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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

#111

Post by fractalsea »

blumkvist wrote: post #23
chollida1 wrote: post #11

Earlier quoted context omitted.

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.

I realized that there's a frequent uproar against HFT, so I assume people here are pretty tired of it and are not willing to discuss it/have their minds made up about it already. That's why I won't go rhetoric. edit: I guess, I did though. I can't help to reply to the adwords question - although you can argue that advertising/marketing is soulless, at least it creates real world value. Someone makes a product, someon…

So no one would buy anything if there was no advertising?

Or maybe you are worried they would buy less? In that case, would the world really be a worse place? People only buying what they need...

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

#112

Post by fractalsea »

blumkvist wrote: post #23
chollida1 wrote: post #11

Earlier quoted context omitted.

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.

I realized that there's a frequent uproar against HFT, so I assume people here are pretty tired of it and are not willing to discuss it/have their minds made up about it already. That's why I won't go rhetoric. edit: I guess, I did though. I can't help to reply to the adwords question - although you can argue that advertising/marketing is soulless, at least it creates real world value. Someone makes a product, someon…

So no one would buy anything if there was no advertising?

Or maybe you are worried they would buy less? In that case, would the world really be a worse place? People only buying what they need...

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

#113

Post by 001sky »

gd1 wrote: post #108
001sky wrote: post #96

Earlier quoted context omitted.

An example of latency arbitrage is... Arbitrage requires that you cross the trade. You've merely described a following Algorithm. One that leaves open long positions.

And you've merely tried to change the subject. Something can't be front-running if it happens after a publicly disseminated market event. Understood? Flash orders = front running. Trading ahead of client flow = front running. Latency arbitrage != front running. HFT market making != front running.

Arbitrage is precisely the subject. Sorry you don't understand that.

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

#114

Post by rfnslyr »

shogunmike wrote: post #70
rfnslyr wrote: post #54

Earlier quoted context omitted.

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, t…

You run quantstart? Haha awesome, thanks for commenting. I've been familiarizing myself with the content on your website. Thanks.

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

#115

Post by pdovy »

pdonis wrote: post #104
pdovy wrote: post #59

Earlier quoted context omitted.

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 shares via an IPO -- represents only a minuscule portion of total trading volume. -- Leaving aside for a moment the question of the value of HFT, this is a skewed vi…

Wouldn't a more relevant statistic be trading volume? Stats for that (at least for the US market) are here: http://www.sifma.org/research/statistics.aspx It looks like the US bond market daily trading volume is about 25 times higher than the US stock market daily trading volume. However, that statistic is highly skewed by trading in US treasury bonds, which arguably should be a separate category. The same would presu…

Full disclosure, I do work for an HFT firm.

To the last part of your argument:

significantly change who is able to benefit from asymmetric information by inducing others to take the wrong end of zero-sum trades, which is what HFT is designed to do

This is simply untrue, nobody is being induced to do anything. Tactics like submitting orders you don't intend to let trade, to make other participants believe there is interest when there is not is illegal and enforcement is more aggressive than you might think.

To the remaining part, if you believe that HFT improves market efficiency to the extent that it exists, but don't think that the increasing competition provides additional value - OK. I'll work with that, but then if we can come around to a view that HFT is at worst neutral, why should it be curtailed? Simply because some think the people who practice it should spend their time elsewhere? I think that is a dangerous standard to enforce anywhere.

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

#116

Post by MereInterest »

gd1 wrote: post #106
pasbesoin wrote: post #61

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 "gear…

By the way, this is an awful, awful idea that you hear quite a lot. Think about what would happen. What incentive would a participant have for placing an order early in the one minute interval? If you can't cancel it, you're a sitting duck. And if you can't be executed now, why insert the order now? By doing so, you show your hand. You'd end up with a rolling one minute e-bay auction where everyone tries to insert at…

Why would it matter when people place the orders if there is no extra information to be gained during that time? If the orders placed are only revealed after they have taken effect, why bother waiting for the last moment?

