This past spring I was compelled to rejoin what one of my former partners had longingly referred to as “civilization.” The process of rejoining the civilized was itself of note in an environment so changed as to be unrecognizable, but I’ll skip that for now. Instead I have some observations on the interesting spot in which I’ve found myself: writing dark pool aware algos from the inside. That is, I’m working for a block trading ‘dark pool’ working on the team that develops their quantitative strategies.
While still within the world of algorithmic trading, this is a substantial change from what I’d been doing before and has proven a rich ground for learning, in particular about market structure. The biggest aspect of the change – besides being civilized – is the change of perspective from the prop trader to, effectively, an execution trader. As a prop trader you are looking to identify and execute trading opportunities. Seeking alpha. Instead, as an execution trader you receive orders and need to execute them with some highly customized sets of constraints. You want to get things done over some time frame with some appropriate balance of aggressiveness and stealth. Liquidity seeking. The ‘what’ has already been decided for you; it’s the ‘how’ you need to worry about. Thus, there’s some loss of ‘agency’ in going from the former role to the latter and this corresponds precisely and inversely with the notion of agency trading.
Going from alpha-seeking to seeking-liquidity is a change of perspective, but the blocking and tackling are constant. In the end, you’re trading – managing orders and positions and deluges of market data and analytics; familiar, fun stuff.
What I’ve found most interesting is the new perspective I’m afforded on market structures.