High-Frequency Traders Push Closer To Light Speed With Cutting-Edge Cables (wsj.com) 186
High-frequency traders are using an experimental type of cable to speed up their systems by billionths of a second, the latest move in a technological arms race to execute stock trades as quickly as possible. From a report: The cable, called hollow-core fiber, is a next-generation version of the fiber-optic cable used to deliver broadband internet to homes and businesses. Made of glass, such cables carry data encoded as beams of light. But instead of being solid, hollow-core fiber is empty inside, with dozens of parallel, air-filled channels narrower than a human hair. Because light travels nearly 50% faster through air than glass, it takes about one-third less time to send data through hollow-core fiber than through the same length of standard fiber. The difference is often just a minuscule fraction of a second. But in high-frequency trading, that can make the difference between profits and losses. HFT firms use sophisticated algorithms and ultrafast data networks to execute rapid-fire trades in stocks, options and futures. Many are secretive about their trading strategies and technology.
Hollow-core fiber is the latest in a series of advances that fast traders have used to try to outrace their competition. A decade ago, a company called Spread Networks spent about $300 million to lay fiber-optic cable in a straight line from Chicago to New York, so traders could send data back and forth along the route in just 13 milliseconds, or thousandths of a second. Within a few years the link was superseded by microwave networks that reduced transmission times along the route to less than nine milliseconds. HFT firms have also used lasers to zip data between the data centers of the New York Stock Exchange and Nasdaq, and they have embedded their algorithms in superfast computer chips. Now, faced with the limits of physics and technology, traders are left fighting over nanoseconds. "The time increments of these improvements have gotten markedly smaller," said Michael Persico, chief executive of Anova Financial Networks, a technology provider that runs communications networks used by HFT firms. High-frequency trading is controversial, with critics saying that some ultrafast strategies amount to an invisible tax on investors. Industry representatives say such criticism is unfounded.
Hollow-core fiber is the latest in a series of advances that fast traders have used to try to outrace their competition. A decade ago, a company called Spread Networks spent about $300 million to lay fiber-optic cable in a straight line from Chicago to New York, so traders could send data back and forth along the route in just 13 milliseconds, or thousandths of a second. Within a few years the link was superseded by microwave networks that reduced transmission times along the route to less than nine milliseconds. HFT firms have also used lasers to zip data between the data centers of the New York Stock Exchange and Nasdaq, and they have embedded their algorithms in superfast computer chips. Now, faced with the limits of physics and technology, traders are left fighting over nanoseconds. "The time increments of these improvements have gotten markedly smaller," said Michael Persico, chief executive of Anova Financial Networks, a technology provider that runs communications networks used by HFT firms. High-frequency trading is controversial, with critics saying that some ultrafast strategies amount to an invisible tax on investors. Industry representatives say such criticism is unfounded.
Just one way to kill HFT (Score:5, Insightful)
By imposing random delays between 15 and 30 minutes on each transaction on the stock market because that's the time a human needs to decide.
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I literally came here to say this... and was dually rewarded by seeing that I'm not alone, and also, that it was the first post! Wish I had mod points for you today.
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Your solution would like squeezing smoke.
Most trades by volume already occur in opaque and unregulated dark pools that operate outside of public markets. More regulation just means less transparency and less liquidity for low volume traders.
Slower trades also mean greater risk for market-makers which translates directly into higher transaction fees.
But, just to humor you, let's assume your solution could be implemented. Exactly what "problem" would it solve?
Front-running doesn't require fast transactions
Re:Just one way to kill HFT (Score:4, Informative)
A more realistic suggestion is to replace continuous-time markets with regularly-spaced auctions, as proposed by Eric Budish:
https://papers.ssrn.com/sol3/p... [ssrn.com]
There are lots of good reasons to have active market makers (also known as middlemen, HFT, brokers, leeches) participating in buying and selling. Exchanges figured out long ago that discretizing prices helps the markets run smoothly, which is why stocks in the USA trade on $0.01 increments.
