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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

#131

Post by 1e-9 »

epiphanitus wrote: post #126
1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

>> The markets are kind of like a massive, distributed, realtime, ensemble, recursive predictor that performs much better than any one of its individual component algorithms could. That's really interesting, I never thought of it that way. >> markets work by polling the expertise of many different parties who all understand a piece of how things should be valued. Does the whole picture ever become apparent to all of…

Nobody has the whole picture. I would say that the more extreme an individual event is, the easier it tends to be to understand in retrospect. This depends greatly upon one's analytical sophistication, level of market data, fundamental product understanding, and professional network (to know what happened in other firms).

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

#133

Post by antientropic »

1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

Is there any empirical evidence that these perceived benefits to society actually ever materialize? It's clear that there is a benefit to a trader from knowing something milliseconds before the rest of the market (otherwise Goldman wouldn't be doing this), but it's not clear at all to me that it helps the rest of us.

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

#134

Post by 1e-9 »

sumedh wrote: post #130
1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

> The reason why shaving a few milliseconds (or even microseconds) can be beneficial is because the price discovery feedback loops get faster Berkshire Hathway has couple of trades every minute and difference in bid/ask prices is huge around $1000+, yet you dont see people complaining about that.

The bid/ask spread is a separate issue from latency (Edit: although it should tend to be less with better price discovery). To appreciate the benefit of lower latency, I think you have to consider the bigger picture of many interrelated price discovery feedback loops involving many instruments. Many small speedups can result in a much more stable and beneficial system. In the case of Berkshire Hathaway, the value of their stock is dependent on the value of many other equities, interest rates, energies, raw materials, etc.

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

#135

Post by vasilipupkin »

habnds wrote: post #121
dna_polymerase wrote: post #104

Earlier quoted context omitted.

So paying hardware manufacturers and programmers for their work doesn't benefit society? It is not like firing these people would see more cancer research or other stuff you might regard as more beneficial for society.

It's important to make money but,how much you're paid for your work is an exceptionally bad way to measure that work's value in our society. Tim O'Reilly said "Create more value than you capture." I would argue that hft is the definition of people capturing value that they didn't create.

Firstly, this article has nothing to do with HFT. Goldman is executing on behalf of clients who are not HFT

Secondly, your statement makes an implicit assumption that there is no value in providing liquidity to capital markets. This assumption is false. Think of your local grocery store. Sure, you could drive down to the distribution center and buy stuff there. But instead you go to the store where it’s conveniently laid out for you. Same with HFT. If it didn’t exist, you would still be able to buy and sell but markets would be a lot less liquid and buying and selling less convenient.

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

#136

Post by habnds »

TomMarius wrote: post #125
habnds wrote: post #118

Earlier quoted context omitted.

What sort of benefits has it brought to software and hardware? edit: honest question :)

I don't know, I didn't use past tense. I imagine that investment into technology is going to bring more benefit than pointless consumption. Also - what about effective markets, that's not a benefit?

right, you used present tense. You meant hft "could possible have" more benefit? HFT is much more the product of the current regulatory structure than a feature of efficient markets.

Instead of reading Flash Boys, which is good but not really very academic, I'd recommend "The problem of HFT" by Haim Bodek. It explains how he set out to build a sohpisticated trading shop with modern technology and realized all of his competitiors were just gaming the market structure and being handed advantages by exchanges desparate for trading volume.

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

#138

Post by sumnulu »

saberdancer wrote: post #89
habnds wrote: post #78

Earlier quoted context omitted.

people aren't mad only because tons of money is made on hft. It's also because money is _wasterd_ on hft. That's $100 million dollars spent on something that has 0 use to society. It's just rich people playing weird games. Think about the social benefits of $100 million invested in nyc transit infrastructure. The economy's incentive structure is broken and this is a prime example.

Those 100m are not destroyed by burning them in an HFT furnace but rather used to pay developers, hardware, factory workers etc. Sure, it's not going directly into infrastructure but it is not lost. In fact, it's quite possible that if it wasn't invested into HFT it would be held as cash by the company or paid out as a dividend (which is fine as well).

Burning money is not that bad, even burning 99% of all the money in the world.

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

#139

Post by ypcx »

1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

The theory sounds great. But why then, our streets are lined with homeless, and our nations are stricken with poverty? Could it be that the only real aim and motivation of market traders is to earn money? One day, maybe.... when these are replaced with DAOs on the blockchain. But until then it's the Wolf of Wall Street.

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

#140

Post by dalbasal »

1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

The upshot of this argument is that this is valuable activity. We need markets to price tradable assets and provide liquidity.

The counterargument is that there are diminishing and/or negative returns to increased liquidity and velocity.

Take just stocks. Liquidity is not a problem. You have liquidity whether trades take minutes or milliseconds. Pricing? I'd say we have pricing covered too, at least the pricing that more/faster algorithmic trading will contribute.

Meanwhile, all this stuff costs money, people, resources that aren't available for actual productive work instead of overhead.

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