Speed and burst

[Gab]

Hi Eugene

Since speed is a key issue in Arbitrage strategies, what do you intend
to do about the burst problem in Interactive Brokers feed?

How often would you recalculate your indicators?

Gab

[nonlinear5]

The "burst" problem was manifesting itself with the market depth
updates in JBookTrader. JArbitrager does not use market depth. It's
just the prices. As it stands right now, one-second prices are used.
We may want to adjust this in the future.

[Gab]

On Mon, Jun 28, 2010 at 2:16 PM, nonlinear5 <eugene....@gmail.com> wrote:

The "burst" problem was manifesting itself with the market depth
updates in JBookTrader. JArbitrager does not use market depth. It's
just the prices. As it stands right now, one-second prices are used.
We may want to adjust this in the future.

And you'll be updated once every second with 1sec bar. Is that right? 

[Eugene Kononov]

And you'll be updated once every second with 1sec bar. Is that right? 

Yes. We can make it a shorter period, but then it would be problematic to backtest, because the shortest bar size with IB historical data is 1 second.

[Gab]

Yes. We can make it a shorter period, but then it would be problematic to backtest, because the shortest bar size with IB historical data is 1 second.

I see. My opinion is you should consider it as the arbitrage opportunity doesn't last long. Could you make a tick based system?

It could work with 1 sec too though. Have you considered the fact that arbitrage strategies almost always have to take irregular positions? I think some route don't handle them very well.

--
Gabriel Dancause

[Eugene Kononov]

I see. My opinion is you should consider it as the arbitrage opportunity doesn't last long. Could you make a tick based system?

Actually, what makes more sense is bid/ask data. That is, record a new line whenever either the best bid or the best ask changes for either of the two instruments. That is different from the tick data which "ticks" every trade. For example, let's say the bid/ask is 1040.00/1040.25 for the ES. Multiple ticks may occur (i.e, 1...@1040.00, 2...@1040.25), but the bid/ask may not change. For JArbitrager purposes, the ticks are really irrelevant. What matters is the bid/ask for one instrument versus the bid/ask for the other instrument in the pair.

[Gab]

Actually, what makes more sense is bid/ask data. That is, record a new line whenever either the best bid or the best ask changes for either of the two instruments. That is different from the tick data which "ticks" every trade. For example, let's say the bid/ask is 1040.00/1040.25 for the ES. Multiple ticks may occur (i.e, 1...@1040.00, 2...@1040.25), but the bid/ask may not change. For JArbitrager purposes, the ticks are really irrelevant. What matters is the bid/ask for one instrument versus the bid/ask for the other instrument in the pair.

Right. It's been a while. When we tested strategies with bid/ask a while ago. It was working in backtest mode but not in trading mode. We never figured out why.

Maybe the irregular positions were to blame. Do you have experience passing irregular trades with JBT or JST?

--
Gabriel Dancause

[Eugene Kononov]

What are "irregular" positions and trades?

[Gab]

On Mon, Jun 28, 2010 at 11:58 PM, Eugene Kononov <eugene....@gmail.com> wrote:

What are "irregular" positions and trades?

I'm not sure of the exact term. When you hold 97 shares or anything that's not 100-200-300...

With arbitrage, in order to hold the same amount of $ on each side, you have to be able to deal with those. 

[Eugene Kononov]

Oh, ok, I think you mean "odd lot" orders. That would probably be an issue for thinly traded securities, just because there may not be enough to buy at the best ask and to sell at the best bid. I don't think there would be an issue with things like ES, SPY, YM, DIA, and such, but yes, we should pay attention to that. It's not really the "odd lot" issue, but a general liquidity issue.

[Gab]

Oh, ok, I think you mean "odd lot" orders.

That's it. Thanks. :P

 

That would probably be an issue for thinly traded securities, just because there may not be enough to buy at the best ask and to sell at the best bid. I don't think there would be an issue with things like ES, SPY, YM, DIA, and such, but yes, we should pay attention to that. It's not really the "odd lot" issue, but a general liquidity issue.

We only concentrated there and still had issues. I'm sure they can be solved though.

I'll help your project. I still have my strategies design. 

[Eugene Kononov]

Thanks, Gab, and welcome to the project.