In a world of HFT, quant programming, hedge funds, immense pools of capital, and algorithmic trading all of which leads to bloody gladitorial combat down to the last nano-second, retail investors have a couple advantages still in their favor: 1) they have time or alternatively, to say the same thing a different and probably better way, they have patience. Time depends on how you look at it. As a soon-to-be or current retiree one's planning horizon may be less than infinite which is a more institutional point of view. And 2) they have the ability to trade small-scale marginally-liquid semi-sketchy stuff that most hedge funds of any scale can't touch. Among other things, the spreads are too wide, the capacity isn't there, the risk of moving the market is too present, and getting out when one needs to get out is famously hard. These factors are an edge to we the few who have patience and small scale.
On the other hand buying and selling these types of things that are relatively illiquid and that have wide spreads is an invitation to getting screwed by everyone else on the other side of the trade. And screwed I have been. But there are instruments that are accretive to my strategies that have all the attributes of things I shouldn't trade for that reason. My trading is infrequent enough that manual trading is probably no burden especially when that patience factor comes into play so most of the time it all works out just fine. But even so it's pretty easy to get screwed and not much fun. Enter, of all things, algorithmic trading. For the little guy. This is news, though, to no one but me. I am late to this game and there are billions of small scale algos already out there (see this article on the rise of the robots). For me it is simply now a process of using tools that, like ruby slippers, were already there. Step 1 is to use algorithmic order types available in the broker interface to work the bid-ask spread programmatically to get a better fill than the current ask at least some of the time. I made my first foray today. Step 2, a step that I have been working on in small pieces for a few months, is to create an algorithmic trading research environment with things like ubuntu and python and misc APIs. To the extent that I want to continue and/or scale what I do this seems necessary in today's world. The other option is to keep getting screwed some of the time or maybe alternatively do a real retirement, which is always on the table. I'll keep plugging away for now because it interests me to do so.
No comments:
Post a Comment