How to lose $172,222 a second for 45 minutes • Hacker News Board

Re: How to lose $172,222 a second for 45 minutes

#201

Post by ryporter » Tue, Oct 22, 2013, 5:41 PM UTC

dmak wrote: post #175

ryporter wrote: post #101

Earlier quoted context omitted.

I work for a small automated trading firm (in foreign exchange), and marking positions to market is one of the difficulties in designing an effective kill switch, because these marks can easily make the difference between a large gain and a large loss. In fast-moving markets (which is when a kill switch is most useful), it's very hard to determine the true mid-market rate. Our system of course always has such a notio…

What kind of technology stack are you guys using? Also, is your system constantly being improved to detect these things or was it just a onetime setup kind of thing?

Our trading system is purely in C++.

This particular subsystem was a replacement for a previous version, which was a kill switch and had led to opportunity costs. We spent a lot of time designing, implementing, and testing it, but haven't felt the need to touch it since then. It's sufficiently general that it doesn't need to be adapted as our strategies change, and it doesn't need to adapt to changing market conditions (as, e.g., a trading strategy does).

Re: How to lose $172,222 a second for 45 minutes

#202

Post by kylebrown » Tue, Oct 22, 2013, 5:47 PM UTC

hderms wrote: post #164

koliber wrote: post #143

Earlier quoted context omitted.

A lot of the HFT high-frequencyness comes from lots of orders beng sent to market. Only a very small number of these orders result in transactions. A transaction fee would not affect most of the order flow which never gets executed.

there should be a small tax per order put out, even if cancelled and a small percentage-based tax on each trade. If that behavior has been determined to exacerbate price declines that externality should be captured in a tax and de-incentivized properly.

Ripple works this way, a fraction of an XRP is charged as a fee for each transaction (posting and cancelling offers). As a decentralized bid/ask ledger protocol, the fee is needed to prevent tx spam and DoS attacks.

Re: How to lose $172,222 a second for 45 minutes

#203

Post by Jtsummers » Tue, Oct 22, 2013, 5:53 PM UTC

Jochim wrote: post #198

Jtsummers wrote: post #142

Earlier quoted context omitted.

Having worked in the aerospace side of software dev, I'd actually be cool with this. Outside of software, real engineers have real liability when their systems fail [1]. PEs [2] are held accountable in most countries that license engineers when they sign off on things that should not have been signed off on. Too many people on the software side, even in safety critical systems, play fast and loose with the "engineeri…

But the way in which 'real world' engineering is treated by companies is extremely different to that of software engineering. A structural engineer tells you that your mega-bridge is going to take another 2 years to build safely and you eat up the cost, a software engineer tells you they need another 2 years to make sure your program will work reliably and you tell them they have 6 months. It would be nice to see str…

Correct, you can't declare language use as a requirement in the same way as material. Check out DO-178C, it doesn't do that. It requires artefacts and processes to be in place so that when the system is done, if done right, you have a high degree of confidence that written in C or Haskell or OCaml or Fortran that it was designed and tested well, and consequently that errors are minimized or by design their impact is mitigated.

And this brings us back to licensure, if we had a PE category for this sort of software engineering, where people really staked their livelihood on what they signed off on, these sorts of processes might be taken seriously. So when you're told, after giving a 2 year estimate, that you have 6 months, you can honestly reply: I cannot do that. And have a body to point to to back you up in your decision when you get fired and they hire on a less reputable "engineer".

Re: How to lose $172,222 a second for 45 minutes

#204

Post by kylebrown » Tue, Oct 22, 2013, 5:54 PM UTC

ansible wrote: post #197

vecter wrote: post #92

Earlier quoted context omitted.

I really hate to go down this road because it's been rehashed thousands of times on Hacker News, but high frequency traders add value to the market by adding liquidity (and therefore reducing spreads --> cost to you for executing) and price discovery.

I really hate to go down this road because it's been rehashed thousands of times on Hacker News... And I've yet to see a convincing argument that HFT is of any benefit to anyone else other than themselves. At the most basic level, HFT firms make money, right? Otherwise they wouldn't be doing this. Where does this money come from? Entities that are holding these same stocks for longer periods of time. It increases the…

HFT profits come from the money that the specialists/dealers used to make. They were the guys standing at the podiums quoting bid/ask prices all day.