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

#117

Post by Nimi »

pasbesoin wrote: post #61

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 "gear…

Hoped to find such a comment here, this is basically about mechanism design - how can we design an exchange that removes the additional profits such microscopically low latency generates, when the low latency itself isn't providing value, i.e. the low latency => profit phenomenon is an artifact of the rules of the exchange.

I appreciate your thoughts, but regarding your suggestion: random isn't well-defined. It can be random as in "randomly pick a participant, let it buy/sell as much of the stock as it asked, then pick another participant etc.". This encourages Sybil attacks - participants have an incentive to create other identities for themselves, and hope one of the identities will be picked "randomly". Another definition of "random" may be "randomly pick an order to buy/sell a single stock, execute it, repeat-until". This, I was told on an earlier HN thread, strongly encourages placing more orders than one wants, again in the hope of fooling the "random" part of the exchange. I was told this is actually what's happening currently in exchanges built this way.

I had a suggestion I tried to analyze (even as a possible idea for a mechanism design paper): What happens if "random" is defined as "your chance of getting picked (to be able to sell the stock) is proportional to the amount of this stock you own"? At least, we got rid of the incentive for Sybil attacks (and didn't create the opposite incentive, for conglomerates - separate entities don't have an incentive to present themselves as a single entity, then do the bookkeeping internally). But it's unclear what to do when there are more willing buyers than sellers. Any thoughts, anyone?

I have also wondered whether this whole thing is an artifact of quantization - what would happen if the price granularity was allowed to be as small as one wants?

(In case anyone's wondering, a friend I consulted told me this probably wouldn't fly as a paper - useful economic policy if I can solve that "more buyers" problem, but nothing scientifically novel).

p.s. Sorry for the long comment.

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

#118

Post by pdonis »

pdovy wrote: post #115
pdonis wrote: post #104

Earlier quoted context omitted.

Wouldn't a more relevant statistic be trading volume? Stats for that (at least for the US market) are here: http://www.sifma.org/research/statistics.aspx It looks like the US bond market daily trading volume is about 25 times higher than the US stock market daily trading volume. However, that statistic is highly skewed by trading in US treasury bonds, which arguably should be a separate category. The same would presu…

Full disclosure, I do work for an HFT firm. To the last part of your argument: significantly change who is able to benefit from asymmetric information by inducing others to take the wrong end of zero-sum trades, which is what HFT is designed to do This is simply untrue, nobody is being induced to do anything. Tactics like submitting orders you don't intend to let trade, to make other participants believe there is int…

nobody is being induced to do anything

"Induce" may not have been the best word; I didn't mean to imply that manipulation of the sort you describe was going on.

What I meant was that the whole point of HFT is to get information about the market state, and act on it, a little bit faster than others; which means that when you make a bona fide offer based on your HFT algorithm's understanding of the market state, that understanding is based on information that the other party to the trade does not have, which means that the other party might accept a trade that, if they had the same information as you do, they would not accept. That is asymmetric information. There doesn't have to be any skulduggery going on; it's a natural consequence of what HFT algorithms are designed to do.

why should it be curtailed?

I'm not saying it should be curtailed; I'm saying that it's a shame that so much talent and effort goes into a zero-sum activity, and that that fact is a big part of why ordinary people distrust the financial system. In other words, HFT is giving other more beneficial financial activities a bad name. The right way to change that is for the financial system to police itself.

I think that is a dangerous standard to enforce anywhere.

I agree, and that's why I think the financial system needs to police itself, before it gets policed by others who don't agree with you and me that such a standard is dangerous to enforce.

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

#119

Post by RickHull »

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.

> 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.

More specifically, HFT acts like a market maker in that it will take the other side of trades that other players (HFT or not) want to make. Let's say I own 1000 shares of MSFT, but I need to liquidate them for some reason. A margin call, a new car, or some immediate, unexpected cost has arisen. The more potential counterparties I have -- the more players that will potentially buy my shares -- the more liquidity there is.

With more liquidity, I can hold out for a higher price (with a cost in time), or I can sell more quickly (at a slightly lower price -- with a cost in money) than I could otherwise.

Whether or not my HFT counterparty is executing profitable trades (which it is, presumably), the very fact of its existence as such is a net benefit to me.

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