This Is What One Half Second of High Speed Trading Looks Like • Hacker News Board

Re: This Is What One Half Second of High Speed Trading Looks Like

#41

Post by mc-lovin » Thu, May 09, 2013, 7:18 AM UTC

nohuck13 wrote: post #26

Two things I take away from this 1) Cool use of infographic :) 2) The little dots represent price changes, not trades. FWIW, some more context around this would be- All the major exchanges stream their best prices to all the other exchanges. This is required because US exchanges must execute trades at the National Best Bid or Offer, or NBBO [1]. So how do you track the NBBO. In theory, by having all the exchanges sen…

Thanks, that was a good explaination. If you look carefully, the timing between exchanges is identical, so hopefully they at least chose some representative latency between exchanges.

Re: This Is What One Half Second of High Speed Trading Looks Like

#42

Post by CJefferson » Thu, May 09, 2013, 7:19 AM UTC

rgarcia wrote: post #39

crdoconnor wrote: post #34

Earlier quoted context omitted.

Every description of an HFT algo seems to fall into one of three categories: * Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. * Acting on trading information gleaned from "bid stuffing" (making and canceling orders really quickly) - which helps everybody else about as much as front running does. * Detecting the presence of large trade…

Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. "They can do it faster, therefore it must be illegal." Acting on trading information gleaned from "bid stuffing" (making and canceling orders really quickly) - which helps everybody else about as much as front running does. The only people that notice this behavior are...other people capa…

You are replying to the wrong points.The question is not are these things illegal, or does everyone do them.

question is, do they benefit the market as a whole? Traders do not have a right to perform HFT, and if it destabilise markets, we can take steps to reduce it (of course, there is then the issue of how to take steps without causing different problems)

Re: This Is What One Half Second of High Speed Trading Looks Like

#43

Post by robmcm » Thu, May 09, 2013, 7:25 AM UTC

Isn't the, "one" in the title redundant?

Would you say two half seconds rather than just a second?

Re: This Is What One Half Second of High Speed Trading Looks Like

#44

Post by omegant » Thu, May 09, 2013, 7:50 AM UTC

skylan_q wrote: post #19

jrockway wrote: post #16

Earlier quoted context omitted.

Which market has been destroyed in seconds?

None. This provides profit opportunities to those who will "heal" the price. Also, exchanges will revert back trades that happen over these flash crashes.

How long before someone (a hacker no doubt) games the system to create a selling spiral, just waiting to take profit of the rebound. If it´s well planned the one causing the dive is not going to be the one taking the profit (at least that it can be proved).

Re: This Is What One Half Second of High Speed Trading Looks Like

#45

Post by mverwijs » Thu, May 09, 2013, 7:55 AM UTC

snowwrestler wrote: post #22

One time I printed out all the code--at that time ASP, HTML, CSS, and Javascript--that got executed for one page load of the homepage of my employer's primary website. I taped the pieces of paper end-to-end and hung them on my wall. It made a great conversation piece with my coworkers. Non-technical folks (most of them) were astounded that so much text was being interpretted and executed every single time they loaded…

As an ops-guy (interestingly enough, at an HFT company), I used graphviz to draw out a diagram of all the network interfaces and routes that were being used when trading on a single exchange for one single instrument.

It was a huge, big, complex, ugly thing. We laughed. Good times.

Re: This Is What One Half Second of High Speed Trading Looks Like

#46

Post by mverwijs » Thu, May 09, 2013, 8:06 AM UTC

lifeformed wrote: post #25

Just how profitable is HFT anyways? What kind of returns do HFT traders get?

In the Netherlands, there is a yearly list of the most rich people called "The Quote 500". Of those 500 richest dutch, I think about 15 are HFT owners and employees.

See: http://www.amsterdamtrader.com/2012/10/duyfken-sails-into-qu...

Re: This Is What One Half Second of High Speed Trading Looks Like

#47

Post by dchichkov » Thu, May 09, 2013, 8:17 AM UTC

CJefferson wrote: post #42

rgarcia wrote: post #39

Earlier quoted context omitted.

Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. "They can do it faster, therefore it must be illegal." Acting on trading information gleaned from "bid stuffing" (making and canceling orders really quickly) - which helps everybody else about as much as front running does. The only people that notice this behavior are...other people capa…

You are replying to the wrong points.The question is not are these things illegal, or does everyone do them. question is, do they benefit the market as a whole? Traders do not have a right to perform HFT, and if it destabilise markets, we can take steps to reduce it (of course, there is then the issue of how to take steps without causing different problems)

How else would you connect the exchanges? Or you don't want major exchanges to be connected, and say, if you dump a lot of stock at one exchange you don't want that information to propagate to other exchanges?

