Why Do High-Frequency Traders Cancel So Many Orders? • Hacker News Board

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#191

Post by apple_II » Fri, Oct 09, 2015, 7:45 PM UTC

chollida1 wrote: post #162

dclusin wrote: post #134

Earlier quoted context omitted.

Quote stuffing works because you know before hand which orders to filter out and don't need to expend resources considering them while everyone else does. An advanced player can build this into an FPGA to achieve greater performance.

:) Quote feeds don't work that simply. you still have the following issues: 1) Your quotes are slowed down as the gateway is spammed so legitimate quotes are delayed to you as well as everyone else. So you are still blind as to where the market is just like everyone else. 2) The quote feed doesn't just say, "hey a new order was added and guess what, its yours!!" You still need to parse the entire message to determine…

Quote stuffing works because you can adjust your trade pressure indicators because you know the quote size and thus fair price is fake. It has nothing to do with overloading systems. To overload competitor systems, you would flicker a 100 share quote on an instrument you don't care about and trade on a different, potentially correlated, instrument.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#192

Post by lmm » Fri, Oct 09, 2015, 7:46 PM UTC

jessaustin wrote: post #182

chollida1 wrote: post #7

I think to understand most HFT market makers you have to understand how the markets pay. Most work on a maker taker model. Which means the trader who initiates the trade pays a small fee and the trader who is the passive side, the one who had their order in the market already, gets paid a small fee. as a side note there are inverted markets but lets leave those aside for now. This means to get paid you want to be at…

So you have a very vested interest in being the first to cancel and move your order to the newest price level. ISTM this would only work in one direction? That is, if you're moving closer to the other side, you can just put in a new order. Cancelling the old one isn't such a priority because no one would pass up the more enticing new price to get to the old price. If they did, free money for you! If this phenomenon i…

You still want to cut your exposure. If you were resting a bid for 100 shares at 99 for 100 shares and an offer for 100 shares at 100, and the market's falling, then sure your highest priority is cancelling your bid at 99 and putting in your new one at 98, as well as putting in your new offer at 99. But you also want to cancel your old offer sharpish, otherwise if the price shoots up to 101 then you'll end up selling 200 shares instead of 100 and exposing yourself to more risk than you intended, potentially exceeding your position limits etc.

Also most of the cost is fixed. If you've already built a super-fast cancelling system that can cancel an order in 8 microseconds, there's no value in running a slower cancelling system in parallel for your less important trades, you'd just run all your cancels through the same system.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#193

Post by harryh » Fri, Oct 09, 2015, 7:49 PM UTC

crdoconnor wrote: post #155

harryh wrote: post #120

Earlier quoted context omitted.

So electronic trading is what? Slow computers? And HFT is faster ones?

>So electronic trading is what? That great innovation where you no longer have to shout in a pit to get your trade executed because, you know, computers. Virtually all trading these days is electronic. >And HFT is Algorithmic trading by computers that's "fast" (usually regarded as sub-second trading, although definitions vary a little). The more you know...

The computers that replaced the shouting in ball pits make trades algorithmically and do it in under a second.

You have not described a difference between two things that you are trying to distinguish between.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#194

Post by tptacek » Fri, Oct 09, 2015, 7:52 PM UTC

steven2012 wrote: post #190

tptacek wrote: post #165

Earlier quoted context omitted.

At what point in the history of the public markets in the United States was market-making of any sort not an activity reserved for an incredibly small minority? The difference, from what I can tell, between the HFT "elite" and the human market-maker "elite" is that the human elite actively colluded to retain their status. Compare the largest HFT firms to the largest investment bank, and the number of entrances and ex…

Marketing making != HFT. HFT is simply trading like market makers, they're not making markets.

Can you be more specific about the distinction you're trying to draw here?

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#195

Post by [deleted] » Fri, Oct 09, 2015, 7:54 PM UTC

ctlby wrote: post #174

jandrese wrote: post #154

Earlier quoted context omitted.

