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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

#111

Post by eru »

darawk wrote: post #103
harryh wrote: post #15

Earlier quoted context omitted.

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.

You could say the same thing about insider trading. So, the argument that accurate prices reach the market faster is not, in and of itself, an argument that something is good.

Why? He can argue that insider trading is good. Which is actually a pretty easy argument to make.

(And places like Germany only recently tightened laws against it.)

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

#112

Post by welterde »

Johnie wrote: post #90
nsedlet wrote: post #10

A 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…

Think about it this way. They are publicly advertising to their investors that they have a weapon to defeat HFT. Because of this, they will get better returns. When an investor decides to put their money in a fund, are they going to choose the one that has a patented defense against HFT or will that investor put their money into a fund that has a known vulnerability? >It's fairly general: send orders ahead to co-loca…

You have to keep in mind that the mentioned sub-microseconds are the _reaction time_. HFT can't beat the speed of light either. Therefore if your orders are synchronized to better than the speed of light distance to the next exchange, HFT traders won't be able to profit off them (-> you have milliseconds).

With GPS receivers or very good network connectivity to your ntp server (ie. not home dsl) you can easily get down to below 1ms.

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

#113

Post by pas »

eru wrote: post #110
Johnie wrote: post #80

Earlier quoted context omitted.

You joke, but Google actually uses GPS mounted on the roofs of their data centers for time synchronization.

GPS plus atomic clocks. And, boy, do the off-the-shelf commercial offerings suck. The vendors are not really used to dealing with the stress that Google puts these things under.

Could you elaborate on that?

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

#114

Post by Johnie »

eru wrote: post #104
Johnie wrote: post #81

Earlier quoted context omitted.

Exactly. This is a defensive technology to defend against other HFT players. Think of it this way: - In the past (prior to HFT), when you put in an order, you know where the market is going to be. How you win is by building better financial models to identify which security to buy/sell. - With HFT, traders, without sophisticated tools, can no longer trust the market because once they submit, HFT algorithms can shift…

How did you know in the past where the market was going to be? All that was ever available was information about past trades, and perhaps open orders in the market that could have already been removed at any time?

Sorry, I could have phrased it better.

When I said "where the market is going to be" I meant that from one second to the next, you knew it wouldn't move that far.

In the past, when you called up your broker to buy a stock, he could give you a quote (say 12.35) and you tell him to buy, you know that the price will be the quoted amount. (Market in finance lingo in this case means current price of the stock)

If you need to sell a large batch of stock, you know the broker can sell it to multiple people and get you the best price.

With HFT, trades are moving so much faster and you can get a quote from the exchange (someone want to buy 500 shares @ 12.35) and by the time your trade gets sent from your computer to the exchange, that offer is now 400 shares at $12.50. The market has moved in milliseconds. In other words, you cannot trust the market (current price) because you don't know where it will be in the milliseconds from viewing the quote to entering the trade.

In Flash Boys, they talked about ghosts in the machines. This is what they were referring to. When they entered their trades, it's as if the market knew beforehand and moved against you.

(For finance savvy people, apologies, I've simplified it in lieu of understanding)

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

#115

Post by pas »

Lagged2Death wrote: post #31

When HFT was new, amateur forums that discussed it (like this one) were full of apologists saying that it didn't matter, it somehow didn't really effect the market. Some even claimed it made the market better. The tone of the conversation, the framing assumptions, seem different now.

It still doesn't matter much (it helps with price discovery, as HFT participants provide smaller spreads than traditional market makers, which helps with liquidity, and the volatility they add in case they withdraw from the market doesn't seem problematic, because when they withdraw they do so in order to prevent trading in very non-understood regimes, so they don't trade in chaos, wow, blame them, and/or ban them, but you lose the much greater benefit too).

And yes, it's different, because when HN was new its comments were a lot more precise and fact-based, now it's full of dogmatic luddites.

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

#116

Post by bpchaps »

pgwhalen wrote: post #67
bpchaps wrote: post #61

Earlier quoted context omitted.

Huh. You're right. Wonder where that impression came from, then..

I'm about 90% sure that Lewis mentions it in his "acknowledgements" in Flash Boys, as a great resource to go more in depth (which is why I ended up reading it). You might have made that association.

Maybe. When it came out, everybody was talking about the two in an almost identical light. That probably didn't help, either :)

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

#117

Post by ovi256 »

Johnie wrote: post #76

This reminds me of how Google uses atomic clock and GPS for Spanner [1] Google: "“We can commit data at two different locations — say the West Coast [of the United States] and Europe — and still have some agreed upon ordering between them,” Fikes says, “So, if the West Coast write happens first and then the one in Europe happens, the whole system knows that — and there’s no possibility of them being viewed in a diffe…

Generally speaking, as I'm not a patent lawyer either, the same technique applied to two different problem domains can generate two valid patents. The historical example is ship and automobile windscreen wiper.

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

#118

Post by gpderetta »

darawk wrote: post #97
Lazare wrote: post #57

Earlier quoted context omitted.

Front running is a serious crime, with clear definitions. What you are describing isn't front running (or even illegal).

Well, it is not illegal, that is correct. Whether or not it is 'front running' is a matter of debate. It certainly seems to me that they are running out in front of the order. I'm not sure how exactly you might be contorting the meaning of 'front running' for this not to apply.

'Front running' has specific legal definition (which has existed for a long time) which definitely doesn't apply to these cases. The contortion is in fact on your side.

But it is a lost battle anyway.

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

#120

Post by yandie »

ovi256 wrote: post #117
Johnie wrote: post #76

This reminds me of how Google uses atomic clock and GPS for Spanner [1] Google: "“We can commit data at two different locations — say the West Coast [of the United States] and Europe — and still have some agreed upon ordering between them,” Fikes says, “So, if the West Coast write happens first and then the one in Europe happens, the whole system knows that — and there’s no possibility of them being viewed in a diffe…

Generally speaking, as I'm not a patent lawyer either, the same technique applied to two different problem domains can generate two valid patents. The historical example is ship and automobile windscreen wiper.

But they're both in the software domain.

Not to argue with you, but I don't see the problem any different from trying to synchronize two commits in a database. The same technique is not limited to Spanner or algorithmic trading, but other fields as well. It's not so much different from DHT or other algorithms, which have applications in multiple domains.

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