Budish makes an argument for also discretizing time.
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A more realistic suggestion is to replace continuous-time markets with regularly-spaced auctions, as proposed by Eric Budish
1. His paper describes a "solution" but doesn't explain the "problem" that it is intended to solve.
2. He proposes a time slice of 0.1 seconds. That would increase the risk for market-makers (thus increasing transaction fees) but would do little to solve front-running.
3. The obvious response from HFTers would be to place their orders in the last microsecond before the end of the time slice. They could still incorporate more information than earlier orders, so the advantages of faster HFT would remain.
So t
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A more realistic suggestion is to replace continuous-time markets with regularly-spaced auctions, as proposed by Eric Budish
1. His paper describes a "solution" but doesn't explain the "problem" that it is intended to solve.
2. He proposes a time slice of 0.1 seconds. That would increase the risk for market-makers (thus increasing transaction fees) but would do little to solve front-running.
Front running is (a) illegal and (b) not actually a thing that happens, except in the popular (and misinformed) public imagination. Michael Lewis' book Flash Boys was mainly based on feckless speculation. Except for the first chapter, which was excellent. (I will add here that the book's hagiography of Brad Katsunama and IEX has been contradicted by the relative unpopularity of IEX with non-HFT traders)
Thus, with front-running not being a problem, Budish addresses what other commenters have pointed out a
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@ShanghaiBill I am not trying to be contrary here
No problem. I appreciate the insider perspective.
But if front-running and spoofing are not real problems, and the only issue is HFTers misallocating their own resources, then why is HFT even controversial? Why should anyone care?
I am not so sure that resources are being squandered. TFA describes a technique to make fiber 50% faster. HFT is an obvious application for that. But faster fiber is likely to be broadly useful to many more people: HPC interconnections, long-distance backbones, etc. Everyone c
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I appreciate the insider perspective.
Happy to be here!
But if front-running and spoofing are not real problems, and the only issue is HFTers misallocating their own resources, then why is HFT even controversial? Why should anyone care?
Part of it, I speculate, is that HFT is mysterious so, just like genetically modified crops or nuclear power or vaccines or wi-fi there is room for folks to project all sorts of evil upon the unknown. I am old enough to remember public scares about gay marriage, "super-predators", and even Dungeons and Dragons, all of which involved this tendency.
The reason the SEC does almost nothing about HFT is that, every time some grandstanding senator asks them to look into HFT, they do so and find t
Re:Just one way to kill HFT (Score:5, Interesting)
So just change the laws. End vapourware transactions that do not actually occur, force actual transaction and lock in that trade for at least 24 hours, the transaction must actual go through and stand for that time before those shares can be traded again. Make it an investment again instead of some insane gambling game.
Re:Just one way to kill HFT (Score:5, Insightful)
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You also could place a 0.1% transaction fee per transaction.
Singapore and London would love this! 100,000 Wall Street finance jobs would move there the next day.
Re:Just one way to kill HFT (Score:5, Insightful)
Singapore and London would love this! 100,000 Wall Street finance jobs would move there the next day.
What good are they doing on Wall Street? Would we have any reason to miss them?
Re:Just one way to kill HFT (Score:4, Insightful)
Then that becomes Singapore's and London's problem.
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What an insidious way to try to shut down conversation.
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Re: Just one way to kill HFT (Score:2)
So, the solution, then, is to remove human decision making from the process. Can't imagine any problems with that...
Re:Just one way to kill HFT (Score:5, Insightful)
I like the random delay idea.
An alternative - just apply 85% capital gains tax on proceeds from securities held less than an hour. Exponentially approach 100% for gains held 30 minutes and lower.
The whole business of HFT stinks of gaming the system - in a way that's just going to eventually blow up in our faces - algorithms working against algorithms creating a chaotic feedback loop...
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The whole business of HFT stinks of gaming the system - in a way that's just going to eventually blow up in our faces - algorithms working against algorithms creating a chaotic feedback loop...
A case could be made that the market itself is gaming of a system called capitalism.
