Hedge funds use satellite images to beat Wall Street • Hacker News Board

Re: Hedge funds use satellite images to beat Wall Street

#181

Post by tryptophan » Fri, Jun 21, 2019, 7:26 PM UTC

logifail wrote: post #170

tryptophan wrote: post #160

Earlier quoted context omitted.

This is called front running and is super illegal.

> This is called front running and is super illegal. Are you sure it's illegal if it's a hedge fund with access to order flow from a third party? "Front running is one of the easiest ways to make money. It's essentially insider trading, except the inside information isn't about corporate activity; the information is about client order flow. In this case, since the index investors are not their clients, it is legal fo…

That article points out that "front running"(which it isn't) by HF may cost .2% a year. Its probably less than that. Bid/ask spreads are often around that percentage. This is just a trading cost. Nothing nefarious is happening here. The spread may go up if a large fund is buying, but this is only natural due to supply and demand. These HFs are just providing liquidity and "charging" a small fee for doing so. If nobody did this, trading costs would probably be even higher. There is extreme amounts of FUD about HFT and market making for some reason.

Now about the Russel indexes - the article has a point there. They are notoriously shitty indexes. Nobody should be putting money into those. But still - nothing illegal(nor should it be). This is yes, clearly a case of "investors' fault for acting irresponsibly". Nobody is forcing them to use these indexes and this information isn't hidden anywhere. Last thing we need is 100 more regulations.

Re: Hedge funds use satellite images to beat Wall Street

#182

Post by harimau777 » Fri, Jun 21, 2019, 7:27 PM UTC

whymsicalburito wrote: post #112

sib wrote: post #79

Something that is visible from space - the number of cars in a parking lot - seems to be the very antithesis of "non-public" information. I think Berkeley missed the thread on this one.

Yes, but it's not like the cars are ONLY visible from space. You are welcome to organize a large group of people to travel around to parking lots and count cars and then privately share your findings. What the funds are doing is just a more efficient version of that. It's all public information.

If the information is only shared privately, then it seems to me that it is by definition not public information; regardless of what the law says.

Re: Hedge funds use satellite images to beat Wall Street

#183

Post by lil-scamp » Fri, Jun 21, 2019, 7:28 PM UTC

50656E6973 wrote: post #123

lil-scamp wrote: post #119

This example of counting cars has been around the geo industry forever, and satellite imagery is pretty cost prohibitive to get on a regular basis. I'd be surprised if hedge funds haven't already moved on to purchasing location-based data (ie mobile phone data) to get even more accurate counts of people in box stores.

That seems to be the case: https://news.ycombinator.com/item?id=17081684

Wonder what the pricing in on that location data is for financial sector customers, and if it's cheaper than a regular purchase of satellite data. It'd be interesting to compare the mobile location data to the satellite data and find the deltas— that would make it a lot easier to build efficient models w/ existing satellite if it's cheaper.

Re: Hedge funds use satellite images to beat Wall Street

#184

Post by throwaway2048 » Fri, Jun 21, 2019, 7:30 PM UTC

Nelson69 wrote: post #63

lolc wrote: post #15

I find it somewhat interesting to what lengths traders go for profits. Cue people who explain how this makes the markets more efficient. Something I'm wondering about though: The article makes it sound like this is some new unfair advantage of the big traders. But isn't this an old game? If you can afford to acquire and process the data you're likely going to beat the other participants. That was always true. I don't…

It's as old as time... Eamon Javers' book Broker, Trader, Lawyer, Spy covers some cases of this sort of thing. One I can easily remember is a hedge fund flew private planes around taking areal photos near power plants. Coal fire power plants store their fuel out in the open and they buy it by the train-load, so they were able to time the market based upon when power plants were going to make large coal purchases, as…

There is a (likely apocryphal) story that when Galileo presented the Doge of Venice with his first telescope, he took him aside privately and they went to the tallest tower in Venice to spy on the incoming trade vessels, then rushed down to the market and proceeded to make a killing on the knowledge of when exactly cargo would be arriving.

Re: Hedge funds use satellite images to beat Wall Street

#185

Post by logifail » Fri, Jun 21, 2019, 7:32 PM UTC

tryptophan wrote: post #172

tanderson92 wrote: post #166

Earlier quoted context omitted.

Not all front-running is illegal, see this article which discusses a few examples, including quote matching and order anticipation: https://blogs.cfainstitute.org/investor/2013/04/24/what-to-d... Front-running is very common in bond trading.

Quote from your article: >HFT greatly reduces average trading costs for investors They are market-making, which is something else entirely than front-running.

> They are market-making...

