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

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

#161

Post by grenoire »

bodyfour wrote: post #154
grenoire wrote: post #144

Earlier quoted context omitted.

We know, empirically, that a lack of liquidity increases trading costs, which in turn is directly channeled to the prices of goods and services that rely on this liquidity (more or less everything in the world, even more indirectly ones like education). It's difficult to say 'things would be X% more expensive' because of the interconnected complexity the GP was talking about, but there is definitely a very apparent b…

I think the question is at what point does liquidity have diminishing returns? If a security could only be traded once per 10 years then it's obvious that its lack of liquidity would make it less valuable. Holding it would tie up your capital quite significantly. However, if you had a turn-based market where every trade got cleared at the top of the minute it's not clear to me at all whether that would effectively be…

In reality the way that markets are cleared wasn't necessarily so much more different than a turn-based one, even in one where the clearing happens by the minute. The issue is, indeed, mostly with HFT. However, you shouldn't consider HFTs to be market participants in the traditional sense. Most of them focus solely on moving stuff around very fast instead of actually trying to purchase or sell things for a separate economic goal (e.g. production, hedging, short- and long-term investments).

Once you disregard the rapid transactions that do not have a significant effect on the price, your average human investor is probably putting down some fill-or-kills or limit orders and actually benefits from HF liquidity trading.

It's hard for me to understand, let alone explain, why milliseconds would matter for the human investor, but I what I can tell you is that GS is not investing 100M USD just for buying derivatives every other minute.

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

#162

Post by kortilla »

justinjlynn wrote: post #157
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…

Yes, that's the model. So, tell me. Would any profit be possible in an ideally functioning market? If so, how is any item worth more than the total cost of all inputs including externalities? If not, how is such a dynamic system attracted to an ideal state, given that those who would make the market ideally functional are best placed to gain from market inefficiency and dysfunction? Given an answer, do you have a sou…

A perfect market where all participants get information at the same time does not exist.

>This profit is immediately realised by the increase in price of all commodities globally.

This would only hold if there weren’t profitable short trades. The profit can also be realized by the decrease in global commodities that would have been slower before.

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

#163

Post by wepple »

School-Cotton wrote: post #147
collyw wrote: post #93

Earlier quoted context omitted.

>People love to rail on HFT probably because it's difficult to see any actual value that this provides to society.

So what? Poker doesn’t provide any value to society, but if other people want to play it, how is that hurting me?

I think you’ve proven the point here? Poker does not hurt anyone else. Wall St does. See: 2008.

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

#164

Post by kortilla »

dalbasal wrote: post #140
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…

>that aren't available for actual productive work instead of overhead.

That’s a very biased view. Another view would be that improving the efficiency of the largest markets in the world have a much larger positive impact on society than the vast majority of the “productive” work you refer to.

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

#165

Post by kortilla »

reallydontask wrote: post #102
fooker wrote: post #98

Earlier quoted context omitted.

No, a large fraction of modern tech and companies would not exist without the 'activities in the financial sector'. Essentially any endeavor requiring capital beyond your means would have to be bootstrapped or required borrowing money at exorbitant rates. There is a reason the financial sector exists. It makes money by selling convenience and taking over quantified risk.

My point is not that the financial sector is unnecessary, it's that the majority of the activities are not of benefit to society, which admittedly is something hard to define. Following on from that line of thought, it could be argued that a lot of companies don't provide any benefit to society, so the financial sector is just enabling these firms and thus of no benefit to society.

The sector exists because people willingly give it money in exchange for services. If you can’t imagine why that’s happening, maybe read up on why people pay for financial services rather than assuming something as stupid as most of financial services not providing benefit to society.

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

#166

Post by raxxorrax »

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…

That gives these mechanisms way too much credit. Markets can benefit from a more accurate valuation but ms-response times are not needed for this.

The real reason are competitors. You have an advantage if you have the faster line. In the name of fairness there are lines of the exact same length* in many trade centers precisely for this reason.

There are bots that feign transaction so that others react in a specific way. In the last moment these are canceled again, too late for competitors to still react. This is an example for when you need a faster line.

To suggest this arms race in high frequency trade has a serious economic benefit is ridiculous in my opinion.

* I do literally mean cable length. Yes, they have become that crazy

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

#167

Post by justinjlynn »

kortilla wrote: post #162
justinjlynn wrote: post #157

Earlier quoted context omitted.

Yes, that's the model. So, tell me. Would any profit be possible in an ideally functioning market? If so, how is any item worth more than the total cost of all inputs including externalities? If not, how is such a dynamic system attracted to an ideal state, given that those who would make the market ideally functional are best placed to gain from market inefficiency and dysfunction? Given an answer, do you have a sou…

A perfect market where all participants get information at the same time does not exist. >This profit is immediately realised by the increase in price of all commodities globally. This would only hold if there weren’t profitable short trades. The profit can also be realized by the decrease in global commodities that would have been slower before.

I'm sorry for the confusion, I should've reviewed my post before submitting - I have edited that section extensively for, hopefully, greater clarity of thought.

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

#168

Post by habnds »

vasilipupkin wrote: post #135
habnds wrote: post #121

Earlier quoted context omitted.

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…

An article titled "GS spending millions to shave millisecconds off stock trades" has nothing to do with HFT?

It isn't at all clear to me buying and selling at an auction even only once a day, let alone once a minute or second would make financial market end user worse off.

Grocery logistics is a terrible analogy for financial markets.

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

#169

Post by lazulicurio »

bodyfour wrote: post #154
grenoire wrote: post #144

Earlier quoted context omitted.

We know, empirically, that a lack of liquidity increases trading costs, which in turn is directly channeled to the prices of goods and services that rely on this liquidity (more or less everything in the world, even more indirectly ones like education). It's difficult to say 'things would be X% more expensive' because of the interconnected complexity the GP was talking about, but there is definitely a very apparent b…

I think the question is at what point does liquidity have diminishing returns? If a security could only be traded once per 10 years then it's obvious that its lack of liquidity would make it less valuable. Holding it would tie up your capital quite significantly. However, if you had a turn-based market where every trade got cleared at the top of the minute it's not clear to me at all whether that would effectively be…

I think part of the problem is that "liquidity" is an imprecise term. It implies both velocity and flexibility. HFT definitely increases velocity, but it can make the market either more or less rigid depending on the circumstances.

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

#170

Post by kortilla »

habnds wrote: post #118
TomMarius wrote: post #85

Earlier quoted context omitted.

HFT has more benefit than huge villas and cars and private jets. It can bring benefit to software and hardware. I'm okay.

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

Faster networks. Arista exists because hft was a big target market and now everyone using networks with Arista switches in them has benefited.
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