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Thoughts on low latency trading if exchanges went full cloud

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

#171

Post by dusted »

hackerlight wrote: post #136
dusted wrote: post #56

Showing that I don't understand economics while also telling that I don't understand economics: It would probably do the world more good to tweak the structures making ULL trading profitable anyway, it's not like the trading in and of itself brings any value to the broader world, while consuming enormous amounts of resources that could have been spent on actually improving systems that create real value.

Riddle me this. If you got what you wanted, and these value destroying people went away, what would they be replaced with?

I don't want them to go away, I want their talents put to use towards creating broader value.

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

#172

Post by gpderetta »

IshKebab wrote: post #24
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.

If you think about it you can never eliminate the advantage of being faster. If you do 5 seconds batches it just means the edges of the batches become the time-sensitive points. If you want to kill HFT you can do it directly via very very small transaction fees. But guess how popular that is...

Exchanges already extract per order commissions. You do not pay per message (so add, cancels and amends are free, you only pay when you get traded [1]).

A per-message would probably significantly affect existing strategies and greatly increase spreads, but I don't think it would prevent all forms of ULL trading.

[1] But even there exchanges offer rebates, if not outright incentives, for market makers to provide liquidity.

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

#173

Post by BOOSTERHIDROGEN »

cosmic_quanta wrote: post #61
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 wholesale electricity is traded, although for unrelated technical reasons. Bids and offers are collected for auctions that happen at regular known intervals, for example every 15min.

Any article that talk this in depth?

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

#174

Post by gpderetta »

hn8305823 wrote: post #93

It's amazing to me that regulators have not required a minimum latency, or random latency dispersion in orders/trades to level the playing field.

Should they also require a F1-like cap on FLOPS for offline model fittings? A limit on bandwidth? What about quant compensation?

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

#175

Post by rfoo »

jwie wrote: post #42

Orders should have some durability and it would probably change behaviors enough to make hft go away. If you list a buy or sell order it just has to be in force for some period of time, say a minute or something. HFT shops will say this would reduce liquidity, but it would only make clear what real liquidity was in the first place.

Will you put an order 1 minutes before financial statements, then? If so, at what price?

If no, knowing that there will be no liquidity in the very last minute before financial statements, will you put an order 2 minutes before?

This won't propagate forever, but is going to bring very complicated changes.

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

#176

Post by Shrezzing »

gpderetta wrote: post #102
Shrezzing wrote: post #95

Earlier quoted context omitted.

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.

I described the canonical front-running example in my first comment, as it gives most non-finance readers a quick overview of how HFTs work, without needing to describe regulations, strategies, NBBO, SIP, etc.

The specific strategy currently employed by HFTs is somewhat immaterial in the broader context of a discussion about front-running. For as long as a firm can legally front-run the market with any strategy, it can undermine the market and risklessly extract profits.

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

#177

Post by SkipperCat »

HALtheWise wrote: post #120
amluto wrote: post #85

Earlier quoted context omitted.

> Knowing you can saturate your entire network with 10G traffic and every participant will get the same market data packets at the same time[0] Hold on a second. Multicast is nifty, but it does not perform miracles. If you operate a 10G multicast network and actually saturate it, you will experience drops and buffering-induced delays. Perhaps you can play games with time-synchronous networking, but as far as I know t…

I'm curious if you know what, at a switch level, would actually cause drops and buffering for a 1:N (near-) saturated multicast flow. If all the packets are coming from the same source machine at (perhaps) 9.9Gbps and flowing into the switch, I would expect the switch to robustly redirect all that data with near-zero latency or packet drops to all its output ports. I don't think 10G Ethernet has "backpressure" in a w…

A modern cut thru switch typically has one ASIC for a group of ports, and that ASIC handles all the traffic. If the traffic for all of those ports is greater than what the ASIC can handle, you'll have buffering and/or drops.

That being said, the ASIC can typically handle line rate on all the ports. You could have 10G input and fan it out to 10G output on all the ports with no drops, but if there is other cross port traffic, something could get dropped.

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

#178

Post by seanhunter »

seanhunter wrote: post #151
mikewarot wrote: post #147

It's my opinion that stock exchanges should batch trades every 30 seconds, or longer (depending on the market), so that millisecond arbitrage becomes impossible. Front running the market in any manner should be illegal.

Yes. There is actually some research into this idea where markets would effectively conduct rolling auctions, but I'm struggling to find it at the moment because I'm in a work meeting. Iirc the evidence suggests this would reduce market dislocations when news comes out etc so would generally improve price discovery. Markets already conduct an opening and closing auctions and conduct an auction to resume after a volat…

For example this is a proposal for continous auctions in power markets. https://www.deutsche-boerse.com/resource/blob/1458710/717470...

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

#179

Post by cosmic_quanta »

BOOSTERHIDROGEN wrote: post #173
cosmic_quanta wrote: post #61

Earlier quoted context omitted.

This is how wholesale electricity is traded, although for unrelated technical reasons. Bids and offers are collected for auctions that happen at regular known intervals, for example every 15min.

Any article that talk this in depth?

I'm afraid I do not know, but the Wikipedia page is pretty good:

https://en.wikipedia.org/wiki/Electricity_market

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

#180

Post by EMH123 »

mikewarot wrote: post #147

It's my opinion that stock exchanges should batch trades every 30 seconds, or longer (depending on the market), so that millisecond arbitrage becomes impossible. Front running the market in any manner should be illegal.

That works in theory but as soon as you have multiple stocks batch auctions become worse than continuous. How are you can you implement a long/short strategy with auctions? If prices are transparent during the auctions then the stocks that runs the latest auction becomes susceptible to latency arbitrage so you're back to square one. If prices are not transparent you can't see prices during the auctions and you can't be sure of the relative prices for your long and short leg which complicates risk management considerably
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