What's that quote that says something like in a gold rush you're better off selling the picks and shovels than trying to strike gold?
Saw this quote most recently in a Chris Dixon post: http://cdixon.org/2011/02/05/selling-pickaxes-during-a-gold-...
High Frequency Trading Development Kit
51–60 of 83 posts
Re: High Frequency Trading Development Kit
#52Earlier quoted context omitted.
Why would one even consider entering these markets without the ability to demonstrate alpha over historical results? Yes, your alpha needs to include the ability to beat transaction costs... so if you can't pay for the [relatively exceptionally cheap] cost of several years of your chosen market's historical data, maybe you're not really serious. It's fun to play at being a financier, but let's not pretend that access…
The cost of market data and a system equipped to process it are not inconsiderable. Historical tick data (quotes and trades) for US equities will run you $20k/year, minimum. US equities runs about 30-40GB/day so you are looking at almost 10TB/year. You need to be able to access the data quickly so you probably don't want to compress it and probably do want to duplicate the data, slicing and dicing it in different way…
Surely though, one could pre-calculate potential future positions or other useful data on stock in advance of next day's trade between close and re-open of the markets?
Re: High Frequency Trading Development Kit
#53Virtually no hobbyist would be able to compete against big financial firms' hardware and algorithms. It might be a smart move for a large high frequency trading firm to put out these sorts of tools for free. An incredibly easy to use free api with good (though not superior) speed would be pretty popular. More subpar competition == more money for them. Though, admittedly, probably nowhere near what they are making now…
Virtually no hobbyist would be able to compete against big financial firms' hardware and algorithms.
This simply isn't true. There are many HFT firms started by hobbyists/amateurs. The company I work for started this way.
HFT is a field which has many niches and relatively low barriers to entry (thought certainly not as low as renting a linode).
Re: High Frequency Trading Development Kit
#54In all seriousness, I would rather see a market designed explicitly around the barring of high frequency trades. All trades taking a fixed and relatively long period (say, 30 minutes) to complete. This sort of investment strategy doesn't seem to be creating long-term market value, it's exploiting short-term edge effects in a zero-sum strategy. The arms race to pursue ever more inhumanly fast automatic trades seems to…
I can see from your post that you're very misinformed about how markets operate and the role of high frequency traders (a.k.a. liquidity providers). Read my response to a previous comment: http://news.ycombinator.com/item?id=2164458
I have nothing against HFT but I don't buy your liquidity argument. Liquidity is needed most when markets are falling outside the norm. Any algorithm with a fail-safe or kill switch will immediately shut off when times get bad thereby ending their contribution to liquidity at a time when it is needed most.
Please help me understand this better if I'm incorrect.
(edited for clarity)
Re: High Frequency Trading Development Kit
#55Anyone knows how much something like this costs? My guess is around 20K.
Most solutions of this type are an order of magnitude higher than that. It's very easy to spend $20k/mo. To give an idea of scale / endpoint, a top-tier HFT infrastructure costs on the order of $100k/day. There are probably only a half dozen total of those in the world, though.
Ouch! That's a great "incentive" for the system to work well!
Re: High Frequency Trading Development Kit
#56Is there something like AWS for automated trading? Located extremely close to the exchanges and offering specialized hardware like this?
Re: High Frequency Trading Development Kit
#57Why is this interesting?
It looks like you got a few downvotes because people assumed you're being snarky (maybe you are?) -- but I think that most people (even hackers) who work outside of the financial sector are going to wonder why this is on the front page. In short though, it's a 1U blade server with a full-size FPGA in it; implementing your algorithms in hardware makes them extremely fast (thus the mention of the C-to-HDL compiler), wh…
Furthermore HFT is really interesting for a lot of folks because of
(1) high technical sophistication, really hard to do (for each of the servers, network, algorithms, historical data, machine learning, etc)
(2) done behind closed doors (always interesting to get a peek)
(3) technically 'exploits' the financial system in a way that provides certain companies with immense profits
Re: High Frequency Trading Development Kit
#58Earlier quoted context omitted.
