis is primarily useful when optimizing maker/taker trades.

These are trades where the first leg we make into and then the rest of the legs are takers.

This is a limit order and then market orders the rest of the way (either limit IOC or market)

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Market Making 101 - Marks

A thread 🧵

… What is a mark? Well a mark is how we value something.

We can mark to model (our own subjective value of what something is worth), or mark to market (the current price), or mark to cost to close (market price with liquidity cost factored).

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LLMs in quant finance.

A thread 🧵

… As I write this I am concerned that it probably rides the hype train. It’s hopefully obvious that no real practitioner expects LLMs to entirely do their jobs but with that said it’s something my entire firm now uses.

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Market Making 101 - Hitting Machines

A thread 🧵

... In traditional finance, you typically refer to your taking system as your hitting machine and it accompanies your maker system.

Let's outline how hitting machines and 'hidden orders' work.

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The Latency You Don’t See

A thread 🧵

… The topic of this thread is latency and all the parts you don’t typically end up seeing either in your data or any component that goes into the research.

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Do arbitrage strategies still make money?

Yes and no… let’s dive in :)

(1/n) Let’s first start by outlining arbitrages by complexity.

Complexity doesn’t guarantee success- it’s really more about how advanced your approach is.

(2/n)

Let's break down this highly profitable market timing strategy!

100% annual return, and 1.6 Sharpe... If we look at the seasonality of BTC we notice clear pattern in when the returns happen.

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Whilst writing the "how to learn this" section of roadmap 5th edition, I had an interesting thought I figured I'd make a short thread out of.

... You cannot learn anything from reading a textbook or an article, at most you can memorize some definitions.

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Alternative data.

An comprehensive overview of different types:

… What is alternative data?

Anything other than price and fundamentals really.

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Timeframes and difficulty

A thread 🧵

… I believe that as you increase your timeframe, it becomes easier to make small money and harder to make big money.

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Uncompetitive niches:

How almost traders make their millions

A thread 🧵

… I very strongly believe that the way to do well in trading is to find an uncompetitive niche.

Most traders you meet really have a few specialty trades they put on regularly and milk.

Those are their uncompetitive niches they’ve found.

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Some great books (non quant):

Quick thread

… 1. The Almanack of Naval Ravikant

It’s my favourite of all time. It’s 150 pages.

Split half about how to make as much money as possible, and how to be as happy as possible.

Never read the second half because I’m doing great already but the first half is brilliant.

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Establishing fair value.

A thread 🧵

… The standard rule of thumb in crypto is typically “quote around Binance” in the case of spot and futures and “quote around Deribit” for options.

But why?

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I always found the mkt microstructure textbooks to be damn near useless.

Here's a short thread (I have a few thoughts)

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https://twitter.com/Quantaraum/status/1805665403336548415

1. The sims are useless

The statistical processes or models for simulating the book/fills are p. much useless. None of it is even slightly useful in indicating whether it'll work or not.

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Quant Intuition: Building it, Examples, Etc

A thread & Some Thoughts

... Quants like to think of themselves as fully automated and machine-like in their work, but the truth is honestly far from that.

No part doesn't touch a human hand.

Don't believe me?

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The only time I’ve seen neural networks work in practice for quant trading.

A thread. 🧵

… I’ll start with some caution. Just because I’ve never seen it, doesn’t mean I don’t know it exists. I know XTX and such have huge ML models, likely using neural networks or genetic algorithms, but I’ve never seen it with my own eyes so hence the subject of this thread.

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Event-based HFT alpha and shitcoins.

Let's do some analysis

... Many of you will have heard of things like Elon tweeting about doge -> doge goes up a fuck ton as an HFT strategy.

It's well known. There are a lot more of these, however, and they don't just work in crypto.

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Best ways I’ve come up with initial alpha ideas.

A thread 🧵

… 1) Active curiosity.

I saw a news article about a certain piece of news and thought, surely this must get priced in fast right?

I know from my previous work in that market that things aren’t exactly the most efficient (and they certainly weren’t back then) so I pulled up some tick data and ran the numbers.

What I found shocked me, and was a pretty profitable trade.

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