Hudson River Trading’s Book: Hiding in Plain Sight

“Any fact becomes important when it’s connected to another.” – Umberto Eco, Foucault’s Pendulum

It is always fascinating to experience the fleeting juxtaposition of data and mythology. Before, there is only mythology, where almost anything is possible. And then, data enters the picture and for a brief moment they coexist until mythology dissipates and is forever changed.

Students of this game are often aware of the lists of notable proprietary trading firms and other secretive trading entities, but there is rarely, if ever, any basis upon which to rank them other than the superlatives that tend to be associated with their founders and perhaps a guesstimate of headcount swagged from LinkedIn.

Anyway, we just had such an experience with the development of a new model on Hudson River Trading (HRT), a noted highly-automated trading shop. In the absence of data – and pictures formed by data – we really only had mythology to go by. Now we have less mythology…

So, let’s add a few more pieces to solve our puzzle about the nature of markets and the players within them with this: In the exhibit below, Alphacution introduces the total 13F position count for HRT Financial, LLC – the official position reporting entity of Hudson River Trading – for the total 18 quarter reporting period beginning Q4 2014 and ending Q1 2019:

Now, I can’t recall in which recent Feed post or case study I made the statement, so I will say it again here: Traders have a strong preference for coming home flat at the end of the day. Perhaps these days it’s a quaint notion, but certainly holding period and Sharpe Ratio are correlated.

Anyway, it’s notable that during the 3-year span of roughly Q4 2014 to Q4 2017 HRT tended to carry a stable list of long positions around 100. Our guess is that prior to Q4 2014 the list of long positions would have been lower on the logic that competitive forces – and the consolidation of high-frequency trading strategies among fewer larger players – has caused a need to hold more positions to preserve profitability of the core strategy.

But, more than this, the exhibit above begs the question like the proverbial elephant in the room: Why have the number of positions grown so much since the end of 2017?

The list of possible answers is not long: Either the strategy has changed or the landscape changed – or, both. Perhaps we will be able to identify the most likely answer once we build the rest of our model.

Watch this space…

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By | 2019-06-13T00:35:07-04:00 June 13th, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact:; Follow: @alphacution.