60 points | by throwaway20372 days ago
I think there is another angle to this where the modulation scheme makes a lot of the difference. If you figure out a way to send market information below the noise floor (i.e., spread spectrum schemes) how would anyone even know what you are doing?
If I was operating an HFT firm I would be all-in on the "ask for forgiveness, not for permission" angle, because the politics around my business are really nasty.
Securities are one of the few parts of the American economy regulated like a European sector. Complain-investigate regimes. Various agencies at multiple levels who can ban you from industry and fine you. The rational response is to turn risk tolerance down, not up.
> Our analysis of the TWSE’s transition clearly demonstrates that continuous trading results in better liquidity provision, lower bid-ask spreads, more stable prices and enhanced price discovery, as well as higher trading volumes.
If we consider the function of a market to be to arrive at prices that lead to the optimal allocation of the goods sold on that market, intuitively it would seem that there should be a limit on how fast trades need to propagate to achieve that, and the limit would be tied to how fast new information relevant to the producers and consumers of those goods comes out.
I don't think I'm expressing this well but the idea is that prices of goods should be tied to things that actually affect those goods. That's generally going to be real world news.
If you turn up trading speed much past the speed necessary to deal with that I'd expect that you could end up with the market reacting to itself. Kind of like when you turn an amplifier up to much and start getting distortion and even feedback.
Broadly speaking, yes. Turning down liquidity increases spreads which affects which sorts of companies are able to raise what sorts of capital in those markets.
The paradox of HFT is that it's much smaller and more efficient than the slower, manpower-heavy Wall Street industry it replaced. It's just weird, which makes it easy to demonise in popular politics.
Markets facilitate the buying and selling of securities, providing a regulated platform for companies to raise capital and for investors to trade assets based on supply and demand. Reducing spreads is optimal for everyone. Your making up some kind of pie in the sky idea of how markets should exist. The folks doing HFT or other type of flat at the end of day shops do not have the capital to move prices as much as you would like to think. Even if they did cause some large movement in the stock, there is a good chance there is a larger fish ready to take the other side.
If you have a bunch of orders at the same price on the same side, and an order comes in from the other side that crosses those orders (or there is an auction and there are orders on the other side which cross), how do you decide which of the resting orders at the same price should be filled first?
The most common way is that the first order to arrive at the exchange at that price gets filled first, and for that reason being fast is inherently advantageous.
Resting orders from previous batches could have priority, if you want. You'd probably end up doing something with assignment of equal priority orders that looks like option assignment, basically random selection of shares among the pool of orders.
Personally, I'd fill unconditional market orders first, then market all or nothing (if fillable), then sort limit orders by price and from within limit orders of the same price, unconditional first, then all or nothing, then all or nothing + fill or kill.
I don't know if I would assign shares proportional to orders or to shares in orders. Probably shares in orders. Might be gamed, but putting in a really big order because you want to capture a couple shares is risky.
You might get "games" around people oversizing orders to try to get more "weight" to their orders, but that would be inefficient behaviour that could in turn be exploited, so people would still be incentivised to keep their orders honest.
This is the sort of good idea that just entrenches the algos. (Former algorithmic derivatives trader.)
For small orders, these delays make no difference. For a big order, however, it could be disastrously embarassing. So now, instead of that fund's trader feeling comfortable directly submitting their trade using off-the-shelf execution algos, they'll route it to an HFT who can chunk it into itty bity orders diarrhea'd through to average out the randomness of those delays.
Sort by hash. Impossible to game unless you can break the hash function.
Retail rarely hits an exchange.
I have heard that some real-life venues have implemented the terrible version of this proposal instead though.
I'm with you. Every 30 seconds. Cap the power of connection speed in trading. Trading should be based on the value of the item being traded, not on how short the fiber run is.
What about an empirical argument? Microsecond trading reduces spreads and decreases volatility. It looks useless, so people try to regulate it away, and every time they do spreads widen and trading firms' and banks' profits fatten.