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Well - I won't argue that point too much. But keeping (at least some) of the things on human timescales is the primary goal with this proposal.
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The whole business of HFT stinks of gaming the system - in a way that's just going to eventually blow up in our faces - algorithms working against algorithms creating a chaotic feedback loop...
Eventually? I think you mean will blow up in our faces again in bigger and bigger ways until it causes an economic collapse too great to overlook.
https://en.wikipedia.org/wiki/... [wikipedia.org]
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just apply 85% capital gains tax on proceeds from securities held less than an hour.
This would result in a mass exodus of jobs and capital to other countries.
Even more trades would occur in opaque dark pools.
For what? What "problem" would it solve? Front running does not rely on short hold-times, and since it is already illegal, traders could easily spread their transactions between accounts, buying from one while selling from another.
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Another name for HFT is "market maker".
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Re: Just one way to kill HFT (Score:2)
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Owning something for 1 minute does not make sense.
The proposed 1-minute time limit is not the time limit to hold a stock, but the time granularity of the transactions.
All transactions received during that minute would be completed at the end of the time slice at the same price.
Limits on "hold times" for owning a stock have also been proposed, but not by the person you are responding to.
Of course, neither of these proposals would do anything to reduce HFT. The higher time granularity would make HFT even more profitable.
Re:Just one way to kill HFT (Score:5, Interesting)
As a participant in the finance industry, I don't even think delays need to be random, or that delays would even be needed. Liquidity would dry up pretty quick.
All that's needed is a minimum lifespan for submitted orders.
3-second minimum? 5-second minimum?
I think that's all that would be needed.
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If the queues are transacted in order, getting your order in before another order could still be worth it, even if the ultimately transactions are delayed.
So either randomized 1-30 second delay, or only processing the orders on an interval of similar duration, and shuffling the queue.
15 minutes is overkill.
Re:Just one way to kill HFT (Score:5, Insightful)
Re: Just one way to kill HFT (Score:5, Interesting)
Go to advertising (Score:5, Funny)
On zml (famous for the Netherlands second clip) they did an item on HFT where they explained that apart from being leeches they get top academics, such as programmers and mathematicians, to increase their profits. Otherwise, those people could actually contribute something positive to society...
For example, work for advertising companies like FaceBook and Google, to make the world a better place :-)
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If the queues are transacted in order ...
I don't think you understand the issue. The orders are NOT transacted.
HFTs post many orders and then rapidly cancel them a microsecond later.
They are probing the order book. They are trying to determine the size and offer prices of other orders in the queue so they can front-run them.
Front-running is illegal but hard to prove. So banning the rapid canceling of orders would help.
GP suggests 3 seconds, but even a millisecond dwell time before canceling would solve the problem.
Re:Just one way to kill HFT (Score:4, Informative)
If the queues are transacted in order ...
I don't think you understand the issue. The orders are NOT transacted.
HFTs post many orders and then rapidly cancel them a microsecond later.
They are probing the order book. They are trying to determine the size and offer prices of other orders in the queue so they can front-run them.
Front-running is illegal but hard to prove. So banning the rapid canceling of orders would help.
GP suggests 3 seconds, but even a millisecond dwell time before canceling would solve the problem.
This post is pretty much completely incorrect. First off, most orders are "lit" and therefore their price and quantity is published to all market participants on an equal basis. There is no need to "probe".
Second, placing orders with no intent to execute is not only illegal, but also easy to detect, and so the few firms that try it quickly get caught relatively quickly and fined or kicked off the exchange or both. The situation this actually occurs in is called "spoofing" and it has nothing to do with front-running (which basically happens only in human-intermediated markets).
Spoofing is a little tricky to explain, but the essence is this. If I want to buy for 100.00 , I will place a whole bunch of sell orders at 100.25. Other market participants will see all that selling pressure as soon as the exchange publishes my sell orders (to all market participants, see above), say within 5 milliseconds. They will think there is so much selling interest that they reduce their prices, allowing me to buy cheaply. As long as I cancel my sell orders quickly within 4 milliseconds, I run no risk of selling when I really wanted to buy.