It's often claimed that HFT help make markets more liquid and efficient, "which helps everyone".

It's much less than clear whether the presence of HFT helps make an entire market more efficient, or whether just the HFTs are able to benefit.

Re: Hedge funds use satellite images to beat Wall Street

#186

Post by TheCoelacanth » Fri, Jun 21, 2019, 7:34 PM UTC

eeZah7Ux wrote: post #159

ISL wrote: post #25

As an occasional retail trader, it doesn't bother me at all that other market participants are trying to be better informed. In fact, it means that market prices are more likely to be properly-priced. We should not aspire to drag hedge-fund research down to the Main Street level. If there is a place for government in this context, it is to fund the education necessary to help retail investors learn a) how to take ben…

> it doesn't bother me at all that other market participants are trying to be better informed You should stop trading now.

Yes, anyone who isn't a professional trader should stop actively trading.

Re: Hedge funds use satellite images to beat Wall Street

#187

Post by mediaman » Fri, Jun 21, 2019, 7:38 PM UTC

jjwhitaker wrote: post #96

ttobbaybbob wrote: post #47

Earlier quoted context omitted.

I'm more than a little surprised that Haas would publish an article that seems to indicate a complete lack of understanding of the purpose of the markets. Better data yields more efficient markets which is what we actually want. “Technology was supposed to level the playing field, but what I see is the fence separating sophisticated and unsophisticated investors growing higher,” says Patatoukas As if that's a bad thi…

I think the author's dilemma is the data is proprietary and won't be open or released unless it benefits the funds position. Fund managers will act on their information to profit before the market reacts or release the data after shoring their position and portfolio. If the data was open, analysis checked, and the information confirmed accurate then it probably would lead to a more efficient or at least accurate mark…

If the information gathered is required to be made public, they won't go gather it. It's simple incentives.

There is no market regulatory philosophy that says "thou shalt not profit from working harder or smarter." Rather, working harder/smarter is encouraged, because when information is discovered, the new owner of that information acts on it in such a way that it creates price pressure in the market to push that security to be more accurately priced.

This is an unalloyed good. Yes, the people who get the information may profit from it, in a similar way any capitalist profits by reacting to price signals. There is no guarantee that all information should be available to everyone. If your information gathering is better and more determined, and your analysis superior, you may profit more than those who do not put in the effort.

Re: Hedge funds use satellite images to beat Wall Street

#188

Post by vostok » Fri, Jun 21, 2019, 7:41 PM UTC

davidw wrote: post #49

vostok wrote: post #29

Earlier quoted context omitted.

This is exactly right. If you're upset about this then you should be upset that hedge funds can afford to hire smarter analysts than you, which is just silly.

I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?

I mean they're not almost certain to lose if they are the smarter analyst.

If they're not the smarter analyst then yeah they're going to lose i.e. not outperform the market. Of course that doesn't mean that they'll lose money.

Re: Hedge funds use satellite images to beat Wall Street

#189

Post by alecco » Fri, Jun 21, 2019, 7:43 PM UTC

tryptophan wrote: post #162

totaldude87 wrote: post #148

I think i saw the same thing in the showtime series "Billions"? where Taylor uses this information , thought this is another level of technical analysis :) Moral ethics aside, this looks legal?!, even if the shorts tank shares based on images of car parking lots..

Watching Billions to learn about what hedgefunds do is like watching Silicon Valley to learn how to make a startup.

But it's a good way to learn old cliches in both cases.

Re: Hedge funds use satellite images to beat Wall Street

#190

Post by TheCoelacanth » Fri, Jun 21, 2019, 7:44 PM UTC

mochomocha wrote: post #40

harryh wrote: post #12

This article is very wrong to confuse "material non-public information" with hard to acquire information like counting cars in satellite photos. Remember the Matt Levine test: insider trading is about theft, not fairness. When a company insider uses private company information to trade (or colludes with an outside party to do so) they are stealing material non-public information from the company for their own benefit…

> When a company insider uses private company information to trade (or colludes with an outside party to do so) they are stealing material non-public information from the company for their own benefit. I must be dumb, but I don't understand this statement... How is that a "theft"? You knowing that I eat 2 eggs in the morning when I don't want people to know is not you "stealing" information from me.

> You knowing that I eat 2 eggs in the morning when I don't want people to know is not you "stealing" information from me.

Correct, you don't necessarily have to "steal" that information to find it out.

If you hire me to cook to you breakfast with the understanding that your breakfast habits are confidential and I give that information away, then that is "stealing" information because I have a duty to keep that information private.

If I spy on you while you are eating and figure it out and give the information away, then I did not "steal" the information because I don't have a duty to keep that information secret.