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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

#91

Post by polskibus »

Johnie wrote: post #90
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…

Think about it this way. They are publicly advertising to their investors that they have a weapon to defeat HFT. Because of this, they will get better returns. When an investor decides to put their money in a fund, are they going to choose the one that has a patented defense against HFT or will that investor put their money into a fund that has a known vulnerability? >It's fairly general: send orders ahead to co-loca…

A hedge fund with track record of Reinessance Technologies does not have to advertise to investors in any way. They just choose not to raise more capital because in some ways they are unable to push it to such returns (when you are too big, you can't move as quickly without moving the market against you).

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

#92

Post by Rainymood »

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.

>good for everyone else

Except for those who have their pensions stored in Renaissance's own pension fund, hah!

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

#93

Post by abpavel »

toast0 wrote: post #52
dahdum wrote: post #3

Its invention, developed by the firm’s co-chief executive officers, Robert Mercer and Peter Brown, first sends an order to a central server, which breaks it up into multiple smaller orders. Those are then routed to venues that offer the best prices and most liquidity, much the same as brokers do now. But before that happens, the smaller orders are sent to servers located as close to the exchanges as possible, along w…

I don't know why you need a great clock either, if you have stable, symmetric network paths from a central location to all your servers colocated at exchanges, you can predict the delay between sending from the server and getting to the exchange, you can split your order and send it to the various exchanges with appropriate delays and know that everything will arrive at the same time. If you're wrong, it's going to s…

Network delay variance over distances is much greater than the timescales at which HFTs function. That's why HFT equipment is always so close to the exchange itself.

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

#94

Post by eru »

Johnie wrote: post #76

This reminds me of how Google uses atomic clock and GPS for Spanner [1] Google: "“We can commit data at two different locations — say the West Coast [of the United States] and Europe — and still have some agreed upon ordering between them,” Fikes says, “So, if the West Coast write happens first and then the one in Europe happens, the whole system knows that — and there’s no possibility of them being viewed in a diffe…

The whole scheme was already alluded to in Lamport's original paper. (Look for whenever he mentions `physical'.)

http://research.microsoft.com/en-us/um/people/lamport/pubs/t...

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

#95

Post by Dylan16807 »

Lazare wrote: post #89
Dylan16807 wrote: post #82

Earlier quoted context omitted.

With that definition of "front running" people are doing the same interception as 'true' front runners, but they happen to be third parties. People are using the best available term, and making it slightly more general. What would you rather have them call it? They can't call it nothing. Just like people will call things "insider trading" when there is trading based on insider information, whether or not it happened…

That argument is a bit like calling all sex rape, because someone having sex is doing the same thing as a rapist does, they just happen to have consent. The reason front running is illegal is because it is a violation of a fiduciary duty. Third parties do not have a fiduciary duty, therefore it's not illegal. "It's front running, but without the violation of the fiduciary duty" is like "murder, but without the killin…

> The reason front running is illegal is because it is a violation of a fiduciary duty.

And nobody is calling this kind of "front running" illegal.

> like "murder, but without the killing someone", or "fraud, but without the deception".

In a murder analogy, you'd keep the killing but change something else, maybe it's properly manslaughter but people will still call you a murderer.

For "fraud without deception", let's look at what that entails. You lie. The victim knows you're lying, no deception involved, but they rely on your word. The victim is harmed. I think that's close enough to allow people to call it fraud, even if legally it's slightly different.

> "reacting to the public actions of other market participants"

The reason people dislike it is because it's not just 'reacting'. They're getting in their own action before the thing they're reacting to has finished.

> why don't you define it

Darawk defined this version for us. "front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives."

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

#96

Post by eru »

mortehu wrote: post #63
toast0 wrote: post #52

Earlier quoted context omitted.

I don't know why you need a great clock either, if you have stable, symmetric network paths from a central location to all your servers colocated at exchanges, you can predict the delay between sending from the server and getting to the exchange, you can split your order and send it to the various exchanges with appropriate delays and know that everything will arrive at the same time. If you're wrong, it's going to s…

That exact strategy is also mentioned in Flash Boys, in the form of THOR. https://en.wikipedia.org/wiki/THOR_(trading_platform)

Keep in mind that Flash Boys is not worth the paper it's printed on.

(See https://www.goodreads.com/book/show/23570025-flash-boys)

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

#97

Post by darawk »

Lazare wrote: post #57
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.

Front running is a serious crime, with clear definitions. What you are describing isn't front running (or even illegal).

Well, it is not illegal, that is correct. Whether or not it is 'front running' is a matter of debate.

It certainly seems to me that they are running out in front of the order. I'm not sure how exactly you might be contorting the meaning of 'front running' for this not to apply.

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

#98

Post by darawk »

andylei wrote: post #60
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.

this is what the term "front running" means: https://en.wikipedia.org/wiki/Front_running

I'm familiar with the legal definition. This behavior, however, is identical to it in spirit and moral character.

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

#99

Post by eru »

jwatte wrote: post #69
dietrichepp wrote: post #12

Earlier quoted context omitted.

Nanosecond differences are too small to take advantage of, that's only 30cm. My guess is that you'd be at least in (or close to) the microsecond range before you'd worry about HFT stepping in front of your orders. If you're hitting multiple exchanges, then you can take milliseconds and still be fine.

Microseconds are not enough, because the arbitrage works by the HFT setting the order in one place, and then rushing the arbitrage to the other place. As long as you're more coordinated than speed of light between the two locations, you're fine. Also, GPS clocks are cheap and precise, atomic clocks seem gold plating. (Which sometimes is actually necessary in electronics, BTW...)

GPS can fail. Atomic clocks give you a second system to fall back on.

At Google, we use both GPS and atomic clocks for Spanner.

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

#100

Post by ryporter »

dahdum wrote: post #3

Its invention, developed by the firm’s co-chief executive officers, Robert Mercer and Peter Brown, first sends an order to a central server, which breaks it up into multiple smaller orders. Those are then routed to venues that offer the best prices and most liquidity, much the same as brokers do now. But before that happens, the smaller orders are sent to servers located as close to the exchanges as possible, along w…

I agree. Atomic clocks are an implementation detail, and also overkill (at least during this decade). I've worked in HFT (albeit in forex, not stocks), and there are always internal delays within the exchange that you cannot predict with anywhere near the accuracy of an atomic clock. (Well, if you could, then that would be a true innovation.)

Hedge Funds don't patent strategies. They keep them as trade secrets. It would make more sense to me if this filing was part of an attempt to build a patent portfolio for defensive purposes, as tech companies do.

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