I think knowing your counterparty in a trade falls under “to know thine enemy” and is always of value. These days, however, it is hard to verify or test. In floor trading there are locals and the ubiquitous “paper” when it come to fills. I would much rather trade against the latter then the former. With electronic trading I used to have a theory I was trading against the retailer traders who would not hold over night, or the trend followers who would tolerate losses in the short-term. But these were hard to verify even then, and now I would not propose those theories as valid. I have yet to develop an alternative theory.





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1 Comment so far

  1. John ( other John ) on August 18, 2014 5:21 pm

    It occurred to me, that the onslaught of HFT and ETFs has left me wondering if there’s any retail action left at all. Or any small institutional action, even. WSJ had a piece a few weeks back, on the emptiness of UBS’s vast trading floor, now filled with back office staff. Is the market really such a ghost town?

    Askance, I looked about the bitcoin game, and hey presto, up came blog entries describing how a exchange kept making a market by stalling fills until it could buy enough from the order queue, as a effective “circuit breaker”, but that means anyone selling was trading against the exchange, at that point, not the market. The difficulty of analyzing the data for a market feed (of “real” markets, due to volume of data, of bitcoin “exchanges” due to inherent complexity of the settlement as well as exchange peculiarities) inclines me to think the general perception is that the profit center has become merely churning the spread, to heck with the customers. Flickering through my memory is a quote from Liar’s Poker, when a trader quipped they might as well fire the customers. Well as they might… Nanex do a useful job, however, unraveling the hosepipes of latterday tickers.

    I don’t see any role, for a traditional trader, any more. It’s a fairy tale remembrance, to reflect that keeping track, best one could, of the positions held about the street, might be any advantage. It’s a narrowing proposition, whether even a direction view can be filled at a fair price, or filled at all, when your order is hen pecked by the algos, who meanwhile take their fills everywhere but where you saw a price you liked.

    Only half jokingly, I think the reason there’s interest in things like bitcoin, and making markets of alternative investments of any kind, is lonely traders seeking some action. Quite a few of the LIFFE locals, on computerization, quit and headed to trade fish at the Billingsgate market, where they at least got some action to liven their day. The only action I get is sipping my drink perusing which I admire for collating enjoyable nostalgia, and being guilty of selling a book on market hand signals, for which plug I hope I cannot be accused of diverting your attention gratuitously, I’m unconnected to that effort entirely, but feel compelled to mention it in the context it feels downright strange to feel nostalgic for… nostalgic in the way one might for obsolete computer equipment that is now archaic and slow, what, when I grew up, I felt was the stuff of life.

    Sorry Vic, if I seem to be spamming your blog, it’s a slow summer, and I’ve been at a loss for a philosophical approach to investing, needing to return to it, as I exited completely a while back and have too great a fear of cash devaluation, and being a fan since it came out of TEOAS, came here for refreshment and vitality. Refreshment, in a curious form, I must thank you for. But, though I have read only a handful of posts so far, I think three or four years since last lurking, I find more questions than hypotheses. Of itself, that suggests to me, that the markets are more out of whack than they have been possibly ever. For if who derived theory from checkers and hobo wisdom, hoodoos and Beethoven, with nod to Hofstadter I always thought, there, is home to such fundamental questions… I leave that thought unfinished.. I timorously wonder if I may have found a passing home for the “investing lost” muses of my mind? Or a daycare center for the disinvested… (and admittedly a little disaffected by the markets) Forgive me, I seek humor in humility and wisdom only from the wit of saying, by apology, my cup is empty, if it overflowed, it could not be filled, so I do not demand it is ‘plenished.


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