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Thoughts on low latency trading if exchanges went full cloud

blog.abctaylor.com

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Re: Thoughts on low latency trading if exchanges went full cloud

#11

Post by yafetn »

Interesting read, thanks! Some points:

> Hogging instances might pay, if this stops competitors getting good hosts. This would eat into PnL and is also wasteful on energy.

Aren’t reserved instances cheaper than spot?

> Bad players could do a ping test to many thousands of EC2 instances, find those which are also at very low latency to their good boxes (assuming these are competitors), and DDoS them during trading hours to hammer the hypervisor’s NIC. This would result in critical overhead occurring for competitors sending orders out.

Leaving out the logistics of how someone could do this (why are your instances reachable from the internet?), wouldn’t you have a good case with your exchange to get them kicked out?

Re: Thoughts on low latency trading if exchanges went full cloud

#12

Post by snapcaster »

jstsch wrote: post #10

Nice article. Wondering though why trading is not done in discrete batches, e.g. 5 second intervals? Trades in the same interval get filled equally or stochastically? Info about trades with that same 5 second batch delay? Is there some (theoretical) market efficiency thing at play? All this HFT feels wasteful and bad for 'regular' human investors.

I guess the argument would be that this limits price discovery? I hear this proposed a lot and haven't heard super compelling arguments against it

Re: Thoughts on low latency trading if exchanges went full cloud

#13

Post by onionisafruit »

yafetn wrote: post #11

Interesting read, thanks! Some points: > Hogging instances might pay, if this stops competitors getting good hosts. This would eat into PnL and is also wasteful on energy. Aren’t reserved instances cheaper than spot? > Bad players could do a ping test to many thousands of EC2 instances, find those which are also at very low latency to their good boxes (assuming these are competitors), and DDoS them during trading hou…

> wouldn’t you have a good case with your exchange to get them kicked out?

Would you know who is doing the pinging? The cloud provider would know what account was pinging, but somebody doing this as a trading tactic would have the resources to churn through aws accounts as quickly as they are banned.

Re: Thoughts on low latency trading if exchanges went full cloud

#15

Post by ramon156 »

jstsch wrote: post #10

Nice article. Wondering though why trading is not done in discrete batches, e.g. 5 second intervals? Trades in the same interval get filled equally or stochastically? Info about trades with that same 5 second batch delay? Is there some (theoretical) market efficiency thing at play? All this HFT feels wasteful and bad for 'regular' human investors.

Shareholders would fume hearing this

Re: Thoughts on low latency trading if exchanges went full cloud

#16

Post by Tesl »

jstsch wrote: post #10

Nice article. Wondering though why trading is not done in discrete batches, e.g. 5 second intervals? Trades in the same interval get filled equally or stochastically? Info about trades with that same 5 second batch delay? Is there some (theoretical) market efficiency thing at play? All this HFT feels wasteful and bad for 'regular' human investors.

This is how the Taiwan exchange used to do matching, and I still think it's the best system I've seen.

I don't think the reason has anything to do with price discovery, it's just because exchanges want to maximise their trading fees. Continuous order book trading leads to more trades and hence more profit for the exchange.

Re: Thoughts on low latency trading if exchanges went full cloud

#17

Post by sgarland »

h4kor wrote: post #7

I'm a total trading noob. Can you explain why a low latency is worth so much? And how these traders "exploit" that advantage to make a profit?

Reaction time to events, be it news, securities movements, etc. If you’re early, you can open positions before large movement has taken place; you can also close those positions precisely when you want.

Sometimes this may be making pennies (x N shares), other times it may be quite substantial.

Re: Thoughts on low latency trading if exchanges went full cloud

#18

Post by re-thc »

h4kor wrote: post #7

I'm a total trading noob. Can you explain why a low latency is worth so much? And how these traders "exploit" that advantage to make a profit?

A delay could impact the price. Say you wanted it at $5.00 but it becomes $5.01 by the time your bid comes in you either miss out or pay more.

These traders do it at high frequency. Imagine $0.01 x millions at a time.

Re: Thoughts on low latency trading if exchanges went full cloud

#19

Post by smabie »

h4kor wrote: post #7

I'm a total trading noob. Can you explain why a low latency is worth so much? And how these traders "exploit" that advantage to make a profit?

What would you do if you knew the price of something 1 day before everyone else?

How would you make money off that?

Re: Thoughts on low latency trading if exchanges went full cloud

#20

Post by lotsofpulp »

h4kor wrote: post #7

I'm a total trading noob. Can you explain why a low latency is worth so much? And how these traders "exploit" that advantage to make a profit?

In any market, a seller or buyer willing to close the transaction quicker is a benefit for the opposing seller or buyer.

Quicker can be on the scale of years to milliseconds, depending on what is being exchanged and amongst whom.

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