Goldman Sachs is spending $100M to shave milliseconds off stock trades • Hacker News Board

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

#271

Post by sigstoat » Fri, Aug 02, 2019, 4:41 PM UTC

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.

it would make more sense to first get rid of the penny rule.

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

#272

Post by jedberg » Fri, Aug 02, 2019, 4:42 PM UTC

alkibiades wrote: post #82

jedberg wrote: post #47

Earlier quoted context omitted.

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?

my question would be how/who does it harm? what is the argument FOR setting that law? other than you think it’s greedy or something?

I don't care about the greediness, I just care about fairness. Why should GS get the best trades just because they can make a deal to get the shortest ethernet cables?

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

#273

Post by HSO » Fri, Aug 02, 2019, 4:50 PM UTC

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…

This is such a confident statement, and I don't mean that as a compliment.

For starters, is the evidence behind this Hayekian market efficiency really so strong as to warrant this kind of absolute confidence in the wisdom of markets?

> markets work by polling the expertise of many different parties who all understand a piece of how things should be valued.

…as well as orders of magnitude more people who do not understand how things should be valued. → noise, which is fine ("excess volatility"), but which can also become highly persistent in the presence of correlated expectations ("bubbles")

> This results in millions, if not billions, of interconnected price-discovery feedback loops.

Well, there are negative and positive feedback loops, only one of which is stabilizing!

> beneficial […] because the price discovery feedback loops get faster

This can also backfire. In fact, this is why a number of stock markets have instituted a trading stop if an asset moves "too fast". Slowing things down / reducing liquidity can stabilize a situation. Actually, this reminds me of

[1] W. A. Brock, C. H. Hommes, and F. O. Wagener. More hedging instruments may destabilize markets. Journal of Economic Dynamics and Control, 33:1912–1928, 2009.

where you have a similar counterintuitive argument.

The history of the idea of market efficiency is long and the idea remains controversial or contested. See e.g. Philip Mirowski's writings.

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

#274

Post by penagwin » Fri, Aug 02, 2019, 4:54 PM UTC

jasode wrote: post #178

Merrill wrote: post #150

Earlier quoted context omitted.

Business produces goods and services. Finance is an online multiplayer game. They are two weakly-connected systems.

>Business produces goods and services. Finance is an online multiplayer game. But finance is also products & services . Think of a corn farmer. It's easier to think of him adding tangible value to society because "corn == food". In contrast, finance just seems like useless office workers copy pasting numbers around in Excel spreadsheets. (This is probably true in many cases.) But the farmer often wants to sell "futur…

But for example the crypto market has no goods or services - only the market trading aspect. Yet it's value swings wildly anyway.

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

#275

Post by gpderetta » Fri, Aug 02, 2019, 4:56 PM UTC

Junk_Collector wrote: post #221

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…

I just have a nitpick with your analogy to feedback loops. Assuming the market can be said to have a Nyquist rate, then once you hit that you have all relevant information. Increasing the sample rate past Nyquist does not make a system more stable unless you have a very specific system designed specifically to take advantage of that. More typically, it just increases your noise-bandwidth product and can decrease tota…

The (global) market is the whole world itself. I very much doubt you can identify an useful Nyquist frequency.

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

#276

Post by penagwin » Fri, Aug 02, 2019, 4:56 PM UTC

bgdnyxbjx wrote: post #69

jiggawatts wrote: post #52

Earlier quoted context omitted.

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…

They’ll only stop when they get to Planck time resolution price discovery

If they achieved Plank Time Resolution I don't think they would need to be in the finance industry to make money :P

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

#277

Post by jfengel » Fri, Aug 02, 2019, 4:59 PM UTC

mbesto wrote: post #213

bodyfour wrote: post #154

Earlier quoted context omitted.

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 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".

I feel like we do know how much liquidity is too much, in the sense that the HFT traders are siphoning profits from value-seekers to rent-seekers. The total of their profits is the amount by which there is too much liquidity.

It's not necessarily clear whether it could be reduced to seconds of liquidity, or minutes, but it's clear that milliseconds is too short. The money isn't remaining in the market long enough to provide value -- especially when the market has already been made and they're just trying to figure out who gets the surplus between ask and bid.

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

#278

Post by Traster » Fri, Aug 02, 2019, 5:02 PM UTC

stakhanov wrote: post #202

Traster wrote: post #181

Earlier quoted context omitted.

> When a pension fund wanted to execute a trade, they would have had to cross the spread, and, statistically speaking, half the spread would immediately accrue to the market maker as profit. ..so this is money that YOU, the holder of a pension, are losing, and that THEY, the rich folks acting as market makers that the public likes to get mad at, are taking away from you. This is totally incorrect. Let's say a pension…

Don't start a reply with "this is totally incorrect", when you're merely pointing out a simplification or approximation. I was making a point about the business model of a proptrader marketmaker versus the business model of an algorithmically sophisticated broker and needed to establish some preliminaries and it would have served zero purpose to go into the particulars of the costs related to risk warehousing. Having…

It's not a simplification. It completely misrepresents how market makers make money. They are taking on risk and they have to handle that risk. If you're trying to make a nuanced point, then you need to get at least the basic fundamentals of the business model right.

You have written something that doesn't actually say what you mean. Frankly, the fact you think that market makers' management of risk is as relevant to their business model as a receptionist means you either don't have a good handle on what market makers do, or you're MASSIVELY over-paying your receptionists.

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

#279

Post by anonu » Fri, Aug 02, 2019, 5:05 PM UTC

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?

"Doing HFT" is not a thing... it's just called trading. With computer automation, trading by definition becomes high-frequency.

The better distinction is whether those trades are on a principal or agency basis.

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

#280

Post by dredmorbius » Fri, Aug 02, 2019, 5:09 PM UTC

gpderetta wrote: post #205

jiggawatts wrote: post #52

Earlier quoted context omitted.

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…

Would you be happy if regulators mandated that airplane control systems can only sample their input at most every second? HFT systems look a lot like feedback driven control loops. Mandating a minimum resolution would be ridiculous.

If what you're sampling and responding to is noise, then yes, it's pointless.

If what you're sampling and responding to is noise, and the responses themselves generate self-perpetuating expanding feedbacks, it's worse than useless: it's actively harmful.