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Someone got the natural gas report 400 ms early

nanex.net

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Re: Someone got the natural gas report 400 ms early

#211

Post by aleyan »

Some back of the envelope calculation for UNG (ETF in the top Nanex graph) profits for the early mover.

In the second before the announcement UNG was trading at $18.72 High and $18.55 Low. According to some minutely data I saw 400,000 shares where traded between 10:29:00 and 10:30:00; I believe this ties out with the first Nanex chart where there are 490,000 shares traded, with majority of it coming in 400 ms before the 10:30:00 mark. 4 Seconds after the 10:30:00 report release the price had stabilized at around 18.51. I will consider this $18.51 the fair price with all resonably fast algos having made their post release moves.

Let us assume that there was a single trader/algo who got the report early and executed all of the 400,000 share sells 400ms before 10:30:00 and all other market participants only bought. Additionally assume that the average fill for these sell trades was the average of the High and the Low at (18.72 + 18.55)/2= $18.635. I believe this fair because looking at the first Nanex graph the early trades are somewhat uniformly distributed between the high and the low. In a simple arb on UNG, where the trader went short 400ms before the the announcement and closed the position at the fair price a few seconds after the announcement he stands to make a profit of (18.635 - 18.51) * 400,000= $50,000.

For a trade that lasts 5 seconds, making $50,000 is nothing to sneeze at, it is not that much in grand scheme of things. Additionally other ETFS and futures were impacted and could have made more or less money.

TL;DR: If one guy captured all the profit from the early UNG trade, the max he made was roughly $50,000.

Re: Someone got the natural gas report 400 ms early

#212

Post by skilesare »

sseveran wrote: post #136
cgcdesign wrote: post #132

Earlier quoted context omitted.

A little help on how to read the 2nd graph or maybe some source material to teach me. I'm not exactly sure how to even begun to research what kind of map it is, it looks like the matrix had an unfortunate mishap.

What you are looking at is a graph of the liquidity in the order book over time. A security does not have 1 price it has 2, the bid and the ask. The difference is called the spread. The bottom is showing the amount of liquidity at each price level. I don't know of a good source on how to read these charts since most people build their own viz tools.

http://aqumin.com/

Re: Someone got the natural gas report 400 ms early

#213

Post by elemeno »

aleyan wrote: post #211

Some back of the envelope calculation for UNG (ETF in the top Nanex graph) profits for the early mover. In the second before the announcement UNG was trading at $18.72 High and $18.55 Low. According to some minutely data I saw 400,000 shares where traded between 10:29:00 and 10:30:00; I believe this ties out with the first Nanex chart where there are 490,000 shares traded, with majority of it coming in 400 ms before…

If the total value of any trades that might have been made in the claimed 400ms window was only $50k, it would suggest to me that there was nothing untoward going on, and that this story is most likely nothing more than a clock error. For any of the HF firms, prop houses and Hedge Funds that I've run into (which is not a short list, but my no means exhaustive, given that I work in finance) $50,000 is not interesting action - especially since transaction fees will eat away a reasonable chunk of that.

Re: Someone got the natural gas report 400 ms early

#214

Post by kjackson2012 »

If the report is accessed via HTTP, I wouldn't be surprised if the clocks on the government server are off by a few ms, so all the HFTs that are pounding the URL are trying to get access to the data. The first one who got it made their trades before everyone else.

Re: Someone got the natural gas report 400 ms early

#215

Post by elemeno »

josh2600 wrote: post #206
murbard2 wrote: post #195

Earlier quoted context omitted.

High frequency trader here: This is only looking at the volume on public exchanges. There are a lot of regulations around public exchanges which prevent them from operating efficiently. For instance, unless the stock has a very small price, you cannot offer sub-penny prices on this exchange. Most retail trades actually never see the exchange, they are sold in bulk by brokers to places like Knight or Getco who interna…

Yeah. I don't think it's surprising either, in fact when I was first writing the post I assumed HFT volume was closer to 95% of trade volume but I couldn't find any public numbers above 70%. I think that dark pools are where the next crash will come from, but I'm by no means a financial wizard. The way I perceive it, dark pools and other nearly-invisible investment exchanges are scary in that the ramifications of dar…

Dark pools sound more ominous than they often really are. Most of the time, it's just trades that are done directly between two instituions (often via a broker-dealer like BGC or ICAP) rather than via an exchange.

