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

#251

Post by spenczar5 » Fri, Aug 02, 2019, 2:41 PM UTC

jodrellblank wrote: post #248

WanderPanda wrote: post #124

Earlier quoted context omitted.

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

If it's unbiased, that's the same as saying it's random? If it leads towards efficiency, productivity, most beneficial allocation, as suggested, those are all biases.

An unbiased estimator is a technical term. It means that its errors in estimation are equally distributed above and below the true value.

Edit to add: I am not sure GP was using the term accurately, either.

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

#252

Post by eyeundersand » Fri, Aug 02, 2019, 2:44 PM UTC

justinjlynn wrote: post #228

1123581321 wrote: post #206

Earlier quoted context omitted.

In a perfect market, there would be no economic profit. Your entire comment is very interesting; sorry for the short response!

No worries at all. I know it's an extremely long comment on a comment on an article - thanks for reading it. On further thought, the conjecture's behavioural outcome is actually not quite so analogous to 'salami slicing' as it is analogous to monetary policy caused inflation. In effect, the amplification effect would serve to create profit by creating an apparent valuable trade where none actually exists - such trade…

I'm an Econ grad student currently not paying attention in a Maths class (something about the Implicit Function Theorem) and I'm absolutely intrigued by your two comments. Kudos.

Also, to sidetrack a little bit, may I ask how long it took you to gather these thoughts and post them? I'm trying to get a sense of how far along I am about gaining a holistic understanding of markets and trading.

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

#253

Post by trophycase » Fri, Aug 02, 2019, 2:45 PM UTC

growse wrote: post #196

pedrocr wrote: post #194

Earlier quoted context omitted.

I very seriously doubt you'd lose any of those benefits by just trading on 10 second or even 1 minute increments. Everyone has a bunch of time to submit orders, the auction is ran, and then everyone gets the result back. I'd really like to see a use case in any of those real-world markets for pricing with sub-second granularity. It seems much more likely that trading on sub-second granularity is just extracting money…

All that'd happen if you did that would be to increase the risk of any market maker having the wrong price at execution time (they have less data to make an informed price discovery), so you'd get wider spreads to compensate. Wider spreads just makes it more expensive for everyone. Personally, I'd like my pension money going towards the actual investment rather than paying for a wider spread, but I'm just strange.

If you're holding for a pension, wouldn't a wider spread affect you less than any single other market participant? Like a 1 cent different due to spread isn't going to matter in 30 years?

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

#254

Post by Matumio » Fri, Aug 02, 2019, 2:48 PM UTC

growse wrote: post #196

pedrocr wrote: post #194

Earlier quoted context omitted.

I very seriously doubt you'd lose any of those benefits by just trading on 10 second or even 1 minute increments. Everyone has a bunch of time to submit orders, the auction is ran, and then everyone gets the result back. I'd really like to see a use case in any of those real-world markets for pricing with sub-second granularity. It seems much more likely that trading on sub-second granularity is just extracting money…

All that'd happen if you did that would be to increase the risk of any market maker having the wrong price at execution time (they have less data to make an informed price discovery), so you'd get wider spreads to compensate. Wider spreads just makes it more expensive for everyone. Personally, I'd like my pension money going towards the actual investment rather than paying for a wider spread, but I'm just strange.

I don't know. Building and running fast trading systems sure creates more work and requires additional infrastructure and energy. So many smart people must be busy doing that, instead of something else. Do I understand this correctly: the alternative is that somebody else would randomly pocket this money, without working for it? Doesn't sound so bad to me. A bit less fair, but more human lifetime would be available to work on other problems.

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

#255

Post by eyeundersand » Fri, Aug 02, 2019, 2:49 PM UTC

spenczar5 wrote: post #251

jodrellblank wrote: post #248

Earlier quoted context omitted.

If it's unbiased, that's the same as saying it's random? If it leads towards efficiency, productivity, most beneficial allocation, as suggested, those are all biases.

An unbiased estimator is a technical term. It means that its errors in estimation are equally distributed above and below the true value. Edit to add: I am not sure GP was using the term accurately, either.

I second this.

An issue I have found with technical minutiae having,for lack of a better term, general names is that they are prone to being used wrong. And once a critical mass of persons start using it wrongly, there's no going back.

