Earlier quoted context omitted.
Arbitrage is precisely the subject. Sorry you don't understand that.
It isn't front running, stop being a dick
Actually, it is "synthetic" front running.
Barbarians at the Gateways: High-frequency Trading and Exchange Technology
131–140 of 146 posts
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#132Earlier quoted context omitted.
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 latenc…
> Is it the amount of time it takes a computer to make a trading decision?
It is time from when information becomes available until order goes out. This is a well defined measurement, unlike things about "decisions", which are not well defined.
> 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?
"Low Latency" and "High Frequency" are not equivalent, even though you seem to think so. "Low Latency" relates to one event. "High Frequency" indicates a rapid succession of events (Frequency is a measure repeating phenomena). High frequency does not theoretically imply low latency (or the other way around), but practically the correlation between low latency and high frequency is 100%.
If you follow the nanex links, you'll see the "low latency" players are bullying the "higher latency" players, and should be prevented from doing so.
In fact, many exchanges do that - e.g. Some european future exchanges will fine you if your order:execution ratio is >10. Meaning, you have, on average, to execute 10% of the orders you give. In the US, some players have an 10000:1 order:execution order. We should disallow that - as everyone else pays exchange fees for a faster system to suit these players, and then pays more to have a system that can keep up with the spurious orders these guys send.
Really, Eurex has this trivially solved. Since 2001.
> Finally, if you don't think currency markets are fair,
I do not think they are fair. But they are as good as the equity markets (liquidity and spread wise) without the HFT players - ergo, HFT does not provide the benefits HFT proponents claim it does.
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#133Earlier quoted context omitted.
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.
I can confirm that more than 1% is from arbitrage, and that we do not engage in quote stuffing/flickering/etc.
Well, that would be the first I've heard of, a lot of time. Except, I can't really add this to my statistics, because I don't know who you are or what your stats are.
(And no one should trust my assertion either - I'm just as anonymous as the rest of you, and lying for all you know).
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#134Earlier quoted context omitted.
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…
Jeff Hammerbacher, CTO of Facebook, now CEO of Cloudera. That said, actual product companies are making a comeback in Silicon Valley, and are using innovative new tech like 3D Printing, and there's some amazing work going on in Virtual/Augmented Reality as well (Occulus Rift, CastAR, Google Glass), - all physical products. And lets not forget Tesla upending the world's perception of the economics of producing and own…
Lets not forget Tesla upending the world's perception of the economics of producing and owning electric vehicles.
Citation? The world's perception of Tesla is arguably: expensive, unaffordable, impractcle plaything for rich people. But yeah I would drive it if you paid for it...
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#135Earlier quoted context omitted.
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 d…
> If you define it as "the probability that a large order can complete", then liquidity has NOT gone up. People seem to have this idea that back in the days of floor-based trading you could just call up the NYSE and say, "sell 1 million shares of Citigroup!" and the market makers would just kindly oblige you, without widening their spreads or trying to eke out a bigger gain from a transaction which inherently carries…
> People seem to have this idea that back in the days
I don't know who these people are. But many people today see the screens and volumes, and say "see, HFT gives liquidity!", and that's wrong. I'm not saying HFT took liquidity away (it may have, I don't know, but for sure I didn't claim that). But it does not improve the liquidity that matters to most market participants.
> executing giant orders in one fell swoop hasn't gotten any better under HFT, but it hardly seems to have made it worse.
I agree. I'm just countering the oft repeated meme that "HFT provides liquidity". Essentially, it doesn't.
> I don't know about "often," unless you're talking about trading individual issues where news events introduce a high degree of uncertainty. There's really only been one case of a market-wide drying up of liquidity, which lasted for about 15 minutes during the flash crash.
There's been tens of "flash crash" and "flash smash" events in the last couple of years. Not of the magnitude of the one blamed on Waddell and Reed, but it's still happening.
> There's also nothing new about market-maker liquidity drying up in times of uncertainty or severe volatility.
I agree. I just disagree that HFT are providing any kind of service or benefit to the market. They only benefit themselves, at a cost to the market that goes way beyond the profit from arbitrage/scalping action that they do.
And it is easy to put a stop to: Adopt the rule Eurex and LIFFE had in 2001 that requires 10:1 order:execution ratio.
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#136Earlier quoted context omitted.
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 latenc…
> Is it the amount of time it takes a computer to make a trading decision? It is time from when information becomes available until order goes out. This is a well defined measurement, unlike things about "decisions", which are not well defined. > 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? "Low Latency"…
CME, ICE & CBOE (the major US futures exchanges) all enforce fill ratios as well and have for some time.
