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Barbarians at the Gateways: High-frequency Trading and Exchange Technology

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Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#11

Post by chollida1 »

blumkvist wrote: post #9
chollida1 wrote: post #6

> Some facilities such as the Mahwah, New Jersey, NYSE (New York Stock Exchange) data center have rolls of fiber so that every cage has exactly the same length of fiber running to the exchange cages.3 I remember the first time someone told me that. I thought they were kidding. Then I actually got to see the data center. The exchanges, and HFT firms, take this very seriously. The speed at which they execute is just un…

I hope "amazed" is just poor wording.

I think I'm being trolled but I'll bite.

What's wrong with the word amazed?

If I said I worked at Google and I continue to be amazed at the tech behind how they served up ads would I still get the same remark from you?

Maybe I could be doing more with my skill? I don't know but I really love the learning curve I'm on working with cutting edge technology and pushing the performance envelope.

Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#12

Post by xradionut »

blumkvist wrote: post #9
chollida1 wrote: post #6

> Some facilities such as the Mahwah, New Jersey, NYSE (New York Stock Exchange) data center have rolls of fiber so that every cage has exactly the same length of fiber running to the exchange cages.3 I remember the first time someone told me that. I thought they were kidding. Then I actually got to see the data center. The exchanges, and HFT firms, take this very seriously. The speed at which they execute is just un…

I hope "amazed" is just poor wording.

I think much of the effort is wasted. When you hire embedded designers to program FPGAs and ASICs just to be a few nanoseconds faster in your rent-seeking, it's a bloody shame.

Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#13

Post by Mikeb85 »

dopamean wrote: post #8

I'm wondering if someone here can explain to me the value in HFT for anyone other than the people doing the trading. I went to Wharton and some old friends are in HFT and the one thing they all say, and I hear repeated everywhere, is that they provide liquidity to the market. Something about it just doesn't ring true to me. If it is in fact true I'd love to hear an explanation.

They do provide liquidity. I can place a market order through my online broker, and have it execute in the time it takes my browser to refresh.

This wasn't possible before HFT, and it allows retail investors to get much better trade execution.

Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#15

Post by lmm »

dopamean wrote: post #8

I'm wondering if someone here can explain to me the value in HFT for anyone other than the people doing the trading. I went to Wharton and some old friends are in HFT and the one thing they all say, and I hear repeated everywhere, is that they provide liquidity to the market. Something about it just doesn't ring true to me. If it is in fact true I'd love to hear an explanation.

What HFT provides is what other market users ask for; a limit order is essentially "I will pay 0.5 cents/share commission (thanks to the sub-penny rule) to the first person who can sell me shares in x at or below $y)". Since you asked for the first one, you must want it fast, right?

Perhaps other order types could allow market participants to ask for something closer to what they actually want - but new order types are often criticized as giving HFT players an advantage, since they can understand and exploit them faster than other market participants.

Alternately, eliminating the sub-penny rule would allow HFTs to compete on price rather than just latency, which would mean better prices for long-term investors and remove a lot of the profit from the HFT industry.

Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#16

Post by selmnoo »

kasey_junk wrote: post #10
dopamean wrote: post #8

I'm wondering if someone here can explain to me the value in HFT for anyone other than the people doing the trading. I went to Wharton and some old friends are in HFT and the one thing they all say, and I hear repeated everywhere, is that they provide liquidity to the market. Something about it just doesn't ring true to me. If it is in fact true I'd love to hear an explanation.

Liquidity has certainly gone up. Also, it is hard to prove a causal relationship, but with the rise of electronic trading and HFT, price spreads and fees have come down. I can't prove it, but I believe that insider trading is also much less rampant in modern electronic systems than it was in the older pit based markets.

The liquidity it provides is often very low quality. When liquidity in the old days was added, the players involved had to operate under stricter regulations -- they had to post a quote that was part of the National Best Bid and Offer a minimum percentage of time. With HFT it's a wild west scenario. There's a lot of uncertainty and risk of failure in many of its steps.

Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#17

Post by kasey_junk »

xradionut wrote: post #12
blumkvist wrote: post #9

Earlier quoted context omitted.

I hope "amazed" is just poor wording.

I think much of the effort is wasted. When you hire embedded designers to program FPGAs and ASICs just to be a few nanoseconds faster in your rent-seeking, it's a bloody shame.

Technology is making the existing system much more efficient, lowering the total amount of "rent-seeking" in the system.

If this was any other industry it would be lauded. I don't understand the moralizing about this industry while we applaud start ups for building ever more complex twitter aggregators.

Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#19

Post by beagle3 »

kasey_junk wrote: post #10
dopamean wrote: post #8

I'm wondering if someone here can explain to me the value in HFT for anyone other than the people doing the trading. I went to Wharton and some old friends are in HFT and the one thing they all say, and I hear repeated everywhere, is that they provide liquidity to the market. Something about it just doesn't ring true to me. If it is in fact true I'd love to hear an explanation.

Liquidity has certainly gone up. Also, it is hard to prove a causal relationship, but with the rise of electronic trading and HFT, price spreads and fees have come down. I can't prove it, but I believe that insider trading is also much less rampant in modern electronic systems than it was in the older pit based markets.

Re: spreads & fees: Price spreads and fees have come down as a result of electronic trading being open to everyone, and is probably independent of HFT (at least, modern HFT): E.g., The decreased spreads and fees were happening in europe in the early 2000s, when fastest updates were at 1/4 second, and slower updates were at 2 seconds. The nanosecond scale was not the reason for this.

Re liquidity: it depends how you define liquidity. If you define it by "the average size at the bid or offer and next few price levels" or "volume traded", then yes - HFT has helped liquidity tremendously. If you define it as "the probability that a large order can complete", then liquidity has NOT gone up. With HFT, it's the same 100 shares/futures changing hands thousands of times per day, and they disappear often in times of uncertainty. If you need to execute a large order, you observe that you do not have the amazing liquidity everyone in HFT is talking about.

Re insider trading: I wouldn't bet on it. With electronic trading, it's now easier to do insider trading slowly without attracting much attention. Furthermore, HFT has created new forms of fraud, so far unregulated: see e.g. http://www.nanex.net/aqck2/4329.html

Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology

#20

Post by beagle3 »

Mikeb85 wrote: post #13
dopamean wrote: post #8

I'm wondering if someone here can explain to me the value in HFT for anyone other than the people doing the trading. I went to Wharton and some old friends are in HFT and the one thing they all say, and I hear repeated everywhere, is that they provide liquidity to the market. Something about it just doesn't ring true to me. If it is in fact true I'd love to hear an explanation.

They do provide liquidity. I can place a market order through my online broker, and have it execute in the time it takes my browser to refresh. This wasn't possible before HFT, and it allows retail investors to get much better trade execution.

Just to be clear, HFT these days mean microsecond round trip times between trading algorithms and exchanges.

The situation you describe is thanks to electronic trading, and is also available in financial markets that are not dominated (not to say "infested") by HFT, such as currencies and CFDs.

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