Lets start with exchanges allowing for trades during roman catholic holidays
Thoughts on low latency trading if exchanges went full cloud
101–110 of 184 posts
Re: Thoughts on low latency trading if exchanges went full cloud
#102Earlier quoted context omitted.
In the United States at least both scenarios you mentioned are illegal. Market makers are not just sitting in the middle of orders. They buy without a seller lined up and then fill orders from their own inventory (or route orders to an exchange in the case where they can't fill a buy order from their own inventory). In cases where they route to an exchange they are required by law to fill the order at the lowest pric…
Latency Arbitrage still exists in a world with NBBO regulations. Research consistently finds that not only does the strategy work in theory, but that it is consistently put into practice by HFT firms to the detriment of other market participants. If a firm can calculate the NBBO ahead of other market participants and the market regulator, it can still legally front-run the market, and risklessly extract rents from en…
What you described is not latency arbitrage.
Re: Thoughts on low latency trading if exchanges went full cloud
#103Earlier quoted context omitted.
> Sending orders at "09:29:59.9999971 at the hope your order arrives at 100ns past 9.30am." What? This literally does happen, though. One of the things the hyperscalers have convinced the world is that precise time is hard. Precise time is easy if you are willing to pay extra for your hardware. Sub-10-ns precision is unremarkable when you use PTP.
It doesn't happen. All the exchanges have a "Day" order type that you can send before 9:30 that will be live on the book when it opens at 9:30 (or transitions to the "core" session at 9:30, most US exchanges have a premarket session prior to that). The idea of having some sophisticated strategy that sends 100ns before 9:30 is nonsense.
As far as I know, you're correct that this exact trade probably doesn't happen on the US exchanges - day orders do have a matching phase before market open, so it may be advantageous to slide in right afterward, but you likely wouldn't do it without knowledge of the state of the opening auction.
However, sending things just a hair early for scheduled events to catch an exact time is a pretty well-known trick at this point. I remember complaining to the exchange that their clocks weren't precise enough for this to be reliable.
Re: Thoughts on low latency trading if exchanges went full cloud
#104I'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?
Most exchanges prioritize their order book by price, then time.
If you're a market maker, you (usually) want your orders to be selected. A common market making strategy is to issue a buy order a bit lower than the last executed price and a sell order a bit higher than the last executed price with the assumption that there's a lot of random and small price motion up and down. If you can consistently process order fills and update/replace your orders in the book faster than the other traders, you'll get more of the trading volume, and other traders will have to compete with you on price. For some stocks where the minimum price increment is large relative to share price, most market making traders will converge on the same buy and sell prices, so latency is it.
There's also value in responding to filled orders in one venue at other venues. Many stocks have a 'home' exchange, but trade at many exchanges, if there's a significant price movement at one exchange, other venues will quickly follow, but if you can follow quicker than most, you can execute against the now mispriced orders on the book, etc.
Re: Thoughts on low latency trading if exchanges went full cloud
#105Earlier quoted context omitted.
> You could match what you can distributed equally and leave the rest unsettled. Equally per market participant? Do large participant like banks trade same amount as retail investor one trade at a time? Per quantity? HFT will time the end of the interval and decide to place a large order or not.
It would be weighted by bid size. If there's $10m of bids one side and $5m of offers on the other, you match up the $5m on that side and every bid gets 50% settled. I'm not sure I understand the problem with "waiting" for the end of the clock. The pool wouldn't be public so you couldn't get knowledge inspecting the pool. All bids and offers would be published on the clock and settled by weighing all the bids and offe…
You trade latency arbitrage with statistical arbitrage were participants try to estimate the market and overbid to try to capture as much of the market as possible. That seems dangerous and unstable.
Re: Thoughts on low latency trading if exchanges went full cloud
#106See Morningstar's choice of being among the first customers of AWS Outpost.
Outpost is literally a AWS branded server rack that is installed into a data center, I don't think it's considered "cloud" in modern stack.
The end-to-end infrastructure (and parts of PaaS delivered within Outpost, from within the set of AWServices) is in fact a cloud "extension", with an on-prem leg, NOT an on-prem solution connected to the cloud. There are a lot of constructs which force the AWS cloud products/services usage, not the traditional on-prem ones.
Re: Thoughts on low latency trading if exchanges went full cloud
#107Why would the exchanges want to move their colos into the cloud. They've spent the capex and they can charge lots of money to rent data center space, cross connects and other services to their customers. If they moved to the cloud, all that revenue would go from them to AWS/GCP/etc.
Doesn't seem like a profitable move for the exchanges. They make more $$$ with on prem setups.
Re: Thoughts on low latency trading if exchanges went full cloud
#108How would any cloud offering deal with something like, say, the full options data feed, which is close to 40 Gb/s of binary packed goodies? You need both a very fat pipe and ultra-low latency: does the cloud, any cloud, offer that? Also: how often have you guys seen the stock market being down? What's the "x nines" availability of, say, the US stock market and US options feed? Now: do we wanna talk about the various…
> Also: how often have you guys seen the stock market being down? What's the "x nines" availability of, say, the US stock market and US options feed?
Well, it goes down every afternoon :p and it's down on the weekends. More like seven sevens than nine nines.
It's been a while since I noticed a story about a significant stock exchange disruption, but there's a lot of things going on there. Tickers are largely independent, so it's easy to shard, and exchanges do shard them; (operational) trading outages often affect only a single stock, or rarely a set of stocks. There are procedures for administrative trading halts on individual stocks or the whole market and procedures to resume trading during the market day. There are also procedures for resuming trading after an operational error halted trading; I'm sure most traders don't like brief outages, and exchanges do their best to avoid them, but they can happen and be resolved with out a lot of confusion because the procedures are known and manageable.
There's also redundancy. If one exchange is having difficulty, there are many others that likely still work. Whole system events are usually not operations issues, but trading issues --- one or several participants placed weird orders, the exchanges processed them, and weird things resulted. 'Circuit breakers' have been designed in to pause trading when this happens. This is an intentional outage, and it's ok because it's intentional and the parameters are known.
Re: Thoughts on low latency trading if exchanges went full cloud
#109The biggest current limitation with cloud providers when it comes to exchange tech is the lack of real multicast support. It is rare outside of exchanges, but extremely low latency L1 multicast market data has become the backbone of exchanges, both for fairness and for scalability. Knowing you can saturate your entire network with 10G traffic and every participant will get the same market data packets at the same tim…
I find it sad that equal access between the entities doing HFT and regular Joes is not required for fairness, but god forbid one HFT having some milisecond advantage over another. That would be unfair. Can't have that.
What do you think an Average Joe is going to do with that extra millisecond available to them?
Re: Thoughts on low latency trading if exchanges went full cloud
#110Earlier quoted context omitted.
> You could match what you can distributed equally and leave the rest unsettled. Equally per market participant? Do large participant like banks trade same amount as retail investor one trade at a time? Per quantity? HFT will time the end of the interval and decide to place a large order or not.
It would be weighted by bid size. If there's $10m of bids one side and $5m of offers on the other, you match up the $5m on that side and every bid gets 50% settled. I'm not sure I understand the problem with "waiting" for the end of the clock. The pool wouldn't be public so you couldn't get knowledge inspecting the pool. All bids and offers would be published on the clock and settled by weighing all the bids and offe…
The general rule is HFT will have the elite level mathematicians to figure out what is the most optimal strategy is, and the most exotic hardware to implement it to the extreme. Other party will fall further behind given the more complex and unconventional exchange rule.