Totally illegal, and quite easy to spot algorithmically.
Rapid cancelling can also occur in more benign circumstances, for example when algorithms "flicker". Essentially what can happen is that the firm's algorithm posts an order, then their computer notices it (their own) order in the market and changes the target price, canceling the order. Then goes back to the previous state, placing an order.
Flickering like this is not illegal, but it is costly to the HFT firm making that mistake because it consumes many types of resources to no advantage. And, the extra order traffic can get the firm kicked off the exchange until they fix the bug.
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most orders are "lit" and therefore their price and quantity is published to all market participants on an equal basis. There is no need to "probe".
For completeness, I should add that this description pertains to exchanges, like the Nasdaq or the New York Stock Exchange. There are places where no orders are "lit". They are called dark pools and by regulation are accessed only by sophisticated market participants.
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15 minutes is overkill.
15 minutes is not only overkill, but unworkable. If you issue a Market order and not a Limit, the price you pay for a stock or option could be wildly different than what you wanted to pay. If making trades with tight Limit orders, it would take you 15 minutes to learn that your trade failed to execute as intended, and then another 15 minutes for you to process another trade.
That doesn't even consider the trouble the broker is going to have trying to figure out if someone will overdraft their account bec
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I don't see why not 15 minutes or even 30. The existence of the stock market can be justified if it is ACTUALLY a way to invest money in corporations, but it has devolved into gambling on monopoly game pieces.
Killing off HFT is one goal. Another is to smooth out some of the volatility that occasionally causes irrational crashes by giving people time to think about what they're doing rather than handing control over to a heuristic trading system.
Actual investment could easily deal with a 24 HOUR delay, but t
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A long random delay makes it too risky for individuals to trade in a volatile market.
Imagine that you had owned a bunch of an airline stock for ten years and early this year you became strongly convinced that it's going to be negatively impacted by this "novel coronavirus" you've caught wind of and the airline may even go bankrupt within a year so you want to get out of it and into Zoom. Also, the market is quite volatile at that moment as other insightful investors are having similar thoughts.
With today's
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Your analysis is incomplete. The dangerous volatility is there in part because transactions can complete in microseconds.
One option is to quantize time for the market.
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HFT was not a significant a factor in the crashes of 1987 or 1929 -- yet they both happened.
Halting trading when a stock is, inexplicably, plummeting is sufficient to deal with "dangerous" volatility caused by HFT. Responsible individual investors don't get hurt by the volatility caused by HFT as it quickly self corrects - esp. with the trading halts and rules that are in place. If an investor owns a stock for good reasons (which is the only reason an individual investor should own an individual stock) and
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If HFT volatility won't harm individual investors, a 15 minute random delay won't either.
Note that one reason to liquidate the whole basket is that response has to be fast. Too fast to think about it. Slow things down and market forces will reward those who take the extra thinking time to make more optimal moves.
Re:Just one way to kill HFT (Score:5, Informative)
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By imposing random delays between 15 and 30 minutes on each transaction on the stock market because that's the time a human needs to decide.
You would kill it dead as anything if you imposed random delays of 15 to 30 milliseconds. Maybe even 15-30 microseconds.
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Re:Just one way to kill HFT (Score:4, Informative)
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Re: Just one way to kill HFT (Score:5, Informative)
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And if a hacker took $1 a day out of your account, you still would have seen your portfolio grow quite a bit. And since they are doing it to everyone, the hackers would be making quite a bit of money. Do you think that's fine?
In other words, they're taking some of your money, and compounded over your lifetime quite a chunk. That $1 a day you didn't worry about? When you retire that's a four million
Re:Just one way to kill HFT (Score:5, Insightful)
It's not a technical problem. The problem is entirely that the exchanges want this kind of thing to happen, and even encourage it, because they are paid well for it.
First Post (Score:3)
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There is no need to kill HFT. It's a free market and the amount of speed at which one trades doesn't guarantee a win. One can lose fast, too.