Fill ratios are not designed to prevent either high frequency or low latency trading, it is there to prevent a particular form of exchange gaming (quote stuffing).
You are not being clear (and you are being condescending) on what you mean by HFT players & what you find objectionable. Is a market maker that trades 40K contracts a day but doesn't quote stuff objectionable? What about a cross exchange latency arbitrage trade that is not spamming exchanges? If so why?
Also, I've traded Eurex. They have very specific interfaces for low latency/high frequency traders. You can order different classes of connectivity from them that are specifically designed for these use cases. They also have predatory algorithms, so I'm not sure what they have solved.
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#137Earlier 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.
This is an ignorant statement. The cause of the economic crash in 2008 was leveraged bets on lots of bad debt. These bets were made by fratboys in suits, shaking hands and making phone calls and sending emails. The financial instruments they used to do this were bespoke one-off deals, not securities traded on public exchanges.
High frequency trading had nothing to do with any of this. HFT deals in fungible instruments traded in public markets.
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#138Earlier quoted context omitted.
> Is it the amount of time it takes a computer to make a trading decision? It is time from when information becomes available until order goes out. This is a well defined measurement, unlike things about "decisions", which are not well defined. > 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? "Low Latency"…
CME, ICE & CBOE (the major US futures exchanges) all enforce fill ratios as well and have for some time. Fill ratios are not designed to prevent either high frequency or low latency trading, it is there to prevent a particular form of exchange gaming (quote stuffing). You are not being clear (and you are being condescending) on what you mean by HFT players & what you find objectionable. Is a market maker that trades…
> Fill ratios are not designed to prevent either high frequency or low latency trading, it is there to prevent a particular form of exchange gaming (quote stuffing).
They are very effective against quote stuffing, but they also work well against player that leave their quote active in the market for 1ms with high frequency. That's false price signaling, and is independent of quote stuffing (as I'm familiar with it: the practice of throwing so many orders at the exchange that slower players got a lag in their data).
> You are not being clear (and you are being condescending) on what you mean by HFT players & what you find objectionable.
I am specifically talking about HFT players in the US Equity markets - these are the subject of all the HFT discussions on reddit and HN. These do a lot of false signaling, quote stuffing, frontrunning in between exchanges.
> Is a market maker that trades 40K contracts a day but doesn't quote stuff objectionable?
That's fine, as long he is not false signaling either (that is, putting in orders he has no intention of executing)
> What about a cross exchange latency arbitrage trade that is not spamming exchanges? If so why?
This subverts the NBBO system. I believe this should either be illegal, or it should be legal and the NBBO system be canceled. But traders are under the illusion that the NBBO system is protecting them from wasting money to these arbitrageurs, when is isn't.
> Also, I've traded Eurex. They have very specific interfaces for low latency/high frequency traders. You can order different classes of connectivity from them that are specifically designed for these use cases. They also have predatory algorithms, so I'm not sure what they have solved.
The same things: a) quote stuffing, b) false signaling. Being faster costs money, and should provide an advantage - but it should be "neutral".
Is there any way (e.g. quote stuffing) in which you are aware that the faster players on Eurex can causally disadvantage the slower players, like they can in the US Equity markets?
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#139Earlier quoted context omitted.
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.
A majority of our profits come from arbitrage. We don't do any quote stuffing or flickering. It is unethical and illegal.
Re: Barbarians at the Gateways: High-frequency Trading and Exchange Technology
#140Earlier quoted context omitted.
CME, ICE & CBOE (the major US futures exchanges) all enforce fill ratios as well and have for some time. Fill ratios are not designed to prevent either high frequency or low latency trading, it is there to prevent a particular form of exchange gaming (quote stuffing). You are not being clear (and you are being condescending) on what you mean by HFT players & what you find objectionable. Is a market maker that trades…
> Fill ratios are not designed to prevent either high frequency or low latency trading, it is there to prevent a particular form of exchange gaming (quote stuffing). They are very effective against quote stuffing, but they also work well against player that leave their quote active in the market for 1ms with high frequency. That's false price signaling, and is independent of quote stuffing (as I'm familiar with it: t…
Sure, a very common game right now is quote spoofing (that is already illegal in the US) but still happens and exists on Eurex.
Very fast player X puts a few (This will cause other participants to quote at this same level. Once enough orders have been entered behind him, he will yank all of his orders and then cross through that level (or even through 2). He has flipped a level.
His speed allows for 2 properties that make this much easier: 1. He is taking much less risk with his spoofed orders turning into real orders because he can cancel them fast when the market conditions indicate they might get filled. 2. His targets can't catch his cancels/fill through order fast enough to get out of the way.
He can keep his fill ratios within the correct boundaries with no problem.