So one of the most famous HFTs is now going to offer a way to block the damage done by HFTs?
Despite the hilarity of such a thing, is this a sign that HFT is not nearly as profitable as it once was?
Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
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Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#12Its invention, developed by the firm’s co-chief executive officers, Robert Mercer and Peter Brown, first sends an order to a central server, which breaks it up into multiple smaller orders. Those are then routed to venues that offer the best prices and most liquidity, much the same as brokers do now. But before that happens, the smaller orders are sent to servers located as close to the exchanges as possible, along w…
All they're saying is that with absolute synchronicity among all of the clocks at all of their co-located servers, all pieces of the order are executed at multiple exchanges at precisely the same time. Even very small differences among the clocks at each one can create opportunity for others to step in front of the trade, and this helps them avoid that. While this may sound obvious, they wouldn't be doing it if it ha…
Nanosecond differences are too small to take advantage of, that's only 30cm. My guess is that you'd be at least in (or close to) the microsecond range before you'd worry about HFT stepping in front of your orders.
If you're hitting multiple exchanges, then you can take milliseconds and still be fine.
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#13So one of the most famous HFTs is now going to offer a way to block the damage done by HFTs? Despite the hilarity of such a thing, is this a sign that HFT is not nearly as profitable as it once was?
Profits in HFT have always been oversold. These days the margins are brutally competitive.
That said I have no idea why they would patent this. I can't see how they can make money from it.
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#14A few weird things stand out to me: (1) Renaissance is super secretive. If they want to use this strategy to make money, a patent reveals to competitors what they're doing and creates more issues than it seems to resolve. (2) Renaissance is an HFT firm. Why are they interested in thwarting HFT? (3) This really isn't that fancy an idea. It's fairly general: send orders ahead to co-located servers to be executed at spe…
Renaissance is not that type of hft firm. Renaissance uses algorithms to predict price movements before they happen. The type of hft this system is designed to prevent is front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives.
Those types of hft firms are surely eating into Renaissance's profits in a big way.
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#15A few weird things stand out to me: (1) Renaissance is super secretive. If they want to use this strategy to make money, a patent reveals to competitors what they're doing and creates more issues than it seems to resolve. (2) Renaissance is an HFT firm. Why are they interested in thwarting HFT? (3) This really isn't that fancy an idea. It's fairly general: send orders ahead to co-located servers to be executed at spe…
Renaissance is not that type of hft firm. Renaissance uses algorithms to predict price movements before they happen. The type of hft this system is designed to prevent is front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives. Those types of hft firms are surely eating into Renaissance's profits in a big way.
It's worth nothing that eating into Renaissance's profits in this way is good for everyone else because it means that accurate prices are reaching the market faster.
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#16A few weird things stand out to me: (1) Renaissance is super secretive. If they want to use this strategy to make money, a patent reveals to competitors what they're doing and creates more issues than it seems to resolve. (2) Renaissance is an HFT firm. Why are they interested in thwarting HFT? (3) This really isn't that fancy an idea. It's fairly general: send orders ahead to co-located servers to be executed at spe…
Renaissance is not that type of hft firm. Renaissance uses algorithms to predict price movements before they happen. The type of hft this system is designed to prevent is front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives. Those types of hft firms are surely eating into Renaissance's profits in a big way.
Isn't front-running big trades just a subset of algorithms that predict price movements? i.e. They're not mutually exclusive.
Admittedly I have zero special knowledge of Renaissance and what particular strategies they use.
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#17So one of the most famous HFTs is now going to offer a way to block the damage done by HFTs? Despite the hilarity of such a thing, is this a sign that HFT is not nearly as profitable as it once was?
Profits in HFT have always been oversold. These days the margins are brutally competitive. That said I have no idea why they would patent this. I can't see how they can make money from it.
Maybe the idea is by now so commonly known that they simply try to license the tech?
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#18So, in theory, you get perfectly timed execution.
This assumes you're willing to trust their software and hardware.
I suspect they're right that this is a far more effective and comprehensive approach than IEX.
I think IEX is going to nail them to the wall because their target market understands and trusts a giant ball of cables having a particular length, but can achieve neither when faced with a giant ball of computer science.
Other than the first sentence, this comment was about potential customer response; I don't have an educated opinion about how trustworthy and/or effective any given exchange software is.
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#19Highly recommend reading Flash Boys [1] and it explains why time is so important and HFT firms. Great book for filling in the picture of what HFT is and I found it pretty entertaining too.
[1] https://www.amazon.ca/Flash-Boys-Michael-Lewis/dp/0393244660
Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders
#20Highly recommend reading Flash Boys [1] and it explains why time is so important and HFT firms. Great book for filling in the picture of what HFT is and I found it pretty entertaining too. [1] https://www.amazon.ca/Flash-Boys-Michael-Lewis/dp/0393244660
Highly recommend reading Flash Boys: Not So Fast [1] and it explains how Flash Boys gets it almost entirely wrong.
[1] https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-...