Random delays won't turn losers into winners. Constant losses can convert losers into winners, or at least make them quit for good. The faster the better.
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Apparently speed is a significant factor to come out on top, why otherwise make such investments? So I call bullshit on your comment.
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More important than speed is to know what you're doing, to have a comprehensions of the market, the players and the risks. No amount of speed is going to make you into a winner when you're dumb and stupid.
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A few years ago, Goldman valued a 1ms delay at $300 million. That means they have some way to turn speed into cash.
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Again, when one knows what one does and can trade successfully and better than others, does speed only mean one can win more often. But the same goes for losers. A bad trader using more speed means they'll lose faster and quit the business sooner or stop being bad sooner. Speed doesn't equal winning. It means everything runs faster.
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Maybe it will, but it would make people think of doing long term investment instead.
Bailout? (Score:3, Interesting)
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Is day trading actually something we want/need or is it just the low-rent version of HFT?
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It sort of is, it's the second most destructive form of trading and it has the stink of an MLM scheme on it, in that the industry likes to promote a handful of rockstars making oodles of money at it while most everyone else just loses money doing it.
Re:Just one way to kill HFT (Score:4, Interesting)
HFT and day-trading are two completely different things.
HFTers make money and are sophisticated professionals.
Day-traders are amateurs burning up their life savings.
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Both are gambling schemes where the companies are little more than game pieces. Like so many things in finance, the difference between the ability to make money hand over fist or being slowly bled dry is more a matter of already having a metric assload of money than it is skill or usefulness to society.
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Both are gambling schemes
True.
But day traders are like the guy slouched over at the two-dollar blackjack table, nursing his complimentary drink while he loses $50 an hour.
The HFTers own the casino.
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We want active traders to provide liquidity to individual investors, mutual funds, and authorized participants in ETFs. This liquidity reduces spreads and allows individuals and businesses to make predictable trades turning stock into cash and vice-versa when they desire.
We can call these active traders "day traders" and let the retail investor participate or we can centralize the liquidity providing role and relegate it to "market makers" who have a seat on the exchange and have deep pockets (and picked up
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We don't need that much liquidity to support investing. Only speculation requires that much.
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One person's speculation is another person's "responding to evolving market conditions". I've noticed that if a one investor's risk tolerance profile is towards "risk adverse" and another's is toward "risk tolerant", the first one tends to call what the other person is doing "speculation" while the second one calls what the first is doing "excessively conservative".
For stocks that don't historically provide a dividend, almost the only reason to buy or sell is "speculation" -- one is speculating on what the
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Investors look at companies that seem well managed and have products and services that they believe will be in demand and profitable. Speculators only care what the stock will do today and possibly tomorrow. Speculators freak out if a company is highly profitable but 0.1% less profitable than was expected for the quarter. Investors don't freak out so much so long as the company still looks well managed and still has products and services that they believe will be in demand and profitable.
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Each of your comments so far paints a dismissive picture of "speculation" and "gambling". What exactly is wrong with these activities?
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They can reduce their tax by holding on the stock longer.
Why should longer hold times be a goal of public policy?
How does the public benefit?
Any doubts (Score:5, Insightful)
that our economy is built on steaming piles of bullshit can be laid to rest by contemplating the implications of this story.
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Cutting-Edge Cables (Score:3)
They're Monster Cables: Engineered to maximize performance for high-frequency traders and market aficionados.
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They're Monster Cables: Engineered to maximize performance for high-frequency traders and market aficionados.
If this was true, they'd be more like the speed of sound.
Re:Cutting-Edge Cables (Score:5, Funny)
(/. doesn't do strikethru so I used italics).
What I find astounding (Score:5, Insightful)
I won't comment on whether high speed trading is a net good or bad for humanity. What's astounding to me is that someone thinks it's worth enough to shell out hundreds of millions of dollars for it. As I understand it, they're exploiting arbitrage opportunities ("pork bellies are selling in New York for $1/pound, in Chicago for $1.00001 per pound, buy in NY and sell in Chicago but only for the next 0.01 seconds!")