Retirement savers are losing a cut of every paycheck to HFT when they go and add to their account. Likely multiple cuts if they've diversified. It's basically a tax you pay for not having the best access to the fastest server closest to the database.

It's not a tax, it's the price of immediacy. You can either work your orders yourself (which doesn't in the least require speed), or you can pay a concession. It has always been this way and always will. HFT has made that concession the lowest it has ever been for the vast majority of market participants.

[deleted]

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#196

Post by gooseus » Fri, Oct 09, 2015, 7:58 PM UTC

blazespin wrote: post #160

chollida1 wrote: post #7

I think to understand most HFT market makers you have to understand how the markets pay. Most work on a maker taker model. Which means the trader who initiates the trade pays a small fee and the trader who is the passive side, the one who had their order in the market already, gets paid a small fee. as a side note there are inverted markets but lets leave those aside for now. This means to get paid you want to be at…

Hillary will come down on the part of the market that hasn't contributed to her campaigns. Structurally, this means she will make it good for GS who will help write the legislation but bad for anyone else that doesn't belong to the financial hegemony. Politicians say they're protecting the innocent, but really they're just tipping the scales for whoever is backing them. This is how they do.

Too true... which is why I'm supporting Lawrence Lessig's Democratic bid which is based on fixing this single issue:

https://lessig2016.us/

Might be futile effort though since the DNC isn't even inviting him to the debates despite his having raised 1M in a single month.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#197

Post by lmm » Fri, Oct 09, 2015, 7:59 PM UTC

librvf wrote: post #163

gnaritas wrote: post #121

Earlier quoted context omitted.

> How? It seems like this should not be that hard to explain. Decreased spreads; trading is much cheaper now than it was before HFT.

> Decreased spreads; trading is much cheaper now than it was before HFT. By how much? And is HFT the cause or is it merely correlated?

By a factor of 25, and it's only not more because there's a law against making them any smaller. And it's very much because of computerization; whether you consider it to be HFT is a question of whether you count the early days when computerized firms competed on price or the later ones when the aforementioned law meant they could only compete on latency.

In any case, compete they have, pushing their profits pretty close to zero. Look at the graphs in http://www.zerohedge.com/news/2013-02-13/how-getco-went-hft-... (article is terrible, it was just the easiest place to find the graphs).

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#198

Post by idlewords » Fri, Oct 09, 2015, 8:22 PM UTC

tptacek wrote: post #185

shasta wrote: post #48

I guess I see why high frequency trades are necessary in the current trading framework, but looking at the situation from a high level, isn't it obvious that the resources being spent on microsecond level response improvements don't benefit anyone but the winners? Can someone argue otherwise?

You're right, although you should also build into that argument the benefits that accrue to technologists that work at HFT firms, and to technology vendors who sell to them.

And to HFT simulation writers!

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#199

Post by tptacek » Fri, Oct 09, 2015, 8:25 PM UTC

idlewords wrote: post #198

tptacek wrote: post #185

Earlier quoted context omitted.

You're right, although you should also build into that argument the benefits that accrue to technologists that work at HFT firms, and to technology vendors who sell to them.

And to HFT simulation writers!

Well, fuck.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#200

Post by lmm » Fri, Oct 09, 2015, 8:41 PM UTC

dopamean wrote: post #47

harryh wrote: post #43

Earlier quoted context omitted.

Lots of things are illegible to the public. Explain to me all the processes involved in building the smart phone in your pocket. You can't. I can't. Probably no single person in the world can. Who cares?

I think the illegibility of it is important if it is affecting other people's finances.

No-one is being made worse-off by HFT except professional market-makers (who are being outcompeted) and perhaps professional buy-side traders (whose secrets leak out faster), both of whose job it is to understand the market. If you're a nonprofessional you should be investing with Vanguard or the like, and you benefit from HFT. If a layman with no expertise tries day-trading they're going to lose their money either way; we do have "must have this much money to be allowed to trade" laws, but those are controversial too for obvious reasons.