Goldman Sachs is spending $100M to shave milliseconds off stock trades • Hacker News Board

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#121

Post by habnds » Fri, Aug 02, 2019, 9:01 AM UTC

dna_polymerase wrote: post #104

snovv_crash wrote: post #99

Earlier quoted context omitted.

That is false. The 100m could have been spent on something which increases the productivity of people. It would still go to devs, factories, etc but at the end there is something from which society benefits.

So paying hardware manufacturers and programmers for their work doesn't benefit society? It is not like firing these people would see more cancer research or other stuff you might regard as more beneficial for society.

It's important to make money but,how much you're paid for your work is an exceptionally bad way to measure that work's value in our society.

Tim O'Reilly said "Create more value than you capture." I would argue that hft is the definition of people capturing value that they didn't create.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#122

Post by Swenrekcah » Fri, Aug 02, 2019, 9:07 AM UTC

twic wrote: post #62

em500 wrote: post #51

Earlier quoted context omitted.

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficientl…

> I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives I won't touch equities, but surely it's obvious why derivatives have to be priced quickly? When the underlying moves, you have to re-price the derivative, otherwise you're giving away money!

Well, anything that limits the complexity of derivatives is probably a good thing!

Obligatory caveat: I know derivatives aren’t evil, and are very useful to the world, but we all know what happens when they get so complex that almost nobody knows what they are.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#123

Post by PeterStuer » Fri, Aug 02, 2019, 9:08 AM UTC

jedberg wrote: post #32

Can someone explain to me what is gained by processing the trades in real time vs. batching the processing into say 1 second increments? What does GS gain by being able to get their trade there a few milliseconds before the competition and what do I as a consumer gain from this?

Think about it this way: When you get new information that according to your trading algo might move the price of a stock and you want to act on it, once you have made the decision you want the time for your order to reach the exchange to be as low as possible as you assume others can have the same info and act to it accordingly.

Not just anyone can have a direct market access connection to an exchange's order book. This is usually reserved to the members of the exchange, and many rules and regulations apply. So even large volume traders use Sponsored Access, transacting directly with the exchange through the access platform of a sponsoring member that ensures not just technical service but most often also some risk and regulatory compliance controls. This service is not provided for free.

GS competes with a few others to provide such an access platform. Reducing the overhead latency of the platform itself in the trade loop makes them more attractive and allows them to attract HFT clients and/or maintain healthy margins.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#124

Post by WanderPanda » Fri, Aug 02, 2019, 9:08 AM UTC

1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

This system is the only one unbiased estimator / decision maker humans ever found. Though it has quite high variance, in the long-term its results are just astounding

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#125

Post by TomMarius » Fri, Aug 02, 2019, 9:14 AM UTC

habnds wrote: post #118

TomMarius wrote: post #85

Earlier quoted context omitted.

HFT has more benefit than huge villas and cars and private jets. It can bring benefit to software and hardware. I'm okay.

What sort of benefits has it brought to software and hardware? edit: honest question :)

I don't know, I didn't use past tense. I imagine that investment into technology is going to bring more benefit than pointless consumption. Also - what about effective markets, that's not a benefit?

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#126

Post by epiphanitus » Fri, Aug 02, 2019, 9:16 AM UTC

1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

>> The markets are kind of like a massive, distributed, realtime, ensemble, recursive predictor that performs much better than any one of its individual component algorithms could.

That's really interesting, I never thought of it that way.

>> markets work by polling the expertise of many different parties who all understand a piece of how things should be valued.

Does the whole picture ever become apparent to all of the interested parties after the fact? Or do market movements remain subject to a high degree of interpretation even after they happen?

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#127

Post by 1e-9 » Fri, Aug 02, 2019, 9:18 AM UTC

NohatCoder wrote: post #117

1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

Meh, the short term price fluctuations are almost pure noise. Faster trading just incase the frequency of the noise. Increasing frequency only works if the feedback loops are stable.

Over very short time scales, the price fluctuations vary from almost pure noise to almost pure signal. The almost pure noise situation occurs far more often, but even then, with good estimation techniques, you can extract a signal component that can improve pricing a small amount. Improving many interrelated prices by small amounts can lead to a significant overall improvement to the markets. The almost pure signal situation occurs far less often, but it is almost always extremely important to overall stability. Handling it well can minimize market overreactions and extreme events such as flash crashes and market panics.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#128

Post by 9HZZRfNlpR » Fri, Aug 02, 2019, 9:29 AM UTC

denormalfloat wrote: post #64

wallace_f wrote: post #33

Earlier quoted context omitted.

You don't gain anything. GS is in an arms race with other fintech firms to be first in line to act on new information.

That's not right, you (we) get accurately priced securities. We also get tighter bid-ask spreads.

The market is closed so much of the time available for us means we don't need these milliseconds for accurate prices/price-establishing?

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#129

Post by have_faith » Fri, Aug 02, 2019, 9:30 AM UTC

resters wrote: post #42

whatshisface wrote: post #18

Earlier quoted context omitted.

Nanosecond pricing updates might be a little more than anybody needs. Maybe if the exchange cleared once every second, that would serve anyone's purposes. Remember the market is ultimately about allocating capital between businesses and governments, and for economic purposes it doesn't need to run any faster than they can.

> Nanosecond pricing updates might be a little more than anybody needs. This statement reveals that you do not understand what is happening when a transaction occurs. The price is simply the market clearing price. It is not as if updates are being published, simply that the correct price is being discovered more rapidly. If you think of the price erroneously as something that has been published, then of course there…

> as a vote that the price being transacted is close to accurate

These votes are not an indication of accuracy though are they? they are gambles about future price discovery. As in they don't care if they think the trade is worth $5 if they think it might go up before crashing to what they really think it is worth.

I'm not very knowledgable about HFT so I'm just trying to reason about how it works. I guess it's the concept that without the higher frequency everything must be more unstable which is hard to grasp. It reads like we have to make it easier for these firms to make more money so everyone else can enjoy the 3rd order effects of the process.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#130

Post by sumedh » Fri, Aug 02, 2019, 9:33 AM UTC

1e-9 wrote: post #110

Markets around the world are determining prices on a massive variety of instruments that derive value from the current and future value of products such as currencies, interest rates, equities, grains, livestock, metals, oil, gasoline, natural gas, and electricity. These prices allow us to prioritize resources, make fair transactions, and manage risk (i.e. buy insurance on the value of critical products so that we ca…

> The reason why shaving a few milliseconds (or even microseconds) can be beneficial is because the price discovery feedback loops get faster

Berkshire Hathway has couple of trades every minute and difference in bid/ask prices is huge around $1000+, yet you dont see people complaining about that.