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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

#61

Post by pasbesoin »

I'm going to say this again: Exchanges should be put on a stepped clock. I'd suggest a one minute interval. Orders pile up during that interval, and then they're processed in random order. If things start to go really, State-concerning hinky, then authorities "pull the plug" before the next interval is up.

Anything less, to my mind, serves point-shaving and profiteers, rather than real investment.

Then, all the "gearheads" can go back to doing useful science. And maybe getting paid decent wages and benefits for doing so.

/grump

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

#62

Post by gd1 »

sumodds wrote: post #46
analyst74 wrote: post #36

Earlier quoted context omitted.

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

I disagree with this assumption. The problems with military research, law firms, advertisements are of degree not of its existence. Sure, they have their own problems. But we need military research: which is arisen out of insecurities of nation states, to given protection to their states. Law firms, too have a place so too medical clinics and advertisement firms. In case of HFT, the argument is not of degree but exis…

It reduces the friction in every single financial transaction. There used to be considerably more people making markets, at first yelling at each other across the pit, then manually clicking on the screens, now automated out of existence. Machines not just doing the same job mind you, but doing it much better and faster (and without sleeping, toilet breaks, emotions). So the better consistency/efficiency means these firms can quote tighter and tighter spreads in a price war, which they do. Never has so little money been leeched from the markets by middle men (less money extracted, but concentrated in fewer hands perhaps...). An enormous benefit to society. A benefit that compounds along the supply line.

The reason you hear so much about HFT is because the traditional firms it is displacing want you to.

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

#63

Post by sumodds »

gd1 wrote: post #62
sumodds wrote: post #46

Earlier quoted context omitted.

I disagree with this assumption. The problems with military research, law firms, advertisements are of degree not of its existence. Sure, they have their own problems. But we need military research: which is arisen out of insecurities of nation states, to given protection to their states. Law firms, too have a place so too medical clinics and advertisement firms. In case of HFT, the argument is not of degree but exis…

It reduces the friction in every single financial transaction. There used to be considerably more people making markets, at first yelling at each other across the pit, then manually clicking on the screens, now automated out of existence. Machines not just doing the same job mind you, but doing it much better and faster (and without sleeping, toilet breaks, emotions). So the better consistency/efficiency means these…

I am not as much against automated trading, as I am against High Frequency Trading.

Automated trading itself is still dangerous, in that many of these algorithms are black-boxes. They induce complexity and turbulence into the system. For example the minor bubble just before 2008 crash. May be automated trading/HFT was lucky that, the crash wasn't majorly their part. But it is a ticking time bomb.

Now with HFT it is all the more dangerous, because of the speed of interactions. If I make a bet in 50micro seconds, the space of possibilities explodes on you.

And how is it of enormous benefit to society, when it is concentrated in fewer hands. Again, these micro variations hardly say anything about the quality of the goods being produced than what other traders think about the goods. You are optimizing on a parameter, which does not model the problem you are solving. You might find a minima, but one that has nothing to do with making/distribution of these goods.

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

#64

Post by mahyarm »

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…

It's the whole war funds large amounts of science R&D argument and thus is a great benefit for humanity.

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

#65

Post by gd1 »

kylebrown wrote: post #53

The sub-penny rule (decimalization) was also mentioned by Chris Stucchio (aka yummyfajitas).[1] And it is extensively discussed in the book "Dark Pools".[2] Because order queues only exist at whole-penny prices, the bots are forced to compete on speed. If it weren't for that rule, there would also be competition on price because you could place offers and get price-priority in the sub-penny interval. The playing fiel…

Mind you, if they lower tick sizes, that means a lot more order cancellations. A market-making algo is simply a control system, taking in a set of inputs and spitting out a fair price that it is willing buy/sell something for. The number spat out is a rational one, that is then rounded to the nearest discrete tick. Smaller ticks = more jumps in the discrete output price = more cancellations/modifications. Which is fine, except the anti-HFT brigade seem to think a trading system that cancels 10000 orders and trades 100 times is the devil. It's not, it's about as remarkable as any other control system. You may as well express outrage that the cruise control system in your car adjusts the throttle ten thousand times a second. The only downside is that the exchange needs to cope with that level of traffic.

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

#66

Post by gd1 »

001sky wrote: post #18

By 2005 we were approaching the one-millisecond barrier for latency arbitrage Everything you need to know, in one soundbite.

Why? What's the response time on an airbag release in an accident? On the ABS in your car? Your graphics card manages to rotate, scale, texture and shade a hundred million polygons per frame in around 1000/60 = 16ms. We're talking here about processing one UDP frame, usually under 256 bytes.