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

#256

Post by TheCoelacanth » Fri, Aug 02, 2019, 2:55 PM UTC

saberdancer wrote: post #89

habnds wrote: post #78

Earlier quoted context omitted.

people aren't mad only because tons of money is made on hft. It's also because money is _wasterd_ on hft. That's $100 million dollars spent on something that has 0 use to society. It's just rich people playing weird games. Think about the social benefits of $100 million invested in nyc transit infrastructure. The economy's incentive structure is broken and this is a prime example.

Those 100m are not destroyed by burning them in an HFT furnace but rather used to pay developers, hardware, factory workers etc. Sure, it's not going directly into infrastructure but it is not lost. In fact, it's quite possible that if it wasn't invested into HFT it would be held as cash by the company or paid out as a dividend (which is fine as well).

Broken window fallacy. The work those people are doing could be used for something else, so if they are doing something useless, it is a waste.

If having people work on something useless was beneficial, you could just pay them to dig holes in the ground and fill them up again.

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

#257

Post by dcolkitt » Fri, Aug 02, 2019, 2:57 PM UTC

codetrotter wrote: post #152

grenoire wrote: post #144

Earlier quoted context omitted.

We know, empirically, that a lack of liquidity increases trading costs, which in turn is directly channeled to the prices of goods and services that rely on this liquidity (more or less everything in the world, even more indirectly ones like education). It's difficult to say 'things would be X% more expensive' because of the interconnected complexity the GP was talking about, but there is definitely a very apparent b…

> a lack of liquidity increases trading costs Sure but, does a couple of milliseconds to or from affect that?

Yes, and I'll tell you exactly why. Markets consist of informed and uninformed traders.

For example your typical Joe Sixpack rebalancing his 401k is uninformed. His trading does not tell you anything about the underlying value of the stocks. The typical informed trader is a hedge fund manager, who's investing tons of resources in gaining an informational edge. If he's buying a stock at a particular time that is in and of itself a signal that said stock is worth more than you thought it was otherwise.

Liquidity providers love trading with uninformed traders. The problem with informed traders is that you don't want to be on the other side of their trades. Since liquidity providers are the immediate counterparties to most order flow, they're the ones that primarily eat this cost.

To counter this, liquidity providers invest enormous resources in profiling order flow to try to identify when to what degree its informed. This allows them to provide lower costs and more liquidity to uninformed traders, like Joe Sixpack. It's analogous to how requiring a checkup allows life insurance companies to provide lower premiums, particularly to those who are healthy.

One of the most important ways to profile order flow is to quickly adjust quotes as market conditions evolve. For example said hedge fund manager may be trading a thesis that the chipmakers are all undervalued. He may come in and buy Intel, AMD and Nvidia in one swoop. If an HFT sees a huge buy hit Intel, it can bump its quotes on AMD for a few milliseconds.

If its a cigar-chomping hedge fund manager executing a basket algorithm, it's quite likely that he'll try to hit AMD and thus pay the higher price. But if its Joe Sixpack the probability that his trade just coincidentally lands in a 5 millisecond time window is vanishingly small.

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

#258

Post by nathan_long » Fri, Aug 02, 2019, 2:59 PM UTC

goatinaboat wrote: post #173

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…

Pretty much everything at sub-second resolution is pointless. Some people think so, but the truth is you will simply shift the competition from “as fast as possible” to “within as few picoseconds after exactly one second” or whatever the limit is.

Unless you add random delays to each trade.

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

#259

Post by jcranberry » Fri, Aug 02, 2019, 3:02 PM UTC

merpnderp wrote: post #235

bodyfour wrote: post #154

Earlier quoted context omitted.

I think the question is at what point does liquidity have diminishing returns? If a security could only be traded once per 10 years then it's obvious that its lack of liquidity would make it less valuable. Holding it would tie up your capital quite significantly. However, if you had a turn-based market where every trade got cleared at the top of the minute it's not clear to me at all whether that would effectively be…

A turn based system seems like a horrible idea. First the major players would have a legitimate excuse to make sure their trades were first in the queue. Second they would immediately game this so that everyone in the line behind them had to watch as they triggered market changes one minute they were then in a perfect position to take advantage of the next minute.

Wouldn't that be blatant market manipulation? The SEC would fine the hell out of anyone who did that.

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

#260

Post by dna_polymerase » Fri, Aug 02, 2019, 3:03 PM UTC

Jolter wrote: post #141

dna_polymerase wrote: post #106

Earlier quoted context omitted.

But why? Who is the victim here?

Who pays the $100M? Yes, the customer of the bank, of course. Which usually means you and me are paying in the end.

You are a client of Goldman Sachs? I think you won't worry about a share of $100M then.