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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

#221

Post by [deleted] »

gradys wrote: post #70
gamegoblin wrote: post #46

Earlier quoted context omitted.

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 know very little about finance, so treat this as a genuine question: what would be wrong with preventing people from buying or selling in such a tiny window? What would be the downside?

[deleted]

Re: Someone got the natural gas report 400 ms early

#222

Post by apaprocki »

niggler wrote: post #220
elemeno wrote: post #213

Earlier quoted context omitted.

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.

Or, it's not a clock issue: http://live.wsj.com/video/banging-the-beehive-explained/A943...

Re: Someone got the natural gas report 400 ms early

#223

Post by niggler »

apaprocki wrote: post #222
niggler wrote: post #220

Earlier quoted context omitted.

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.

Or, it's not a clock issue: http://live.wsj.com/video/banging-the-beehive-explained/A943...

Have you looked at the raw data in this particular case? The particular deviation that nanex points to isn't borne out in the exchange raw feeds ...

Re: Someone got the natural gas report 400 ms early

#224

Post by jasonwatkinspdx »

murbard2 wrote: post #195
josh2600 wrote: post #165

Earlier quoted context omitted.

I think that HFT is responsible for over 70% of the volume on the major exchanges these days. Very little of what happens on the exchanges anymore is directly attributable to long positions. I'm not sure how current this is, but the average time a stock is held is roughly 20 seconds [1] and that's definitely not long-term value investing. I think we're already a long ways away from Kansas Dorothy, and I don't think w…

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…

That all makes sense, but I would argue that we're still losing something very important.

There is a natural tension between intermediaries and suppliers in highly transparent and competitive markets. The threat of disintermediation minimizes rent seeking behaviors. Over the last few decades that threat seems very weak in the financial markets, which I believe will have negative consequences for our economy and society.

Re: Someone got the natural gas report 400 ms early

#226

Post by kunle »

snowwrestler wrote: post #172
lifeisstillgood wrote: post #157

Earlier quoted context omitted.

At what point will HFT drive out the proper functioning of a Market? Have there been any studies on this? If human traders mostly reacted to "real" news (the Orange juice crop is bad this year) then human trading was mostly linked to actual changes that affect the price mechanism But if large volumes of trades are speculative, or even worse, are directed at affecting the behaviour of other large Market players, is th…

It won't. High frequency trading slices the gap between offer and purchase into an enormous number of tiny slices, and HFT companies compete to see who can collect the most number of slices. But that does not affect the underlying factors that lead to most offers and purchases of stock. For example you could offer OJ futures at improperly high prices a billion times per second, but that does not mean anyone will buy…

> In addition, I wonder by what criteria one would evaluate how "properly" the markets are functioning. Who decides what is proper? For example, based on the business fundamentals it seems ludicrous to me that Apple would have a lower P/E ratio than GM--but it currently does.

Couple of things:

1. Reference to Apple PE ratio is likely a market driven phenomenon that has occurred before to the other technology company that grew very large very fast (MSFT) ie. sometime around 2000, most mutual/institutional investment funds literally owned more of MSFT (and now they likely do of AAPL) than they were legally allowed to own. At this cap, given that these buyers are the largest "long term" drivers of a stock's directionality, the stock must change direction. The second part of this effect is that now a bunch of them are underwater, and the psychology of holding a bad trade will affect whether they decide to book the loss (likely they wont for a while). TLDR: Apple is simply too large, relative to the tech sector, for its stock price growth to match its business fundamentals.

2. Re: markets functioning properly - we should remember that the "markets" are literally a construct. For all the logical arguments made about how HFT reduce the bid/offer spreads, I'm philosophically opposed to them. Mark Cuban has articulated why better than I can: http://blogmaverick.com/2010/05/09/what-business-is-wall-str...

In a nutshell, if we constructed the markets fundamentally to make it easier for businesses in the real economy to raise and price capital, and HFT starts to account for a multiple of that, then the purpose of the "market" construct has been hijacked.

This leads to all sorts of gnarly questions about how to decide what the right volume is etc, so I recognize its'a thorny area - just pointing out that HFT is not so benign, and oftentime comes with consequences that far outweigh the benefit, and happen too often to ignore.

Re: Someone got the natural gas report 400 ms early

#227

Post by ramblerman »

varelse wrote: post #108
svachalek wrote: post #83

Earlier quoted context omitted.

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.

And why exactly shouldn't the guy who's invested in the best hardware have an edge? Should perhaps we also mandate that all software engineers use exactly the same 2004-era Acer Pentium 4 laptop so that any difference in productivity is strictly due to programming skills?

"And why exactly shouldn't the guy who's invested in the best hardware have an edge? Should perhaps we also mandate that all software engineers use exactly the same 2004-era Acer Pentium 4 laptop so that any difference in productivity is strictly due to programming skills?"

Apples and oranges. Should we also mandate that doctors only use scalpels?

Any analogy quickly becomes ridiculous as soon as you compare HFT to anything of actual use in this society.

Re: Someone got the natural gas report 400 ms early

#228

Post by unclebucknasty »

There is a lot of philosophizing over whether HFT harms or helps the market, etc. Much of the pro camp centers around liquidity, but as someone else mentioned, much of that liquidity is absorbed by offsetting HFT.

Rather than get lost in all of the gnarly details, however, I think it is easier to simply look at the purpose of the market and ask whether HFT serves or harms that purpose. IMO, it is pretty clear that it represents a hijacking of the market's true purpose and functioning in the service of that purpose.

For example, is it helpful in setting a price which reflects true supply and demand that we have algorithms designed specifically to manipulate the pricing mechanism by creating artificial supply and demand. These algorithms place phony orders, never intended for execution, but instead merely to trigger a move from the other side. How can that possibly be helpful to such a fundemental market mechanism as pricing?

HFT uses the market for an entirely different purpose. Anyone who defends it must acknowledge this point and argue that the purpose is good if they wish to defend HFT honestly. Otherwise, to couch pro HFT arguments in terms of it being supportive of the market's true purpose and functioning is to mislead.

Re: Someone got the natural gas report 400 ms early

#230

Post by jrockway »

pbhjpbhj wrote: post #219
jrockway wrote: post #115

Earlier quoted context omitted.

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 produ…

Assuming you're an engineer, it is probably not cheaper for you to cook at home if you factor in the cost of your own time. As soon as you involve a bunch of people that have no connection to each other and ask them to start doing work, they start wanting money. Hence, no community kitchens of software engineers: they can make a lot more money programming than by cooking you your food.
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