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Thoughts on low latency trading if exchanges went full cloud

blog.abctaylor.com

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

#51

Post by bloak »

IshKebab wrote: post #24
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...

> 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.

You mean you can never completely eliminate the advantage? But mostly eliminating it might still be useful?

Suppose the rule is that if you get your request in by 01:23:45 then it gets handled in the following 5-second period and the response is sent out at 01:23:50. Does someone (A) who finalises their request at 01:23:44.9999 and gets the result back at 01:23:50.0001 have an advantage over someone else (B) who has to finalise their request by 01:23:44.8 and gets their result back at 01:23:50.2? Yes, certainly, but it doesn't seem to be much of an advantage ... So person A can take account of exciting news that arrives at 01:23:44.9, while person B can't, true, but when it comes to reacting to other trades, person A has 4.9998 seconds to think about the news, while person B has 4.6 seconds to think about it, which doesn't seem like a huge difference. Compared to how things work today.

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

#52

Post by allenrb »

Fun thought exercise, thanks! My question is, what advantage would a large exchange find in moving to cloud? They’ve already got the personnel capable of managing their environment. They’re not a rapidly-growing startup in need of flexibility. They’re large enough to get at least decent deals purchasing gear. “The cloud” will naturally expect to make a profit on the deal, which likely eats up (and then some) any savings which might otherwise be delivered.

I “get” cloud in a lot of circumstances but it doesn’t seem to make much sense here.

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

#53

Post by pclmulqdq »

KiranRao0 wrote: post #6
pclmulqdq wrote: post #4

Earlier quoted context omitted.

There are cloud FPGAs, but they are offered as a compute accelerators, and have no access to the network. Trading FPGAs need network access for latency.

Im also sure that if theres enough customer demand (from people willing to spend $M), AWS will make network connected FPGA happen.

I'm sure they won't, at least without a lot of development. FPGA networking used for trading is borderline abusive of networking protocols, and I assume that Amazon doesn't want that on their production network.

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

#54

Post by posnet »

The biggest current limitation with cloud providers when it comes to exchange tech is the lack of real multicast support. It is rare outside of exchanges, but extremely low latency L1 multicast market data has become the backbone of exchanges, both for fairness and for scalability.

Knowing you can saturate your entire network with 10G traffic and every participant will get the same market data packets at the same time[0], and there will be zero queuing or bottlenecks is very hard to do otherwise. There is a pretty good podcast episode about it out of Jane Street[1].

I know AWS have 'multicast support' but last time I tested it, it was clearly just uni-cast traffic with a software switch doing fan-out/copying, I assume using the same tech as their transit gateway, I think it was called hyperplane or something.

[0]: for some definition of the same time, at least low enough that you can't measure it without equidistant optical splitters or White Rabbit synced devices.

[1]: https://signalsandthreads.com/multicast-and-the-markets/

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

#56

Post by dusted »

Showing that I don't understand economics while also telling that I don't understand economics: It would probably do the world more good to tweak the structures making ULL trading profitable anyway, it's not like the trading in and of itself brings any value to the broader world, while consuming enormous amounts of resources that could have been spent on actually improving systems that create real value.

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

#57

Post by pas »

dchftcs wrote: post #26
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.

It doesn't have to be arbitrary machine code. eBPF / WASM coupled with a standard library supplied by the exchange. (Plus the exchange can run it in a VM.)

> Also if two people want to make the same trade, who gets it?

Whoever pays more currently, right? So it can be uniform random and folks can pay for better than random chance, etc.

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

#58

Post by Shrezzing »

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.

At some point, someone has the shortest route connecting to the exchange's bare metal EC2 instance, and that organisation has a significant advantage in high frequency trading.

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

#59

Post by secondcoming »

posnet wrote: post #54

The biggest current limitation with cloud providers when it comes to exchange tech is the lack of real multicast support. It is rare outside of exchanges, but extremely low latency L1 multicast market data has become the backbone of exchanges, both for fairness and for scalability. Knowing you can saturate your entire network with 10G traffic and every participant will get the same market data packets at the same tim…

> lack of real multicast support

Yup, this is a problem for us in GCP today even outside of trading. I don't know how Pub/Sub works for them.

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

#60

Post by cosmic_quanta »

dusted wrote: post #56

Showing that I don't understand economics while also telling that I don't understand economics: It would probably do the world more good to tweak the structures making ULL trading profitable anyway, it's not like the trading in and of itself brings any value to the broader world, while consuming enormous amounts of resources that could have been spent on actually improving systems that create real value.

> it's not like the trading in and of itself brings any value to the broader world

This is a common sentiment, but the reality is that increasing market participation is good for everyone. Yes, even retirement funds benefit from the presence of market-makers. Liquid markets allow for better price discovery and cheaper transaction costs.

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