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Thoughts on low latency trading if exchanges went full cloud

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Re: Thoughts on low latency trading if exchanges went full cloud

#21

Post by re-thc »

KiranRao0 wrote: post #5

One key consideration is “provable fairness”. It’s my understanding that exchanges use techniques like long, same length fiber optic cables to all racks within the exchange datacenter to convince customers that everyone is on a fair playing field. This is a lot harder to do when a server is virtualized somewhere on some rack on EC2. Exactly as mentioned, people will try to optimize by spinning up/down instances as cl…

> This is a lot harder to do when a server is virtualized somewhere on some rack on EC2.

There are bare metal EC2 instances.

Re: Thoughts on low latency trading if exchanges went full cloud

#22

Post by _benj »

This is an interesting read but I think it leaves outside what kind of trading is the one that would benefit from ULL.

ULL and currently HFT seems to be very useful for market making (buying the ask and selling the bid and profiting from the bid-ask spread making parts of a cent per transaction, done a few million times a day), but there are other uses for HFT. One of them would be to execute very big orders over time to instead of drastically rising the price of the security they can get a better cost basis by performing a set of trades, letting the market absorb the impact and continuing with the order.

The thought of having the market in a cloud provider like AWS scares me! Although I’m sure that AWS might have pitched the idea already. If the markets could be controlled by a private company that could schedule “maintenance” at convenient times for them, that sounds like a recipe for market manipulation bay trillion dollar company. Sounds like something the SEC wouldn’t stand for.

Re: Thoughts on low latency trading if exchanges went full cloud

#23

Post by sparsely »

jstsch wrote: post #10

Nice article. Wondering though why trading is not done in discrete batches, e.g. 5 second intervals? Trades in the same interval get filled equally or stochastically? Info about trades with that same 5 second batch delay? Is there some (theoretical) market efficiency thing at play? All this HFT feels wasteful and bad for 'regular' human investors.

The HFT is wasteful but isn't bad for human traders, they tend to get better prices. It's bad (sometimes) for huge investors (VHNW individuals, hedge funds, pension funds which I guess represent regular people) that want to make large trades without moving the market but there are also winners here - e.g. if Johnny the day trader buys a stock that Texas Teachers Fund is selling huge batches of, he's better off if HFTs are causing price changes to propagate more quickly.

Re: Thoughts on low latency trading if exchanges went full cloud

#24

Post by IshKebab »

jstsch wrote: post #10

Nice article. Wondering though why trading is not done in discrete batches, e.g. 5 second intervals? Trades in the same interval get filled equally or stochastically? Info about trades with that same 5 second batch delay? Is there some (theoretical) market efficiency thing at play? All this HFT feels wasteful and bad for 'regular' human investors.

If you think about it you can never eliminate the advantage of being faster. If you do 5 seconds batches it just means the edges of the batches become the time-sensitive points.

If you want to kill HFT you can do it directly via very very small transaction fees. But guess how popular that is...

Re: Thoughts on low latency trading if exchanges went full cloud

#25

Post by onionisafruit »

If a big exchange goes to the cloud it won’t look like a regular company setting up an aws account and getting a bunch of ec2 instances in us-east-1. They would at least have dedicated racks.

I suspect the provider would end up with a plan where traders can get servers that all have the same network distance from the exchange’s nics (down to the same length of fiber).

Re: Thoughts on low latency trading if exchanges went full cloud

#26

Post by dchftcs »

pas wrote: post #9

... is there some movement toward "upload the strategy and let the exchange run it"? which would provide a more level playing field, reduce energy and hardware costs, etc?

You mean enabling arbitrary code execution from a third party when you can lose billions of people's money in half a second? Also if two people want to make the same trade, who gets it?

Exchanges do provide very limited special conditional execution instructions such as peg orders or stop orders, but it seems like a hard problem for them to support anything more sophisticated and general.

Re: Thoughts on low latency trading if exchanges went full cloud

#27

Post by minimax »

> The NYSE runs out of a public data centre (called NY4) which is run by Equinix.

No. NY4 is in Secaucus. NYSE operates out of an ICE (NYSE parent co) owned facility in Mahwah about 25 miles north of there. They managed to pick out the one big US equities exchange operator _not_ running in an equinix facility.

Sorry but this whole post sounds like someone who is sort of HFT adjacent but doesn't really know what they are talking about. Sending orders at "09:29:59.9999971 at the hope your order arrives at 100ns past 9.30am." What?

Re: Thoughts on low latency trading if exchanges went full cloud

#28

Post by sparsely »

Tesl wrote: post #16
jstsch wrote: post #10

Nice article. Wondering though why trading is not done in discrete batches, e.g. 5 second intervals? Trades in the same interval get filled equally or stochastically? Info about trades with that same 5 second batch delay? Is there some (theoretical) market efficiency thing at play? All this HFT feels wasteful and bad for 'regular' human investors.

This is how the Taiwan exchange used to do matching, and I still think it's the best system I've seen. I don't think the reason has anything to do with price discovery, it's just because exchanges want to maximise their trading fees. Continuous order book trading leads to more trades and hence more profit for the exchange.

They also charge differently (extortionately, some might say) for different speeds of data feed, although I'm not sure if they have tiers just for HFTs.

Re: Thoughts on low latency trading if exchanges went full cloud

#29

Post by yafetn »

pas wrote: post #9

... is there some movement toward "upload the strategy and let the exchange run it"? which would provide a more level playing field, reduce energy and hardware costs, etc?

I wonder if that’d make them a broker and not an exchange. Different set of rules, regulations, and licenses.

Re: Thoughts on low latency trading if exchanges went full cloud

#30

Post by checker659 »

re-thc wrote: post #21
KiranRao0 wrote: post #5

One key consideration is “provable fairness”. It’s my understanding that exchanges use techniques like long, same length fiber optic cables to all racks within the exchange datacenter to convince customers that everyone is on a fair playing field. This is a lot harder to do when a server is virtualized somewhere on some rack on EC2. Exactly as mentioned, people will try to optimize by spinning up/down instances as cl…

> This is a lot harder to do when a server is virtualized somewhere on some rack on EC2. There are bare metal EC2 instances.

It's about the interconnect and the proximity.
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