Benefits of having HFT traders, is that at the cost of having them around you can have fair and level ground. So if you come to one exchange to do a transaction, you don't have to think much about exchange intrinsics, like liquidity available there, fee structure, etc. Because these differences are being arbitraged away by HFT traders.

And again, what is the alternative? Exchanges that are connected by human traders making phone calls?

Re: This Is What One Half Second of High Speed Trading Looks Like

#48

Post by dchichkov » Thu, May 09, 2013, 8:58 AM UTC

pak wrote: post #24

If we eventually decide that all of this ridiculously fast bid/offer blitzing by our HFT overlords is a destabilization risk to the economy [1], couldn't we start taxing these transactions, or the bids/offers themselves? This level of high-frequency noise being thrown into the market can't reasonably go on increasing forever, right... at some point we just bury ourselves in a never-ending war of inscrutable, difficul…

> we may be getting to the point where the average day trader needs a 3000U server farm to compete effectively

Yes. That's actually a bit of a problem. It is perfectly all right that day traders are being out-competed by HFT firms, by itself that's fine. Humans replaced by computer, nothing bad about that. What is not good, is that a successful entry into arbitrage market nowadays require a lot of infrastructure and technical skills.

That increased barrier reduces a number of players on the market. That reduces diversity. And that increases risk. That's bad.

A simple example how that increases risk. Imagine that a single HFT firm had managed to out-compete all others. And now owns perfect infrastructure with nanosecond level latencies, speed-of-light channels between the exchanges and trading algos without any bugs and teams of quants maintaining them. Obviously no day trader will be able to compete with teams of PhDs. And no new newcomer HFT firm will be able to compete. But as a result diversity of day traders will have decreased to exactly one. And any glitch in the operation of that firm (sorry, a box that was trading SPY just crashed) will be creating flash-crash artifacts without easy resolutions to them.

So yes, an increased entry barrier into day trading is bit of a problem.

Re: This Is What One Half Second of High Speed Trading Looks Like

#49

Post by nhaehnle » Thu, May 09, 2013, 8:59 AM UTC

dchichkov wrote: post #47

CJefferson wrote: post #42

Earlier quoted context omitted.

You are replying to the wrong points.The question is not are these things illegal, or does everyone do them. question is, do they benefit the market as a whole? Traders do not have a right to perform HFT, and if it destabilise markets, we can take steps to reduce it (of course, there is then the issue of how to take steps without causing different problems)

How else would you connect the exchanges? Or you don't want major exchanges to be connected, and say, if you dump a lot of stock at one exchange you don't want that information to propagate to other exchanges? Benefits of having HFT traders, is that at the cost of having them around you can have fair and level ground. So if you come to one exchange to do a transaction, you don't have to think much about exchange intr…

The real question is: Why are there multiple exchanges for the same papers to begin with?

In the case of stocks, for example, there has to be one ultimately authoritative copy of who owns which stocks anyway. So why not just do all the trading in the place where the authoritative copy is stored?

That would certainly seem to be more efficient from the perspective of minimizing the overall social cost.

Re: This Is What One Half Second of High Speed Trading Looks Like

#50

Post by nhaehnle » Thu, May 09, 2013, 9:09 AM UTC

Rangi42 wrote: post #28

jussij wrote: post #18

Earlier quoted context omitted.

> but claiming that we are using computers to do things better than we did 10 years ago is a bad thing But they are not using those computer to do something better, they are using those computers to do something that was impossible 10 years ago. The problem I have with HST is what purpose does it serve, other than offer another way to gamble on stock price movements. Now there is nothing new about gambling on stock p…

If you can trade faster, the market can react to information faster. Stocks dropped almost as soon as the tweet was released, without needing to wait for a few major news channels -- and recovered in five minutes after people stopped panicking.[1] [1] http://21stcenturywire.com/2013/04/24/white-house-attacked-o...

The question is: Does fast trading provide a net positive to society?

Real investment decisions - as in, decisions of which factories to build, which products to develop, who to hire, and so on - are made on a time-scale of weeks or months. Having the stock market react on a sub-second time scale certainly has no effect at all on those decisions.

To gain some perspective, consider if trading operated on an hourly-auction type system. The stock price would react slower and in a different manner that it does today, and that could change the income distribution among traders. But honestly, why should anyone care?

When it comes down to it, there is no upside to trades going that fast to anyone outside of the myopic circle of professional traders. Even those professional traders only have an upside as long as they participate in a vicious arms race. However, there are downsides.

One downside that many people argue is that the resulting distribution of income is not just, because HST firms suck a revenue stream out of the economy without building anything real.

The more important downside (in my opinion) is that HST sucks intelligent people away from sectors of the economy where they would positively contribute by developing and improving directly useful technology.