Re: Someone got the natural gas report 400 ms early

#216

Post by krickle »

apaprocki wrote: post #104

http://invezz.com/news/alternative-investments/625-uk-report... "Veteran traders would usually wait in anticipation for the weekly report of gas-inventory figures by the U.S. Energy Information Administration released on Thursday at 10.30 AM and then dive into the busiest trading window of the week. This is no longer true as most traders are now staying out of the market due to the HFTs new strategy - sending floods…

Why is "banging the beehive" not considered to be manipulating the market?

Re: Someone got the natural gas report 400 ms early

#217

Post by SilasX »

petercooper wrote: post #66

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 ;…

Holy crap that is a good idea to get useful work out of these guys.

Re: Someone got the natural gas report 400 ms early

#218

Post by pbhjpbhj »

lmm wrote: post #197
pbhjpbhj wrote: post #109

What is the benefit of trading over ms resolutions. What problem is it solving? Wouldn't trade be more efficient if it were lock stepped - say one trade per hour (per day?): you agree your trade and the exchange processes it on the hour. What would be lost that benefits the pseudo-capitalism of these systems by having such a regime. How would this negatively impact production.

>What is the benefit of trading over ms resolutions. What problem is it solving? The problem it's solving is that people want to do it. Exchanges on which they can't are outcompeted by exchanges on which they can. >Wouldn't trade be more efficient if it were lock stepped - say one trade per hour (per day?): No. >you agree your trade and the exchange processes it on the hour. You "agree" your trade outside the exchang…

>The problem it's solving is that people want to do it. //

As a generality I'd say that's false. Why buy in to a system that makes a tiny proportion of the populous vastly wealthy only because those people already are wealthy.

>You "agree" your trade outside the exchange? //

No, hence the conjunction. Perhaps "you issue a bid or offer" would have been better?

>Spreads would get wider //

OK, can you give a reason why that happens and why it leaves more with middlemen. At the moment a change in price so transient as to pass in milliseconds gets exploited to extract value from the system. In essence surely a greater spread means more to lose from selling quickly, that would appear to tend to stabilise.

Presumably the middle-men here are primarily market-makers.

To this layman it appears that traders currently extract value by reacting fastest to the rapid variations. That the value extracted far exceeds the original notion of guaranteeing trades in order to provide liquidity. Slow the variations and there are less opportunities to extract capital. Again this seems like it would tend to money being invested for longer term growth.

Thanks.

Re: Someone got the natural gas report 400 ms early

#219

Post by pbhjpbhj »

jrockway wrote: post #115
pbhjpbhj wrote: post #101

Earlier quoted context omitted.

> As cynical as everyone is about how "big companies suck", they have historically done a pretty good job creating value. And I think that will continue for some time. // It's not like resources can run out or anything. You just dig up more.

But you can make processes more efficient and add more value with less human interaction. Consider Amazon vs. your local mom and pop grocery.

>add more value with less human interaction //

This sounds like an oxymoron.

Financial efficiency and value often appear to be at odds. Amazon certainly appear to spend less resources in the delivery of goods. Low cost of acquisition isn't necessarily correlated with greater value in terms of human fulfilment.

I've often wondered why we don't have [more/widespread] community kitchens, less work needed for food production, reduced waste and transportation costs, etc.. Why can't I go somewhere and get a quality, healthy meal that is cheaper than what I can make at home.

Re: Someone got the natural gas report 400 ms early

#220

Post by niggler »

elemeno wrote: post #213
aleyan wrote: post #211

Some back of the envelope calculation for UNG (ETF in the top Nanex graph) profits for the early mover. In the second before the announcement UNG was trading at $18.72 High and $18.55 Low. According to some minutely data I saw 400,000 shares where traded between 10:29:00 and 10:30:00; I believe this ties out with the first Nanex chart where there are 490,000 shares traded, with majority of it coming in 400 ms before…

If the total value of any trades that might have been made in the claimed 400ms window was only $50k, it would suggest to me that there was nothing untoward going on, and that this story is most likely nothing more than a clock error. For any of the HF firms, prop houses and Hedge Funds that I've run into (which is not a short list, but my no means exhaustive, given that I work in finance) $50,000 is not interesting…

It is a clock issue, as observed by others in this thread.

I would point to http://news.ycombinator.com/item?id=5146571 because its clear from nanex's response that he hasn't fully thought through the clocking issues with using CQS data without observing it directly himself.

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