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Someone got the natural gas report 400 ms early

nanex.net

81–90 of 291 posts

Re: Someone got the natural gas report 400 ms early

#81

I don't think that increased trading activity supports a conclusion that the report leaked. People may have anticipated increased trading after the rapport release and may have prepared algorithms to try to gain during this event. The algorithms may have started working before the release. I'm not saying this was actually the case, but my theory is as well supported as the claim in the post.

>...my theory is as well supported as the claim in this post.

Are you familiar with Nanex beyond this article?

Re: Someone got the natural gas report 400 ms early

#82

It is worth pointing out that the EIA Natural Gas Report comes out weekly (every Thursday at 10:30) and the market reacts within a few milliseconds. Since it's not the report producer's job for investors' computers to rapidly parse it, they should have some fun in phrasing and presenting the information in different ways each time. If nothing else, it could lead to an explosion in NLP and content parsing technology ;…

Not as long as they are presenting it in JSON format. http://ir.eia.gov/ngs/wngsr.json

Haha - yeah, they still could: they could change the schema weekly.

Re: Someone got the natural gas report 400 ms early

#83
post #31

To make shenangins more obvious, what if 1 minute were the maximum resolution that any trade could happen? Say, every order gets a random number of seconds between 0 and 60 added to it before it is executed. Or even longer. What would happen if everyone gets 10 minutes to digest any news?

This sounds like the type of regulation that people outside of an industry put on the industry with good intentions but really no idea what the consequences would be. Consider a company who holds a press conference announcing something huge (either positive or negative). Anyone wanting to buy or sell in this tiny window pretty much gets shafted by such a system.

I think that's exactly the point. So the whole world gets to trade after they've digested the news, not the guy with the fastest computer or the shortest wire to the exchange.

Re: Someone got the natural gas report 400 ms early

#84
post #71

Why would trade relevant data be released while trading is open? Seems like it could screw tons of people with open orders who can't react within seconds of new information.

If the release of information could affect you, don't trade until after its released. You are free to pretend the market is closed whenever you like.

And it's not like this risk isn't there anyway. Earthquakes rarely coordinate their timing with market hours, to name one example.

Re: Someone got the natural gas report 400 ms early

#85
post #71

Why would trade relevant data be released while trading is open? Seems like it could screw tons of people with open orders who can't react within seconds of new information.

Trading is always open on exchanges around the world. So traders would duke it out by proxy instruments on a different exchange.

Re: Someone got the natural gas report 400 ms early

#86

Earlier quoted context omitted.

We could significantly alleviate the problem by limiting by law the trading frequency. Traders ultimately depend on the law to recognize the validity of their transactions. There is no value to society in high frequency trading. Mandating a full second in a market that operated quite well when slow-reacting humans conducted all the transactions should be more than sufficient.

Will laws work? I imagine the big investment banks will just set up dark pools in countries with favorable laws and just trade there instead. Added benefit: no more taxes! The solution is to realize that high-frequency traders are playing a different game than you, even though they're on the same playing field. They do weird things but it's probably not hurting your returns. (It wasn't HFT that imploded the big banks…

Does money just grow on trees in the magic stock market? The amount of sustained non-bubble growth the stock market can generate is limited, not unbounded. It follows that if the HFT bots steals a slice of it, then the slice the regular gamblers get is smaller than it would otherwise have been.

Re: Someone got the natural gas report 400 ms early

#87
post #3

If we can't solve this problem, with the rise of machine driven microtrading, is there really any reason to place any faith in the stock market as a private investor?

Trading stock is, and pretty much always has been, gambling. So your strategy should be the same as blackjack: Know the rules and know your limits. For the market, you should also be in for the long term, and always use limit orders.

Limit orders make sure that your buy or sell order are done exactly at what you want. Legally, the trade cannot execute unless it's at or below your limit if you're buying, or at or above if you're selling. That, more than anything else, protects you from small time fluctuations caused by HFT.

Going for the long term is really where the focus should be, though. HFT algos tend to fight cents or fractions of a cent(the event referenced here caused a 2% drop in the futures price, which came out to around 6 cents per : http://quotes.ino.com/charting/index.html?s=NYMEX_NG.H13.E&#... ). As a private investor, your focus shouldn't be on getting rich in a week. It should be making sure that the pile of money you have now gets bigger every year. Your limits shouldn't be the HFT-like fractions of a cent or tiny percentages, they should be in the 5-10% range for a return.

Also, since you're not going to win fighting HFT, don't bother. What they do shouldn't effect your overall strategy, because you're not in that space.

Re: Someone got the natural gas report 400 ms early

#88
post #24

So, that initial downwards spike at -400ms that immediately kicks back up to the halfway point? Those can only possibly be pre-programmed strategies. From the big boys. 'Cos you can't stack 'em exchange side last I checked, if they're price dependent. Which means they have a gloriously low-latency-close-to-the-exchange-link. Which means this news was leaked well before the event.

Sure you can "stack" them. If you place a sell order larger than any of the buy orders on the exchange, then what you will see is a "stack" of executed orders beginning with the highest-priced buy order and working down to cheaper ones.

In any case, the bounce back looks to happen over ~100 ms or so, which is plenty of time for anyone's strategy to catch up. I don't see how you can conclude there is some big player who knew "well before the event."

Re: Someone got the natural gas report 400 ms early

#89
post #69
post #56

Earlier quoted context omitted.

Another HN user described this a long time ago: http://news.ycombinator.com/item?id=2828804

Yup. It's all about parsing FIX faster than the next dude.

No it's about providing market liquidity in order to optimise the efficiency of production. /sarcasm

Re: Someone got the natural gas report 400 ms early

#90
The most likely explanation: no one got anything early.

Venue timestamps can often disagree by a significant amount. It is very likely that SIAC (distributors of CQS and CTS) simply are not well synced to the reference clocked used to distribute the report.

Nanex spends a lot of time doing analysis based on precision timing without providing any sort of error analysis as to how well timestamps produced from different references synchronize. It would lend credibility to their hypotheses if they either provided their own reference or provided some measure of margin of error to the timestamps they so heavily rely upon.

For example, if Nanex had stated that they measured the time of release and the time of trades themselves as they appeared in CQS as observed from their machines then they could make a much more concrete statement as to whether: (a) the report was "early" or (b) the trades were "early" relative to one another. Most likely they would observe that the report appeared "early" as measured to their system clock (or possibly some other reference), but the trades did not appear before the report. Of course, Nanex would be smart enough to account for transit latency and other what-not.

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