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

cnbc.com

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

#281

Post by gpderetta »

kortilla wrote: post #170
habnds wrote: post #118

Earlier quoted context omitted.

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

Faster networks. Arista exists because hft was a big target market and now everyone using networks with Arista switches in them has benefited.

SolarFlare as well. HFT shops have been early adopter of kernel bypass setups which now is becoming more common place.

On a related note, the architecture of something like ScyllaDB is very similar to some of the HFT systems I have seen.

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

#282

Post by gpderetta »

nathan_long wrote: post #258
goatinaboat wrote: post #173

Earlier quoted context omitted.

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.

Ad long as you can model the latency statistically people will still try to play the game. It will be much riskier of course, and I'm not sure why that would be a better outcome.

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

#283

Post by tjpaudio »

I really wish we would curb this kind of behavior. Even if this speed is related to the brokerage business and not HFT, it is unfair to retail investors that large businesses have better market access. My solution: exchanges are required by law to process contracts in pulses with strict execution ordering rules. E.g., every 15 seconds process all buy and sells, processing from highest bid and lowest ask first for each security. Basically a turn-based stock market.

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

#284

Post by m0rphling »

Tom Scott did a nice video [1] on IEX's setup with 38 miles of fiber to add enough latency as a mechanism of fairness. Purportedly, this benefits all exchanges after it was successfully deployed. It seems like the incentives are not there for larger, more established exchanges to implement such blanket latency. So, firms like GS see a benefit to this kind of investment.

[1] https://www.youtube.com/watch?v=d8BcCLLX4N4

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

#285

Post by HolyLampshade »

denormalfloat wrote: post #63
nickles wrote: post #37

Earlier quoted context omitted.

Adding to this, HFT is a product of rule 612 of Reg NMS (the sub-penny rule). Markets are not allowed to show quotes in increments of less than $0.01 for most names. Since traders cannot compete on price, they have been forced to compete exclusively on speed. The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increase…

Without having read the regulation, why don't institutional investor just make a private market place where they can trade for sub-penny values?

Usually it boils down to consolidation of liquidity. For the same reason there are well over 20 ATS venues but only a few are successful, ultimately new venues have difficulty naturally drawing resting order flow.

Market fragmentation aside, adding more price levels to set orders to disaggregates liquidity in the book, usually resulting in lower execution quantity (which increases your overall transaction costs if you’re trying to space trades out).

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

#286

Post by posterboy »

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 is an accurate description of the game theoretic argument.

It is not very precise about the premisses, "the market", "the reward" or "the critical products"--variables in a non-linear equation, so to speak, that do not necessarily have a unique solution, or no solution.

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

#287

Post by Matumio »

growse wrote: post #266
Matumio wrote: post #254

Earlier quoted context omitted.

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 t…

"If only all these smart people were curing cancer instead of designing trading systems!" Presumably you also object to academics working on entirely abstract problems? After all, they could be doing something else much more useful. Who gets to decide what the most useful allocation of resources is? > Do I understand this correctly: the alternative is that somebody else would randomly pocket this money, without worki…

> Presumably you also object to academics working on entirely abstract problems?

Yes I do. But at least there isn't a large monetary incentive to push people into it. They push themselves.

> After all, they could be doing something else much more useful.

I doubt it. Maybe.

> Who gets to decide what the most useful allocation of resources is?

Interesting question, but unrelated. We were discussing about the overhead versus benefits of high frequency trading. It's about the efficiency of the system itself, not about how to act within this system or where to direct the resources you get out of it. There is no conflict of values, I think.

My feeling is: it's an arms race. The profits that used to be randomly allocated are now either lost to you (if you decide not to participate in the race) or they are predictably spent on the race itself. Nobody wins, except those who enjoy the race for its own sake. Before that, someone was just winning randomly, and got to decide what to do with the profit.

Do those fast trades actually increase the overall efficiency of the system by more than their cost?

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

#288

Post by zjaffee »

jfengel wrote: post #219
seanhunter wrote: post #215

For what it's worth, I used to work for GS and was in the algorithmic brokerage business for 2009-2010. One thing a lot of commenters on this thread are missing here is this isn't the same as an HFT or hedge fund, this is the brokerage business - executing orders on behalf of GSs clients, who are largely institutional investors, hedge and pension funds etc. The real-world impact of increased speed of execution by bro…

Does GS do HFT itself? Is there a conflict of interest?

It depends on what you mean by HFT, if you mean prop trading, that was made illegal by Dodd Frank for large cap businesses to engage in with investor funds. If you mean market making HFT (which some prop firms also do), that's what this article is about.

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

#289

Post by Junk_Collector »

bumby wrote: post #244
Junk_Collector wrote: post #221

Earlier quoted context omitted.

I just have a nitpick with your analogy to feedback loops. Assuming the market can be said to have a Nyquist rate, then once you hit that you have all relevant information. Increasing the sample rate past Nyquist does not make a system more stable unless you have a very specific system designed specifically to take advantage of that. More typically, it just increases your noise-bandwidth product and can decrease tota…

I agree with your comment but am curious on how far this analogy goes. What do you suppose defines the Nyquist frequency in a market?

To stretch the analogy a little further, to take an observation of the market, you have to buy or sell which in turn affects the price. It's very much like the effect of measuring a quantum particle, the impact of a photon is enough to change to observation so you have an inherent uncertainty to everything. Because of this, I don't think you can ever distinguish between noise and meaningful trading with respect to a Nyquist limit in the market. If you tried to for instance, look at the price of all stocks over time and find the 2-D frequency function required to represent that, it is going to creep up based on your measurement rate. Another way to describe it might be that your observability and controllability vectors are not orthogonal.

This also skates around the issue of defining what a Nyquist rate of the market even means in real terms. But, if you want to use control theory to model the market, it's important to know that faster does not inherently mean more accurate. In the simple analogy, increasing trading frequency will improve measurement results, up to a point, after which it will actually likely result in decreasing accuracy.

I've also ignored the whole conflation of frequency and group delay in these analogies to keep things simpler as well.

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

#290

Post by Junk_Collector »

gpderetta wrote: post #275
Junk_Collector wrote: post #221

Earlier quoted context omitted.

I just have a nitpick with your analogy to feedback loops. Assuming the market can be said to have a Nyquist rate, then once you hit that you have all relevant information. Increasing the sample rate past Nyquist does not make a system more stable unless you have a very specific system designed specifically to take advantage of that. More typically, it just increases your noise-bandwidth product and can decrease tota…

The (global) market is the whole world itself. I very much doubt you can identify an useful Nyquist frequency.

I think if you could, you would have one of those fancy gold medals.
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