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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

#31

Post by beagle3 »

Mikeb85 wrote: post #28
beagle3 wrote: post #20

Earlier quoted context omitted.

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.

HFT exploits arbitrage opportunities. This reduces spreads, leading to better execution for everyone.

Ask any HFT person, and they'll tell you less than 1% of their profit is from arbitrage. Unless, of course, you include the practice of quote stuffing (Which causally generates a latency arbitrage against slower players) as part of "arbitrage" - but that's not much different than saying a robber exploits the arbitrage between the fear for your life and willingness to part with the money on your person.

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

#32

Post by dopamean »

cs702 wrote: post #27

So much talent... focused on the buying and selling of securities , instead of creating new things that will make the world better in a directly measurable manner. Virtually all trading volume today consists of buying and selling old securities -- essentially, legal claims on existing assets. The sale of new securities issued to finance the creation of new products and services -- for example, a company selling new s…

Someone said something similar about a lot of people in the startup community. That we were sending our best and brightest out to create products that ultimately only served the purpose of pushing ads (Instagram, Facebook, Twitter, etc). I don't know how true this is. There are a lot of very smart people in the world. The luxury of having that many smart people is that we can have a lot dedicated to designing amazing infrastructure that sends satellites into orbit and we can also have Twitter and HFT.

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

#33

Post by lolcraft »

chollida1 wrote: post #21
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.

> I'm wondering if someone here can explain to me the value in HFT for anyone other than the people doing the trading. Well I guess I'm very biased but here's my stab at it. High Frequency trading is at the for front of alot of technology such as ASIC's, Infiniband networking gear,and low latency OS and networking stacks. You could argue that they help push these technologies forward by providing the first customer f…

High Frequency trading is at the for front of alot of technology such as ASIC's, Infiniband networking gear,and low latency OS and networking stacks.

That's not an argument for HFT. If HFT is useless, then it has divested a great amount of research into technologies that no one really wanted otherwise, i. e., that the social cost of HFT is greater. Standard microeconomics.

The question is, what's HFT good for? Do its benefits outweigh its costs? I believe they don't. Low-quality liquidity under the 1s frame is not only useless for traders, it has a great social cost, in the form of research diverted to this inane game. The only plausible arguments I've found for HFT claim that HF traders wouldn't profit if it wasn't useful -- which is really just begging the question; a circular argument.

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

#34

Post by bjpcjp »

3327 wrote: post #2

This is a well informed and put together article. Up to date technically and the Author knows what he is talking about. As a former HF trader I endorse it, great piece.

My company builds memory ICs that sometimes sit beside the ASIC or FPGA on an HFT card. The bandwidth & latency numbers didn't surprise me, but the cost of power certainly did. No wonder customers are always crawling up our butt on power consumption.

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

#35

Post by xradionut »

kasey_junk wrote: post #17
xradionut wrote: post #12

Earlier quoted context omitted.

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.

Last time I checked, twitter programmers don't have a record of destroying economies nor deep capturing regulators.

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

#36

Post by analyst74 »

cs702 wrote: post #27

So much talent... focused on the buying and selling of securities , instead of creating new things that will make the world better in a directly measurable manner. Virtually all trading volume today consists of buying and selling old securities -- essentially, legal claims on existing assets. The sale of new securities issued to finance the creation of new products and services -- for example, a company selling new s…

Similar things can be said about military research, law firms, medical clinics (not medical research), advertisement firms and most other types of work.

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

#37

Post by kasey_junk »

beagle3 wrote: post #29
kasey_junk wrote: post #24

Earlier quoted context omitted.

There is no industry standard clear definition of HFT. That is part of the problem surrounding any discussion of it. People use the term to mean some mix of the following: - Trading is primarily algorithmic, computers making buy/sell decisions with minimal human intervention. - Trading is high volume with many low quantity orders with short (millisecond, second, minute) hold times. - Trading decisions happen at low l…

I think HFT is now universally regarded as "faster than human reaction time", which means the slowest HFT has a HFT stands for "High Frequency". That has not meant minutes since 2008 at least. > It is not a "fair" place to trade. If HFT were to come in that may or may not change. I suspect it would get better. "HFT" and "fair" in the same sentence, with positive connotation. Now, that's funny: HFT in American exchang…

Even with your hard constant of Is it the amount of time it takes a computer to make a trading decision? Nearly any modern computerized system in under that time constant, and many non-low latency trades happen in that time frame.

Any electronic trading system (which I think most people agree are good things) will allow for algorithmic trading (how could they not?). The question is should we try to prevent low latency trading? If so, why? And how can we? Will any system we put in place cause more problems than it is worth?

Finally, if you don't think currency markets are fair, why use them as an example where you are getting better prices than you would be otherwise? Currency markets do not provide better pricing to all of their participants than electronic markets with HFT do.

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

#38

Post by fmstephe »

cs702 wrote: post #27

So much talent... focused on the buying and selling of securities , instead of creating new things that will make the world better in a directly measurable manner. Virtually all trading volume today consists of buying and selling old securities -- essentially, legal claims on existing assets. The sale of new securities issued to finance the creation of new products and services -- for example, a company selling new s…

While I wouldn't want to defend HFT on any moral grounds we are at least seeing some of the technology leaking out into open source.

https://github.com/OpenHFT

While I don't like the role of HFT in modern markets I find the technology that it drives very exciting.

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

#39

Post by kasey_junk »

xradionut wrote: post #35
kasey_junk wrote: post #17

Earlier quoted context omitted.

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.

Last time I checked, twitter programmers don't have a record of destroying economies nor deep capturing regulators.

What economy did low latency trading destroy? Also, is there any more deep capturing of regulators in the finance space post low latency trading than there was pre?
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