I mean, in theory this makes the market more liquid and efficient. I've got to believe we're well past the point of it adding any practical value for anyone outside the HST world.
Re:What I find astounding (Score:5, Insightful)
>As I understand it, they're exploiting arbitrage opportunities ("pork bellies are selling in New York for $1/pound, in Chicago for $1.00001 per pound, buy in NY and sell in Chicago but only for the next 0.01 seconds!")
They also can run in front of normal traders, and apply a variety of methods to sniff preferences.
In a very rough simplification, let's say someone wants to buy pork. They execute a buy order for pork, which is basically 'buy it if it's 1.04 or lower'. Someone currently on the market is selling pork for $1.00. The HFT can sniff the buyer's order, immediately buy the pork from the seller for $1.00, raise the price to 1.04 and execute the transaction with the buyer.
Without the HFT the buyer would just get it for $1.00
I work in HFT (Score:2, Informative)
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I've worked in the HFT industry for over 15 years, and i see a lot of comments that are biased, and unaware of any knowledge, and perhaps some jealousy even. It's true, the HFT companies are making huge investments and spearheading lots of innovation, very similar to the games and sex industries. Nobody here seems to know that research has been done of the role of the HFT industry and that in times of crises, or high volatility, these companies calm markets and flatten the curves.
In the pork example, no proof is given, simply because there is none. Markets do not work unfair. Every market participant, be it your local broker, or an HFT firm, has the same ability to access that market. HFT companies cannot sniff, or see a market price earlier. Exchanges multicast them to all participants at the same time. I think it would be the biggest news globally if exchanges would favor one customer over another. Exchanges do not work like that, exchanges treat everyone equal, up to the point that every customer has an equal length of cable to their rack. However, it is entirely possible that your broker has slower equipment behind that cable. But it is hardly the fault of a company that does want to invest in technology.
I find your "defence" to be somewhat telling as you don't even seem to understand the criticism.
The poster isn't complaining that HFTs are somehow favoured by the exchanges. They're complaining the HFTs are changing the stock market from a game of understanding the underlying market forces to a game of detecting and reacting to those inefficiencies quicker.
That your defence is merely to say that anyone can optimize to make trades quicker seems to miss the point entirely.
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... execute a buy order for pork, which is basically 'buy it if it's 1.04 or lower'. Someone currently on the market is selling pork for $1.00. The HFT can sniff the buyer's order, immediately buy the pork from the seller for $1.00, raise the price to 1.04 and execute the transaction with the buyer.Without the HFT the buyer would just get it for $1.00
This scenario is fairly misconceived. There is no way (on electronic exchanges) to "sniff" an order and get in between like this. The current seller would have price-time priority, and any HFT placing a sell order at 1.04 would be behind in both price and time dimensions. The buyer would therefore trade with the 1.00 seller.
Now, back in the old days, when actual humans were in trading pits, there was a lot more room for such skulduggery. And believe me, it was pervasive.
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You have to go up and down, to say nothing of the time to retransmit satellite to satellite. These are companies that back in 2009 bought rights between NY and Chicago and drilled straight lines through mountains to get slightly shorter cable.
It's not just the speed ... (Score:4, Insightful)
Simple solution: Exchange allows for a certain number of failures, then locks out the account. Call the exchange IT department to reset it. Old guy on the 15th floor takes the trouble ticket down the stairs to the server room (the elevator is broken) and resets the account on a dedicated terminal.
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The problem is not technical, it's social. The exchanges want HFT to happen because they get paid for it.
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HFT systems have custom networking stacks that make it easy to 'close' a connection without doing the requisite handshaking. Making it look like the cable was cut by a backhoe. Brokerage agreements allow for the unwinding of trades due to technical failures (so as not to hold customers liable for actual systems failures).
Simple solution: Exchange allows for a certain number of failures, then locks out the account. Call the exchange IT department to reset it. Old guy on the 15th floor takes the trouble ticket down the stairs to the server room (the elevator is broken) and resets the account on a dedicated terminal.
