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Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

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Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#41

Post by [deleted] »

harryh wrote: post #15
darawk wrote: post #14

Earlier quoted context omitted.

Renaissance is not that type of hft firm. Renaissance uses algorithms to predict price movements before they happen. The type of hft this system is designed to prevent is front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives. Those types of hft firms are surely eating into Renaissance's profits in a big way.

It's worth nothing that eating into Renaissance's profits in this way is good for everyone else because it means that accurate prices are reaching the market faster.

[deleted]

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#42

Post by pgwhalen »

nsedlet wrote: post #37
dsl wrote: post #28

Earlier quoted context omitted.

Front running is seeing your friend looking at a car on craigslist, buying it, and then selling it to him. Renaissance is using satellites to monitor retail store foot traffic to predict quarterly earnings. (both as hypothetical examples)

Are you saying front-running is not an HFT strategy? Because that is incorrect. In equities markets, for trades of a sufficient size it's not possible to place the order all at once. You'll hammer the order book, and take very suboptimal pricing for the latest marginal shares you buy/sell. Therefore you have to split up the order into chunks. HFT firms will try to detect when equities traders are doing this. e.g. If…

>Are you saying front-running is not an HFT strategy? Because that is incorrect.

I think dsl is quite familiar with the sort of HFT strategy you describe. I think s/he is just trying to correct your use of the term front-running, which was redefined by Michael Lewis et al. from its previous definition as the objectively illegal activity by a broker-dealer. Based on comments like yours, it's a losing battle.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#44

Post by pgwhalen »

kasey_junk wrote: post #32
dsl wrote: post #28

Earlier quoted context omitted.

Front running is seeing your friend looking at a car on craigslist, buying it, and then selling it to him. Renaissance is using satellites to monitor retail store foot traffic to predict quarterly earnings. (both as hypothetical examples)

Actually front running is your car broker buying the car after you told them you want it... But I'm no longer willing to fight the front-running term fight anymore. It will just have to be like my fight against the mainstream use of hacker.

I think dsl's understanding is pretty good actually; the metaphor breaks down a bit with car buying. It's clearly better than nsedlet's definition.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#45

Post by jwatte »

An exchange could work just as well and provide just as much liquidity if it accepted sealed bids into a queue for one minute, then settled and showed the full queue, while accepting sealed bids for the next minute. HFT would no longer be a thing, and everyone would trade on more equal footing.

("One minute" is a guess. Could be right interval is 20 seconds or ten minutes or whatever... But needs to be slow enough to allow full dissemination and reasonable time for sealed bids.)

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#48

Post by yummyfajitas »

darawk wrote: post #14
nsedlet wrote: post #10

A few weird things stand out to me: (1) Renaissance is super secretive. If they want to use this strategy to make money, a patent reveals to competitors what they're doing and creates more issues than it seems to resolve. (2) Renaissance is an HFT firm. Why are they interested in thwarting HFT? (3) This really isn't that fancy an idea. It's fairly general: send orders ahead to co-located servers to be executed at spe…

Renaissance is not that type of hft firm. Renaissance uses algorithms to predict price movements before they happen. The type of hft this system is designed to prevent is front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives. Those types of hft firms are surely eating into Renaissance's profits in a big way.

What you are describing is an acausal (i.e. physically impossible, since cause effect happens before cause) version of demand anticipation - changing prices in response to market demand.

It's impossible because the HFT will only know your order has reached exchange A after exchange A has told him about it. Obviously A can't tell him about it until after your order has arrived.

Front running is a strategy where your broker sees your order, trades ahead of it, and then routes your order to the market. It's highly illegal.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#49

Post by kasey_junk »

jwatte wrote: post #45

An exchange could work just as well and provide just as much liquidity if it accepted sealed bids into a queue for one minute, then settled and showed the full queue, while accepting sealed bids for the next minute. HFT would no longer be a thing, and everyone would trade on more equal footing. ("One minute" is a guess. Could be right interval is 20 seconds or ten minutes or whatever... But needs to be slow enough to…

And how would that exchange handle tie breakers? Also what about cross exchange arb?

You'll probably be interested in reading Eric Budish.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#50

Post by pgwhalen »

kasey_junk wrote: post #25
dsl wrote: post #21

Earlier quoted context omitted.

They don't care about "target markets" or what anyone else thinks. This technology is to protect their own trades. The goal is to be able to execute buys across multiple exchanges (because the orders are so large) without other high frequency firms being able to see a trade on one exchange, then buy and resell stock to them at a higher price on another exchange.

> without other high frequency firms being able to see a trade on one exchange, then buy and resell stock to them at a higher price on another exchange This is a pretty common misconception of how latency arbitrage works. In reality the other HFT are not buying/selling new orders. Instead what they are doing is cancelling or modifying their existing orders so that they don't get hit by incoming orders. HFT firms can…

Great clarification. HFTs have short holding times for securities, but they're not typically in and out of trades in a handful of microseconds.
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