I can see from your post that you're very misinformed about how markets operate and the role of high frequency traders (a.k.a. liquidity providers). Read my response to a previous comment: http://news.ycombinator.com/item?id=2164458
I have nothing against HFT but I don't buy your liquidity argument. Liquidity is needed most when markets are falling outside the norm. Any algorithm with a fail-safe or kill switch will immediately shut off when times get bad thereby ending their contribution to liquidity at a time when it is needed most. Please help me understand this better if I'm incorrect. (edited for clarity)
"Liquidity is needed most when markets are falling outside the norm"
True but humans have fail-safes and kill switches too, thus this is not a valid argument against HFT in favor of human market makers. At any time, humans could step in and provide liquidity during the flash crash and during other crashes.
Re: High Frequency Trading Development Kit
#59In all seriousness, I would rather see a market designed explicitly around the barring of high frequency trades. All trades taking a fixed and relatively long period (say, 30 minutes) to complete. This sort of investment strategy doesn't seem to be creating long-term market value, it's exploiting short-term edge effects in a zero-sum strategy. The arms race to pursue ever more inhumanly fast automatic trades seems to…
I can see from your post that you're very misinformed about how markets operate and the role of high frequency traders (a.k.a. liquidity providers). Read my response to a previous comment: http://news.ycombinator.com/item?id=2164458
Consider a hypothetical stock currently trading at 34.05 bid, 34.06 ask. Trader A puts in a bid for 100 @ 34.06, matching Trader B's ask of 34.06. Normally, B would then sell to A, but thanks to HFT, institute C has the unique and intrinsically unfair position of being able to fulfill A's order. Assuming a moderate holding of stock, you are then able to manipulate the market up and down second-to-second by selectively fulfilling buy or sell orders and so causing supply or demand to pile up temporarily.
In a zero sum game where knowledge is power, you know exactly who is buying and who is selling - before John Q. Public knows. To compound this, you can fulfill orders using immediate or cancel (IOC) orders before they hit the markets - making it impossible for others to know how much or even whether you are buying/selling.[1]
In itself, there is really not much wrong with this - market makers have been doing this for decades, possibly even centuries. And as long as there is a level playing, where everyone sees orders at the same time, there really is no problem - an invaluable service in the form of liquidity is provided.
Having the advantage of being able to front run the markets is not limited to just market making, however. Limits are one of the ubiquitous features of stock markets - the ability to say, I will buy or sell X shares of this stick up until it hits price Y. This can be exploited easily by HFT/front running - you have 30 ms [2] to probe out where the limit is with small IOC transactions. In this way, you are able to meet orders at prices that are different than the currently trading price - effectively bypassing all competition.
Just to respond to one of your statements from the linked post:
> A common misconception is that high frequency trading is like operating a money printing machine... This is false. Peruse this Forbes article, if you will - http://blogs.forbes.com/afontevecchia/2011/02/15/bernanke-pu...
I am interested in any civil responses to this. I am not professing to be any sort of expert on HFT. [3] Normally I would not bother responding to posts like this, preferring to avoid talking to anyone, but your slightly condescending tone was infuriating.
1. This may not be correct, in any case, the IOC would only be of the required size and so not provide any indication of holding size.
2. http://rusingwithronestar.blogspot.com/2009/07/goldman-effec... Cannot find any mainstream media confirmations that it is indeed 30ms, but this number seems well corroborated.
3. I have used HFT and front running as synonyms because they seem to be inescapably tied together. Why the need to have picosecond advantages if you aren't trying to beat another bottom feeder to the prey?
edit: bah, I really dislike how HN treats newlines - I can't find any way to simply start a new line without a space in between the two sentences. Comes out like a block of text at 1366x768, or ends up looking too spread out.
Re: High Frequency Trading Development Kit
#60Earlier quoted context omitted.
I can see from your post that you're very misinformed about how markets operate and the role of high frequency traders (a.k.a. liquidity providers). Read my response to a previous comment: http://news.ycombinator.com/item?id=2164458
They're just piggybacking trend and making profit of it, that how there used. Maybe not why and how they were designed. Still, IMHO, it is not fair and goes against the very definition of stock exchange.
High frequency traders are simply are able to provide the most competitive price in the market. They usually do this with a strong hunch that they will be able to get out of that position in a short period of time at a better price. Are they providing a service? Absolutely. When HF traders are involved in a transaction, risk is transferred to them. No matter how short the interval is that they're trading on, they're still taking on risk. The party trading against them doesn't have to worry about what way the market is going to move after the trade is complete and they are willing to pay for that.