Why is this the only topic discussed by HN where technology suddenly becomes this frightening bogeyman?

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

#67

Post by fin101 »

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…

Company MakeWorldABetterPlace.com creates new thing and makes us all feel better in a directly measurable way.

They decide to create an even better new thing that has heavy capital requirements so they issue stock.

Even better new thing is not as great as we all thought, so stock goes out of favor as market participants channel capital to new and more promising tech companies.

Years down the road, MakeWorldABetterPlace.com, trading on old securities decides to enter the mobile market and creates revolutionary device. Market participants catch on and start channeling capital out from less promising securities and into the old and existing claims on assets of MakeWorldABetterPlace.com. Thousands of businesses and jobs are created by new privately held companies that create new things using MakeWorldABetterPlace.com's mobile operating platform.

So much talent focuses on the buying and selling of securities because it is the most social way to vote directly - by allocating capital. And the product of that capital flow is what is observed as the creation of new products that make the world better in a directly measurable way.

If you don't think liquidity is important, then with it goes the ability for countless tech startups to exit (through their acquisition by large corporations in exchange for claims on existing assets) and use the resulting capital to create subsequent startups, that perpetuate the cycle of creativity.

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

#68

Post by vasilipupkin »

sumodds wrote: post #63
gd1 wrote: post #62

Earlier quoted context omitted.

It reduces the friction in every single financial transaction. There used to be considerably more people making markets, at first yelling at each other across the pit, then manually clicking on the screens, now automated out of existence. Machines not just doing the same job mind you, but doing it much better and faster (and without sleeping, toilet breaks, emotions). So the better consistency/efficiency means these…

I am not as much against automated trading, as I am against High Frequency Trading. Automated trading itself is still dangerous, in that many of these algorithms are black-boxes. They induce complexity and turbulence into the system. For example the minor bubble just before 2008 crash. May be automated trading/HFT was lucky that, the crash wasn't majorly their part. But it is a ticking time bomb. Now with HFT it is a…

"And how is it of enormous benefit to society, when it is concentrated in fewer hands". So by your logic, Tesla or SpaceX are not of benefit to society because it's concentraded in very few ( 2 ) hands of Elon Musk ?

Secondly, anything that is profitable and legal is of benefit to society, unless it generates obviously negative externalities ( costs for others ) such as pollution

the reason is, our society is mainly built on the idea that everyone can pursue whatever they want and not what some central authority deems to be "useful"

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

#69

Post by sseveran »

rfnslyr wrote: post #54
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…

How do I get into this field? I'm a 20 year old making a shit ton of money by doing mobile work but I find it so boring. Nothing about it is innovative. I feel like a high level computer construction worker. It's brainless for the most part, it just takes time . I want to get into some really cool stuff. I've been wanting to get into investment banking from a technical standpoint, HFT, algorithmic trading etc, but ho…

The worlds of HFT and the rest of algorithmic trading are very far apart. For HFT pickup the exchange documentation for each exchange. Memorize how order types. Get a copy of RegNMS. Memorize that as well. To be effective an HFT needs to exploit the market structure. Learn how processors work. How do you avoid a pipeline stall or a cache miss? Become an expert in c++. Maybe pickup some verilog for those pesky FPGAs.

The rest of algorithmic trading offers a lot more flexibility. In either case read 'Trading and Exchanges'. It will give you a good overview of the mechanics of all different venue types. Then its thinking about how to build better algorithms then the next guy, or get better data.

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

#70

Post by shogunmike »

rfnslyr wrote: post #54
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…

How do I get into this field? I'm a 20 year old making a shit ton of money by doing mobile work but I find it so boring. Nothing about it is innovative. I feel like a high level computer construction worker. It's brainless for the most part, it just takes time . I want to get into some really cool stuff. I've been wanting to get into investment banking from a technical standpoint, HFT, algorithmic trading etc, but ho…

For HFT the learning requirements are extensive.

It is /almost/ essential to have a PhD in CompSci/EE from a top school to do HFT. Alternatively one should demonstrate extensive hardware/networking and optimisation skills obtained from other low-latency industries.

All of the top work is being done on FPGAs and latency is now on the order of microseconds (probably lower).

As for lower frequency algorithmic trading, that is a game that one can play at the 'retail' level if you're willing to spend (quite a lot of) time learning.

I run a website about algo trading. If you want to get a taste for what is involved have a look at some of the articles here: http://quantstart.com/articles/#algorithmic-trading

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