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

#81

Post by joezydeco » Thu, May 09, 2013, 2:29 PM UTC

skylan_q wrote: post #20

joezydeco wrote: post #14

Earlier quoted context omitted.

Aren't these speculators constantly entering and withdrawing these orders from the market on the order of microseconds? It's not like the order book for Johnson and Johnson is completely empty and there is absolutely nobody out there willing to sell shares. If I understand it right, the HFT machines are poking numbers around the current price trying to step ahead of a regular order before it comes in.

Yes. That's what it does. If you, as a human, try to trade like this, the computers will destroy you. That's why people shouldn't trade like computers and they should use their experience and judgment to guide them.

So you're implying we should all be complacent and let HFT machines take a small parasitic profit off of every stock transaction humans make?

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

#82

Post by nailer » Thu, May 09, 2013, 2:30 PM UTC

m0th87 wrote: post #69

jdietrich wrote: post #64

Earlier quoted context omitted.

All the critiques of HFT are a century old. When telegraphy was invented, it was feared that the ticker-tape would create devastating waves of speculation, by speeding up the markets beyond human comprehension. When markets went over to computerised trading, it was argued that the human element of open-outcry trading was vital in preserving a culture of honesty and integrity. Critiquing HFT is myopic, because it's ba…

Never heard anyone arguing HFT is terrible because the trading floor died either. These are straw men constructs designed to paint HFT critics as luddites. I'm undecided about HFT's ability to provide liquidity in the market. There are certainly some drawbacks (e.g. you have to have high capitalization to afford HFT colocation), but there might be some tangible long-term benefits as well. But I'm more concerned about…

> Never heard anyone arguing HFT is terrible because the trading floor died either.

It seemed fairly clear to me that the parent wasn't saying that at all. What he was pointing out was that discussion of, and concern about, faster access to information, decision making and execution causing volatility in the market isn't new. That's not a straw man at all.

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

#83

Post by kasey_junk » Thu, May 09, 2013, 2:36 PM UTC

kasey_junk wrote: post #75

eru wrote: post #53

Earlier quoted context omitted.

The exchange could trade in rounds, e.g. permanent auction mode, where orders get matched only ever minute.

What happens if there are more buy orders than sell at the same level (or vice versa)? Who gets priority on that fill?

To be clear, the way (most) exchanges solve this problem now is by what's called "queue" priority. The longer an order has been resting at a level the higher it's priority is.

This means that those who can respond faster can get into a price level sooner. Breaking this out to minute bounds doesn't mitigate their advantage in any way shape or form.

It is hard to know what the results of a change like this would be. I suspect it would make the markets much less stable as there would be less information to make accurate prices, causing huge variances on minute long ticks.

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

#84

Post by minimax » Thu, May 09, 2013, 2:36 PM UTC

nhaehnle wrote: post #49

dchichkov wrote: post #47

Earlier quoted context omitted.

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.

Why are there multiple exchanges for the same papers to begin with?

Because it allows the exchanges to compete on features (latency, order types) and pricing (transaction fees, connectivity costs).

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?

For equities, trading and settlement are two separate steps. Trading occurs on the exchanges and, for U.S. equities, settlement is handled by the DTCC, the central counterparty for all U.S. equities trading. Handling all the specifics and details of what happens after a trade is executed is a massive industry.

For some products, trading does occur only on one exchange. Typically in futures trading, an exchange will develop a product (a contract) and that contract can only be traded on that exchange which also handles settlement.

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

#85

Post by nailer » Thu, May 09, 2013, 2:38 PM UTC

nhaehnle wrote: post #50

Rangi42 wrote: post #28

Earlier quoted context omitted.

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-auc…

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

Do web apps provide a net positive to society?