Re: How to lose $172,222 a second for 45 minutes

#205

Post by breischl » Tue, Oct 22, 2013, 6:21 PM UTC

vidarh wrote: post #113

strongvigilance wrote: post #108

Earlier quoted context omitted.

Why have a limit on how close people can be to the exchange? For one thing, everyone would just colo at exactly the minimum distance, achieving nothing. For another, ability to colo is not really an issue. If you wanted to create an HFT startup, colo is not going to be a major cost compared to hiring developers.

A limit on distance is in effect a speed limit. It means anyone that is able to reach the limit has a shot at competing. Whether that is good or not, or makes a difference or not is another discussion, but you can certainly affect the competitive situation massively that way.

But they're not really competing on the absolute scale of how fast they can execute a trade, but rather on how much faster than everyone else they can execute. If everyone else is slowed by an equal amount, the game doesn't change at all.

Re: How to lose $172,222 a second for 45 minutes

#206

Post by fnordfnordfnord » Tue, Oct 22, 2013, 6:26 PM UTC

levosmetalo wrote: post #136

scrrr wrote: post #87

High Frequency Trading seems so abstract. There's no value created, it seems. It's like something in between imperfect systems, scraping off the margin created by that imperfection. It's fascinating, and interesting from an algorithmic point of view (like a computer game), but at the same time I don't feel sympathy for this company going out of business.

I would support idea to just price every transaction with a 0.0001% transaction fee. It should be enough to bring the whole HFT industry out of business while not having any impact on markets themselves.

They need to do something about quote spamming too. http://www.floatingpath.com/2013/10/05/hft-shenanigans-fmi-q...

Re: How to lose $172,222 a second for 45 minutes

#207

Post by sitkack » Tue, Oct 22, 2013, 7:07 PM UTC

Dead code takes down another system. A perfect storm of failures that they made themselves. My gut feeling is that most trading firms could suffer a similar loss. Having worked for a 3rd party accounting management firm that kept logs for smaller traders I really realized how borked the whole system is. 60s era pen and paper stuff moving at the speed of light.

> Sadly, the primary cause was found to be a piece of software which had been retained from the previous launchers systems and which was not required during the flight of Ariane 5.

http://www.vuw.ac.nz/staff/stephen_marshall/SE/Failures/SE_A...

Re: How to lose $172,222 a second for 45 minutes

#208

Post by fnordfnordfnord » Tue, Oct 22, 2013, 7:10 PM UTC

manishsharan wrote: post #33

Don't humans also make similar large scale mistakes? Merill Lynch's infamous London whale comes to mind. Also. I could be wrong but aren't most of derivatives a zero sum game: don't I have to lose money on my puts for you to make money on your calls ? Didn't so many people lose money on securities because they misunderstood their exposure ? The Knight computer error was spectacular and catastrophic but us humans have…

Bruno Iskill is just the scapegoat (of JP Morgan Chase).

Re: How to lose $172,222 a second for 45 minutes

#209

Post by andylei » Tue, Oct 22, 2013, 7:35 PM UTC

confluence wrote: post #132

nandemo wrote: post #123

Earlier quoted context omitted.

What is that definition of adding liquidity that doesn't include "tightening the spread"?

Just because you lowered my home loan fees while the sun shone, doesn't mean that you'll be there when winter comes and the shit hits the fan. Liquidity is always there. Until it ain't.

what's the alternative? are specialists offering liquidity in markets that HFTs aren't?

Re: How to lose $172,222 a second for 45 minutes

#210

Post by andylei » Tue, Oct 22, 2013, 7:36 PM UTC

corresation wrote: post #155

scrrr wrote: post #87

High Frequency Trading seems so abstract. There's no value created, it seems. It's like something in between imperfect systems, scraping off the margin created by that imperfection. It's fascinating, and interesting from an algorithmic point of view (like a computer game), but at the same time I don't feel sympathy for this company going out of business.

How is that related to this story, however? This story is not about HFT -- unless I'm misreading or misunderstanding -- but instead about bog-standard retail order fulfillment. The fulfillment process had a bug that repeatedly kept filling the same orders repeatedly, leading to this issue.

its not. people just like talking about HFT