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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

#21

Post by dsl »

mst wrote: post #18

So, 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 compu…

They don't care about "target markets" or what anyone else thinks. This technology is to protect their own trades.

The goal is to be able to execute buys across multiple exchanges (because the orders are so large) without other high frequency firms being able to see a trade on one exchange, then buy and resell stock to them at a higher price on another exchange.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#22

Post by WestCoastJustin »

harryh wrote: post #20
WestCoastJustin wrote: post #19

Highly 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-...

Oh, thanks. Have not seen that and will check it out.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#23

Post by tibbetts »

kasey_junk wrote: post #4
dahdum wrote: post #3

Its 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…

I havent read the patent but I can say this is an exceedingly common (I'd probably say standard) strategy. I can only assume the atomic clock bit is what's novel.

Using ntp or whatever the new variant is is also standard, which as I recall can hit sub-microsecond consistency on a wide area network with good hardware. So yeah, not new.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#24

Post by dsl »

dietrichepp wrote: post #12
downandout wrote: post #8

Earlier quoted context omitted.

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.

One of the things HFT firms take advantage of is increasing a nanosecond lead into a microsecond (or more) lead by route optimization. If they can get information from one exchange to another faster than the original order, they can effectively trade by looking into the future.

Many firms invest heavily in direct microwave links for paths normally served by fiber because of the speed advantage.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#25

Post by kasey_junk »

dsl wrote: post #21
mst wrote: post #18

So, 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 compu…

They don't care about "target markets" or what anyone else thinks. This technology is to protect their own trades. The goal is to be able to execute buys across multiple exchanges (because the orders are so large) without other high frequency firms being able to see a trade on one exchange, then buy and resell stock to them at a higher price on another exchange.

> without other high frequency firms being able to see a trade on one exchange, then buy and resell stock to them at a higher price on another exchange

This is a pretty common misconception of how latency arbitrage works. In reality the other HFT are not buying/selling new orders. Instead what they are doing is cancelling or modifying their existing orders so that they don't get hit by incoming orders.

HFT firms can have orders that have been resting for a very long time (days/weeks depending on the exchanges/risk rules) and you will never be able to get an order now in front of an order from last week, no matter how fast you are.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#26

Post by kasey_junk »

dsl wrote: post #24
dietrichepp wrote: post #12

Earlier quoted context omitted.

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.

One of the things HFT firms take advantage of is increasing a nanosecond lead into a microsecond (or more) lead by route optimization. If they can get information from one exchange to another faster than the original order, they can effectively trade by looking into the future. Many firms invest heavily in direct microwave links for paths normally served by fiber because of the speed advantage.

Those microwave routes operate at tens of millisecond advantages over the competing fiber routes.

[edit] Completely wrong comment. The microwave link I was thinking of had a 2 milli advantage over the fiber link.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#27

Post by logicchains »

dietrichepp wrote: post #12
downandout wrote: post #8

Earlier quoted context omitted.

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.

Hardware (e.g. FPGA) autotraders can have sub-microsecond response times.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#28

Post by dsl »

nsedlet wrote: post #16
darawk wrote: post #14

Earlier quoted context omitted.

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.

Front running is seeing your friend looking at a car on craigslist, buying it, and then selling it to him.

Renaissance is using satellites to monitor retail store foot traffic to predict quarterly earnings.

(both as hypothetical examples)

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#29

Post by sargun »

tibbetts wrote: post #23
kasey_junk wrote: post #4

Earlier quoted context omitted.

I havent read the patent but I can say this is an exceedingly common (I'd probably say standard) strategy. I can only assume the atomic clock bit is what's novel.

Using ntp or whatever the new variant is is also standard, which as I recall can hit sub-microsecond consistency on a wide area network with good hardware. So yeah, not new.

PTP - Precision Time Protocol. https://en.wikipedia.org/wiki/Precision_Time_Protocol. It requires hardware support, and a stable isolator inside of the machines.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#30

Post by dsl »

kasey_junk wrote: post #25
dsl wrote: post #21

Earlier quoted context omitted.

They don't care about "target markets" or what anyone else thinks. This technology is to protect their own trades. The goal is to be able to execute buys across multiple exchanges (because the orders are so large) without other high frequency firms being able to see a trade on one exchange, then buy and resell stock to them at a higher price on another exchange.

> without other high frequency firms being able to see a trade on one exchange, then buy and resell stock to them at a higher price on another exchange This is a pretty common misconception of how latency arbitrage works. In reality the other HFT are not buying/selling new orders. Instead what they are doing is cancelling or modifying their existing orders so that they don't get hit by incoming orders. HFT firms can…

You are correct, I oversimplified my example.
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