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The tone of the conversation, the framing assumptions, seem different now.
Earlier quoted context omitted.
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)
But I'm no longer willing to fight the front-running term fight anymore. It will just have to be like my fight against the mainstream use of hacker.
Earlier quoted context omitted.
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.
This Wikipedia article [1] shows the standard Chicago to NJ connection at 14.5ms roundtrip and the dark fiber line Michael Lewis talks about in Flash Boys at 13ms.
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…
See big sell order at getting executed at $10.30, $10.20, $10.10 at Exchange A. Short sell at $10.30 on Exchange B. When the big order comes, rebuy at $10.20.
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?
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.
Earlier quoted context omitted.
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.
Speaking from ignorance here but 10s of milliseconds sounds way too high. This Wikipedia article [1] shows the standard Chicago to NJ connection at 14.5ms roundtrip and the dark fiber line Michael Lewis talks about in Flash Boys at 13ms. [1]: https://en.wikipedia.org/wiki/Spread_Networks
Earlier quoted context omitted.
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)
In equities markets, for trades of a sufficient size it's not possible to place the order all at once. You'll hammer the order book, and take very suboptimal pricing for the latest marginal shares you buy/sell. Therefore you have to split up the order into chunks.
HFT firms will try to detect when equities traders are doing this. e.g. If they see a pattern indicating that chunks of shares are being bought, they will try to buy, too. When the rest of the order comes through, the price will rise and that firm will make money. That's why "front-running" is just a special-case of an algorithm to predict price movements.
I seriously doubt that a HFT fund as large as Rennaissance uses a single strategy, be it satellite images, or front-running or what-have-you.
Earlier quoted context omitted.
> 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…
Wouldn't this strategy work? See big sell order at getting executed at $10.30, $10.20, $10.10 at Exchange A. Short sell at $10.30 on Exchange B. When the big order comes, rebuy at $10.20.
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.
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…