Amid all the somewhat uninformed speculation about HFT techniques in the comments here, this post stands out for being accurate.
I think this is called something like "packet sharding". The Chicago Mercantile Exchange has been clamping down on it lately by imposing fines and suspending trading for the firms involved. I'm uncertain how much attention it is getting from other major exchanges.
FWIW, packet sharding is against most exchanges' terms of service.
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Yeah. My information might be a bit out of date. And if this type of scam is being shut down, I'm certain that they are moving on to something else by now.
Don't blame the tech (Score:3)
It's only a tool. It's an improvement in technology and it finds its first application among some rich traders. So let the rich traders pay for it first. The technology will eventually find its way to ISPs and to all of us. If the technology is any good will everybody want it, it will sell more often and get cheaper over time. The traders as early adopters will then have paid for most of its development.
Modulated Neutrinos (Score:3)
Learn from India (Score:5, Informative)
Re: Learn from India (Score:2)
Why?
If it is a % then it is the same, no?
Ie HFTers just get taxed a smaller amount more often.
If it were a fixed amount per trade, eg 0.0001cent, then you'd have a point.
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Sorry, I still don't get how it is different. I'm probably being stupid...
It can't be a tax on profit, since it is a single trade - there's no 'profit' involved unless you consider the other half of the transaction (ie if it is a buy, then the sell price, or vice versa). If you buy something, there's no profit until you sell; and if you sell something, then you need to know what you bought it at to know the profit, and that was a different trade.
For a single trade, a percentage is just a portion of the mone
Sounds like a scam (Score:2)
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That's just it: the HFT firms specialize in not having that 100ms bottleneck in their networks. They use dedicated ultra-high-speed connections to the stock exchanges to do that. They have access to the same data at the same time as everyone else, and their algorithms can make the same predictions as everyone else just as quickly and make their trades based on what everyone else is expected to be doing. Those ultra-fast connections, though, mean they can shave a few nanoseconds off the time needed to transm
Rich people gambling with our economy (Score:3)
USA is communist (Score:2)
Calling the Doctor (Score:5, Funny)
The little guy uses HFT (Score:4, Interesting)
One thing very few people realize is that, for retail trades at places like ETrade and Schwab, they are actually (in effect) doing their trading through HFT.
The way it works is that a place like Citadel, with no retail customers, make something like the following deal with ETrade:
Whenever a customer of your places a buy order, we will guarantee them a price at least as good as the best sales price available in all the stock markets across the USA, up to $500,000 worth. In return, you agree to send all your customer orders through us.
(Similar for sell orders)
Citadel is an HFT firm, so if the market for McDonalds stock is presently 209.90 to buy and 210.00 to sell at the New York exchange, 209.90 and 209.95 in Philadelpha, then instead of paying the sales price of 210.00 they are guaranteed 20.95 for the full quantity. Citadel then does its HFT magic, depriving the hedge funds or rival HFT offering at 210.00 in NY an opportunity to make an extra 0.05 off that ETrade customer.
It's a good deal for Citadel, for ETrade and (as far as I can tell) for ETrade's small-fry customers. It sucks for rival HFT who do not "buy flow", as well as large-volume traders and other middlemen who would like to trade with those small-fry customers,
Reference: https://www.reuters.com/articl... [reuters.com]
Favorite Villain (Score:2)
Re: (Score:2)
Why? Who cares if the optimal price of a share of CocaCola is 100.01 at microsecond 120 and 100.02 at microsecond 121 and 100.01 at microsecond 122? Or even how does it benefit anyone to discover that one microsecond earlier other than the people taking advantage of people who discover it slower (see HFT.) Because there are other schemes to solve for that with simultaneous price revelations.
Re: (Score:2)
I mean, hidden fees are still hidden fees. But they're not the reason. You're confusing correlation (cheap trades require computerized markets, HFT require computerized markets) with causation (HFTs cause cheap trades.)