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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

#231

Post by smolder »

kortilla wrote: post #170
habnds wrote: post #118

Earlier quoted context omitted.

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.

Faster networks would come for other more useful endeavors too, like high quality video conferencing/telepresence stuff. People say how important it is to be working in the same place because conferencing is "just not the same", not realizing it's mostly a technical problem, shitty ISPs, slow routes with high jitter or loss, and insufficient mics, speakers, and software.

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

#232

Post by beerdoggie »

amelius wrote: post #216
mbesto wrote: post #213

Earlier quoted context omitted.

> I think the question is at what point does liquidity have diminishing returns? The general consensus at this point is - no one actually knows - and it's up for serious debate. We know lack of liquidity absolutely has negative effects (because we've experienced it), but we don't how much liquidity is "too much".

Why don't we install a knob that we can turn that effectively limits trading to X seconds precision? One day we may decide to turn that knob from the millisecond range to 1 second and see what happens. If it's bad, we can always turn the knob back.

We kind of already are doing this: https://www.bloomberg.com/opinion/articles/2019-08-01/why-ex...

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

#233

Post by seanhunter »

jfengel wrote: post #219
seanhunter wrote: post #215

For what it's worth, I used to work for GS and was in the algorithmic brokerage business for 2009-2010. One thing a lot of commenters on this thread are missing here is this isn't the same as an HFT or hedge fund, this is the brokerage business - executing orders on behalf of GSs clients, who are largely institutional investors, hedge and pension funds etc. The real-world impact of increased speed of execution by bro…

Does GS do HFT itself? Is there a conflict of interest?

I'm not a current employee, but at the time that I was, they did have a small unit who did pseudo-HFT on a prop basis and various electronic market-making businesses, but they were all firewalled off from the people who did brokerage business. We didn't share code or information with them and for obvious reasons they had no ability to view client order flow, unexecuted orders etc. Likewise people in the high-touch (ie voice) execution business couldn't see anything in the GSAT business even though they could use our algos to execute orders if they want to.

My understanding (could be incorrect) is that their quant trading business (what they called their 'HFT' shop, although it wasn't really high-frequency compared to real HFTs like Winton, Knight, Jump, Citadel or whatever) was probably going to get shuttered as they moved out of proprietary risk-taking generally, but I don't have any information either way.

In GSAT at the time, compared to others on the street our tech was pretty sophisticated intellectually but not fast (eg we didn't have ultrafast marketdata, our exchange latency was quite high and our execution algo speed was pretty slow) and so we had to do a lot of smart coding to prevent ourselves being ripped off by actual HFTs given they could move so much faster than we could.

There's a lot more to HFT than reg NMS by the way, I was working in London, so we did all the GSAT trading on European exchanges none of which has anything crazy like reg NMS and there was still HFT shenanigans of various kinds that people would try (eg timing arbitrages if they could see that you had different execution speeds on different venues etc).

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

#234

Post by jellicle »

antientropic wrote: post #133
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.

Nope, it's pure loss to everyone else. Every dollar that an HFT makes by front-running your trade is a dollar you don't make as an investor. The money isn't coming out of nowhere.

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

#235

Post by merpnderp »

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…

A turn based system seems like a horrible idea. First the major players would have a legitimate excuse to make sure their trades were first in the queue. Second they would immediately game this so that everyone in the line behind them had to watch as they triggered market changes one minute they were then in a perfect position to take advantage of the next minute.

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

#236

Post by andruby »

amelius wrote: post #216
mbesto wrote: post #213

Earlier quoted context omitted.

> I think the question is at what point does liquidity have diminishing returns? The general consensus at this point is - no one actually knows - and it's up for serious debate. We know lack of liquidity absolutely has negative effects (because we've experienced it), but we don't how much liquidity is "too much".

Why don't we install a knob that we can turn that effectively limits trading to X seconds precision? One day we may decide to turn that knob from the millisecond range to 1 second and see what happens. If it's bad, we can always turn the knob back.

> If it's bad, we can always turn the knob back. Sure, but by then maybe some people or organizations have made/lost millions. So we can't realistically experiment with that (even though I would absolutely love to)

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

#237

Post by merpnderp »

jellicle wrote: post #234
antientropic wrote: post #133

Earlier quoted context omitted.

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.

Nope, it's pure loss to everyone else. Every dollar that an HFT makes by front-running your trade is a dollar you don't make as an investor. The money isn't coming out of nowhere.

HFT's are purely parasitic unless you're another HFT benefitting from the faster trades. But what's a solution that doesn't add so much friction the house of cards falls down?

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

#238

Post by benaadams »

assblaster wrote: post #197
annabellish wrote: post #192

Earlier quoted context omitted.

"What we have now is the bad kind of capitalism! There's a different, good kind of capitalism which in theory does all these great things!" is essentially the "communism works great in theory" argument. 100%, both systems are great theories. However, the last few hundred years of actually trying to implement capitalism has "most people have access to abundant food, cellphone in every pocket, access to a wealth of inf…

Hundreds of millions of people have been brought out of poverty, outside the United States.

That's due to technology; not capitalism, they aren't the same thing.

A huge amount of R&D happens in academia which isn't capitalism; but then is monetised by capitalism (but doesn't reinvest it back into the academia)

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

#239

Post by ycombobreaker »

sumedh wrote: post #208
1e-9 wrote: post #134

Earlier quoted context omitted.

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…

> the value of their stock is dependent on the value of many other equities, interest rates, energies, raw materials, etc. Exactly, its the same with other stocks. > The bid/ask spread is a separate issue from latency. Yes but it also the second point made by HFT's that they reduce the spread.

Any market maker's bid-ask spread will be dictated by a combination of factors, including aspects like latency (relative to competitors), expectations on holding time, historical volatility and spread (that one is somewhat circular), availability of information from correlated markets, ability to hedge into correlated markets (and what are _those_ spreads, as the market maker will be crossing that spread to hedge), trading fees, etc.

In markets where many of those aspects can be minimized, market makers will end up very tight and the dominant factor becomes latency. a fast market maker can offer a tighter spread to counterparties and will see a virtuous cycle of increased trading opportunities leading to revenue to stay fast.

If the other factors remain significant risks, then the benefits of latency optimization fall off. So, spread and latency are related, but other market fundamentals do play a part.

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

#240

Post by known »

jfengel wrote: post #219
seanhunter wrote: post #215

For what it's worth, I used to work for GS and was in the algorithmic brokerage business for 2009-2010. One thing a lot of commenters on this thread are missing here is this isn't the same as an HFT or hedge fund, this is the brokerage business - executing orders on behalf of GSs clients, who are largely institutional investors, hedge and pension funds etc. The real-world impact of increased speed of execution by bro…

Does GS do HFT itself? Is there a conflict of interest?

Yes https://en.wikipedia.org/wiki/Chinese_wall
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