> Every 30 seconds. Cap the power of connection speed in trading
I'd go back to Wall Street if this happened: it would make market making profitable again.
We need to kill "front running" as a criticism of low-latency algo trding with fire. It's garbage.
Front running is highly illegal and is where a broker knows a client is going to do a big trade due to inside information and trades on the account of others (themselves, typically) to exploit that inside information. It's a straight up cheat.
Inferring from market data alone which way a price will move is legal, honest, been attempted since forever and absolutely fine. Also very, very difficult. Anyone who can do it makes the market more efficient, reduces the money available by doing it (which goes into investors pockets through tighter spreads) and really earns their money. You don't have to like them if you don't want to but it's worlds apart from front running using inside information.
Where did algo trading profit come from? Won by being more competitive from brokers profit with a good chunk of that broker profit going to investors. Spreads are tighter.
Where are the clients' yachts? Well tech did something about the some of the broker ripoffs earning their yachts - which puts money in your pocket.
Or put another way, how should we determine which orders are least likely to get filled?
You have ignored the whole issue of how are you then ordering those contracts in 30second batches?
The larger the time interval the larger the risk on pricing. If I am selling and it’s a large time to trade I am going to probably want to sell it for a higher price. The same goes on the bid.
HFT in My Backyard
Shortwave Trading | Part I | The West Chicago Tower Mystery
https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-tr...
SHORTWAVE TRADING | PART II | FAQ AND OTHER CHICAGO AREA SITES
https://sniperinmahwah.wordpress.com/2018/06/07/shortwave-tr...
It’s the only site I know of that has posts like it. Sadly, he hasn’t posted in awhile.
In a vacuum, electro-magnetic waves travel at a speed of 3.336 microseconds (μs) per kilometer (km). Through the air, that speed is a tiny fraction slower, clocking in at 3.337 μs per km, while through a fiber-optic cable it takes 4.937 μs to travel one kilometer – this means that microwave transport is actually 48% faster than fiber-optic, all other things being equal.
At those time scales, the difference is so large, it was incredible what they were willing to pay to build these networks!
If you take one of the routes in the article, Chicago to Sao Paulo.
The distance is about 8,400km in a straight line.
According to https://en.wikipedia.org/wiki/Skywave a single shortwave hop can reach 3,500km, so 3 hops are required, or about 30ms.
The shortest commercially available submarine cable between the US and Sao Paulo alone is significantly higher than that (almost double), and it comes out of the east coast, so you'd still have to factor in the latency between Chicago and New York.
Even specialized low latency networks that mix wireless and fiber will still have much higher latency than the radio.
The tradeoff is that shortwave radio has very little bandwidth so you're restricted to simple signals.
Microsoft bought a hollow optical fiber company for a reason.
The immediate allure of hollow-core fibers is that light travels through the air inside them at 300,000 km-per-second, 50 percent faster than the 200,000 km-per-second in solid glass, cutting latency in communications. Last year, euNetworks installed the world’s first commercial hollow-core cable from Lumenisity, a commercial spinoff of Southampton, to carry traffic to the London Stock Exchange. This year, Comcast installed a 40-km hybrid cable, including both hollow-core and solid-core fiber, in Philadelphia, the first in North America. Hollow-core fiber also looks good for delivering high laser power over longer distances for precision machining and other applications.Generally they want to build the datacentres close to metro areas, by using hollow core fibre the radius of where to place the data centres has essentially increased by 3/2. This significantly reduces land acquisition costs, and supposedly MS has already made back the acquisition cost for Lumenisity, through those savings.
You’re measuring which part of the economy pays math majors best. If I had to trace the centre of gravity of my top former colleagues, it was banks and hedge funds (never Jane); Uber; some leakage to crypto, they never recovered; now AI.
Skywave Networks accuses Wall Street titans of ‘continuous racketeering and conspiracy’
FT/Alphaville is blog attached to The Financial Times newspaper. It free to sign-up for an account.