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Goldman Sachs is spending $100M to shave milliseconds off stock trades

cnbc.com

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Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#51

Post by em500 »

nickles wrote: post #12
vannevar wrote: post #3

It seems like we could save a lot of pointless expenditure on an ultimately meaningless arms race in flash trading if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized.

> pointless expenditure on an ultimately meaningless arms race What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. > if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized This would damage…

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy.

Pretty much everything at sub-second resolution is pointless.

I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficiently functioning economy, yet the largest markets in the world are closed 2/3rd of the day.

The fact that most markets are closed on all weekends plus over 10 holidays per year suggests that even an update once per day wouldn't make much of a difference.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#52

Post by jiggawatts »

em500 wrote: post #51
nickles wrote: post #12

Earlier quoted context omitted.

> pointless expenditure on an ultimately meaningless arms race What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. > if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized This would damage…

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficientl…

This. A million times this. All possible arguments for price discovery are totally invalidated by regular market closures.

Conversely, if sub-second resolution is somehow "a good", then by extension sub-millisecond price discovery is "even better". There are some insane people that state this kind of gibberish with a straight face.

If millisecond are good, then surely microseconds are even better! Next... nanosecond resolution price discovery for the uuuuuultimate liquidity.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#54

Post by nickles »

em500 wrote: post #51
nickles wrote: post #12

Earlier quoted context omitted.

> pointless expenditure on an ultimately meaningless arms race What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. > if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized This would damage…

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficientl…

> Pretty much everything at sub-second resolution is pointless.

Should your credit card network only allow transactions once a minute? Price data comes from transactions (trades) as they occur. There’s more utility derived from a market where people can transact on demand.

> yet the largest markets in the world are closed 2/3rd of the day

Not correct. Equity markets are far from the largest in the world, yet it’s possible to trade 24 hours a day, 5 days a week (actually thanks to HFT). Currency markets operate around the clock. Rates markets operate ~22-23 hours a day, 5 days a week.

> The fact that most markets are closed on all weekends plus over 10 holidays per year

Markets exist for their participants. Corporations looking to hedge commodities exposure, trade currencies, manage interest rate risk, or buy/sell stock have employees who work during business hours. That doesn’t diminish the need for real-time pricing. And most holidays are domestic, so major markets still operate internationally.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#55

Post by adrianN »

nickles wrote: post #54
em500 wrote: post #51

Earlier quoted context omitted.

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficientl…

> Pretty much everything at sub-second resolution is pointless. Should your credit card network only allow transactions once a minute? Price data comes from transactions (trades) as they occur. There’s more utility derived from a market where people can transact on demand. > yet the largest markets in the world are closed 2/3rd of the day Not correct. Equity markets are far from the largest in the world, yet it’s pos…

I wouldn't mind if my credit card only allowed transactions once a minute. I don't think I ever had to do two transactions in a minute.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#56

Post by nickles »

adrianN wrote: post #55
nickles wrote: post #54

Earlier quoted context omitted.

> Pretty much everything at sub-second resolution is pointless. Should your credit card network only allow transactions once a minute? Price data comes from transactions (trades) as they occur. There’s more utility derived from a market where people can transact on demand. > yet the largest markets in the world are closed 2/3rd of the day Not correct. Equity markets are far from the largest in the world, yet it’s pos…

I wouldn't mind if my credit card only allowed transactions once a minute. I don't think I ever had to do two transactions in a minute.

> I don’t think I ever had to do two transactions in a minute.

If the network only clears once a minute, you need to wait at least a minute for each person ahead of you in line at the store. Alternatively, you need to be willing to pay more to cut them in line.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#57

Post by adrianN »

nickles wrote: post #56
adrianN wrote: post #55

Earlier quoted context omitted.

I wouldn't mind if my credit card only allowed transactions once a minute. I don't think I ever had to do two transactions in a minute.

> I don’t think I ever had to do two transactions in a minute. If the network only clears once a minute, you need to wait at least a minute for each person ahead of you in line at the store. Alternatively, you need to be willing to pay more to cut them in line.

Oh I see what you mean. That wouldn't be too terrible either I suppose, but I see your point now.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#58

Post by winrid »

vijaybritto wrote: post #53

"Using so-called microservices to break complicated problems into easy-to-solve ones" I would love to see microservices which actually solve problems and reduce complexity! :(

I am curious how that will help latency here. It must be pretty bad if refactoring and adding more network connections is an improvement.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#60

Post by denormalfloat »

jedberg wrote: post #47
maximente wrote: post #43

Earlier quoted context omitted.

suppose "real time" means order of magnitude milliseconds for example's sake. the price could change a bunch in that interval of 1000ms. you may think "well only slightly" - fractions of cents - but if GS can make fractions of pennies on those events, scaled up to all seconds that the market is open, you can see why that's potentially attractive. for whatever it's worth, GS in 2009 claimed that HFT generated <1% of t…

Ok that explains why they want to do it, but how does it benefit the market to allow that? How does it benefit the consumers and corporations? In other words, what is the argument against creating a law that requires a minimum of 1 second batches for example?

Exchange traded funds depend on special traders who buy the underlying stocks (like AMZN and MSFT), and sell them in exchange for the ETFs (like SPY and VOO). If the individual stocks are more valuable the special traders can buy the ETF shares, exchange them for the individuals, and then sell those for cash. If the ETF is more valuable, they can buy the individual stocks, exchange them for the ETF, and sell the ETF for cash. This is what keeps Index funds matching the underlying index.

Whenever the prices are out of whack, one of the assets can be exchanged for the other. However, there is the concept of tracking error, where by the value of the ETF doesn't track its index. High frequency traders are constantly trying to take advantage of this mismatch (i.e. arbitrage), and as a result the fund's tracking error is moved very close to 0 (i.e. it achieves the goal stated in the prospectus).

Retail investors (like you and me) benefit from this because the price of the index fund is kept in line, and HFT people get to make a little money being keeping it that way. Who would want to make a law that hurts everyone involved by preventing them from entering a mutually beneficial relationship?

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