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

#86

Post by jellicle » Thu, May 09, 2013, 2:38 PM UTC

nnq wrote: post #55

Light bulb: tax all tradings with a tax percent increasing with the number of transactions per second, in a continuous way (even for less than 1 t/s) that would not make any difference for regular traders (and have a tweakable taxing formula that could regulate a market's stability and sensitivity to information by letting more or less HFT happen by setting the 100% taxation limit - the HFTs will have all incentives…

Any kind of small transaction tax on trades would eliminate the worst excesses of HFT. It doesn't have to be complex at all.

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

#87

Post by twoodfin » Thu, May 09, 2013, 2:42 PM UTC

josh2600 wrote: post #79

aeturnum wrote: post #38

Earlier quoted context omitted.

That was a not very helpful response to a fairly obvious question. HFT is taking advantage of arbitrage over a very short period of time (seconds). What effect does it have on long-term prices? If you hold stock for longer than 0.01 seconds (or 1-2 days in the case of a fat-fingered-algorithm), why should you care?

That wasn't my point. Countering HFT with "well you can still pick stocks the old-fashioned way!" is borderline moronic. Over 95% of trade volume is HFT; retail investors can't compete. I think HFT is ridiculous and the epitome of capitalism. If you outlaw'd it, a new form of lightning fast arbitrage would arrive. My point was that if you call apple increasing over the course of 1 year, you might double your money if…

Over 95% of trade volume is HFT; retail investors can't compete.

Why do they need to? Winning isn't getting more trades in, winning is making money!

According to the Times[1], HFT firms' profit topped out at less than $5B in 2009. That is, not to put too fine a point on it, peanuts.

[1] http://www.nytimes.com/2012/10/15/business/with-profits-drop...

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

#88

Post by minimax » Thu, May 09, 2013, 2:45 PM UTC

eru wrote: post #53

dchichkov wrote: post #47

Earlier quoted context omitted.

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 exchange could trade in rounds, e.g. permanent auction mode, where orders get matched only ever minute.

This is actually how most of the European equities markets start and end the trading day. During the auction period, anyone can submit an order at a given size at price. When the auction ends, the exchange matches at the price that maximizes the number of shares traded. The rest of the trading day operates in what is referred to as a "continuous auction" where orders are matched continuously based on price/time priority.

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

#89

Post by rayiner » Thu, May 09, 2013, 2:50 PM UTC

vasyainv wrote: post #72

nhaehnle wrote: post #50

Earlier quoted context omitted.

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-auc…

Why do you assume that those intelligent people would not engage in some other little value add activity that can make them a lot of money. How much value add do most web social startups provide? The main feature of capitalist economy is that it allows people to work on whatever they want and not on something that some higher authority deems to be "useful"

There is no money in doing really useful things. As long as that's true, lots of smart people will instead find debatably somewhat useful things to do that pay more money.

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

#90

Post by aeturnum » Thu, May 09, 2013, 2:51 PM UTC

josh2600 wrote: post #79

aeturnum wrote: post #38

Earlier quoted context omitted.

That was a not very helpful response to a fairly obvious question. HFT is taking advantage of arbitrage over a very short period of time (seconds). What effect does it have on long-term prices? If you hold stock for longer than 0.01 seconds (or 1-2 days in the case of a fat-fingered-algorithm), why should you care?

That wasn't my point. Countering HFT with "well you can still pick stocks the old-fashioned way!" is borderline moronic. Over 95% of trade volume is HFT; retail investors can't compete. I think HFT is ridiculous and the epitome of capitalism. If you outlaw'd it, a new form of lightning fast arbitrage would arrive. My point was that if you call apple increasing over the course of 1 year, you might double your money if…

>My point was that if you call apple increasing over the course of 1 year, you might double your money if you're lucky. It's much more likely that the HFT operators will outperform you, as they have over the past decade.

These results don't seem related at all. You buy stock at price A and sell and price B (B = A+X, hopefully). What does it matter to you that other parties made money (perhaps more than X) while the stock was going to B? Institutional investors have always been more savvy about the market than retail ones. I don't see how them making money around the edges changes the calculus for "the rest of us."