4 ms·

I thought I'd submit this as it lays out in great detail just how badly the direct feed that the markets supply beat the SIP that is used to price the NBBO(Nati

I thought I'd submit this as it lays out in great detail just how badly the direct feed that the markets supply beat the SIP that is used to price the NBBO(National Best Bid/Offer). The reason this can be a problem is that many of the 40+ trading venues in the US are notified of changes from other venues via the SIP. That means there is a latency arb opportunity when a trade happens at one venue. This is especially an issue in dark pools who perform the bulk of their trades at the mid point. If you are a retail trader, I'll state with about 99% certainty that your trade is being filled in someone's dark pool. As a counter point to Nanex, check out Cliff Asness' notes. He founded AQR inside of Goldman Sachs and it became one of the first real power house quant funds. His writings are awesome! Or just read "The Quants" http://www.amazon.ca/The-Quants-Whizzes-Conquered-Destroyed/dp/0307453383 http://www.amazon.ca/The-Quants-Whizzes-Conquered-Destroyed/... as he's featured prominently in it. https://www.aqr.com/cliffs-perspective/ https://www.aqr.com/cliffs-perspective/

vasilipupkin 11y ago
the direct feeds from exchanges are available to everyone not just HFT firms, so this is a misleading headline
- beagle3 11y ago
  Indeed, but they are incredibly expensive; as in tens of thousands of dollars per exchange per month. I think that the outrage against HFTs is basically that they've raised to bar - if you want to have a chance of getting the good fills, you have to spends hundreds of thousands of dollars per month. Personally, I think that this outrage is misplaced. Playing field was never fair. The costs of playing are just clearer now. (And higher, thanks to HFT, yes - but they weren't low before HFTs; just opaque)
  - vasilipupkin 11y ago
    costs are lot lower than ever. Think about what you had to do before direct feeds and colocation. You had to have guys on the floor of the exchange. If you think paying them was cheaper than a direct feed, then you are wrong. Direct feeds cost money because....everything costs money. Exchanges are businesses, why should they give away their data for free ?
    - harmegido 11y ago
      Couldn't agree with you more. The question surrounding HFT should not be: "is this perfect?" , but instead should be: "is this better than before?". And also, I'd point out that it takes hundreds of thousands of dollars to start a bank as well. Do existing banks have an unfair advantage over prospective start-ups due to these barriers to entry? Of course, but that's pretty much how the world works everywhere. It's not specific to HFT.
    - beagle3 11y ago
      > costs are lot lower than ever. Depends on your time frame. Back in 2005 or so (until NASDAQ bought INET), you could get everything INET for ~$1000/month, and be on par with the big guys (as far as INET was concerned). And practically overnight after NASDAQ bought them, the price went up to ~$6000 (for exactly the same service). And HFTs are (at least partially) to blame - they all used INET, raising the volume there significantly, which got NASDAQ scared, rushed to buy INET, and jack up the price to pay for it (and because now, monopolizing the nasdaq trades again, they could). Also back in 2005, Eurex did NOT have a fast feed, only a slow one (updating twice a second, if memory serves me right, and fitting on a 512Kb line). And it cost just a couple of hundred dollars to get above infrastructure costs (dedicated line, data providers, trading systems, etc). Then the fast feed came, and it costs thousands of dollars per month (in addition to infrastructure). And it came because of the HFTs. Costs are lower than ever in the sense that slow data is cheaper than it was, and fast data is cheaper than it was. However, costs are not at all lower than ever in the sense that in 2000 to ~2006, you could be on par with the most sophisticated players for much cheaper than you can today. > You had to have guys on the floor of the exchange. If you think paying them was cheaper than a direct feed, then you are wrong. Although the floors still dominated in the early 2000s, you only needed to trade them if you traded huge blocks. Smaller blocks worked perfectly well (and more efficiently, and with much better price discovery) on the electronic exchanges. How far back are you thinking of? > Direct feeds cost money because....everything costs money. Exchanges are businesses, why should they give away their data for free ? They shouldn't. Some people (me not among them) think it's unfair that to get that data completely and timely is so expensive. Personally, I think the unfairness runs so much deeper that it makes no difference. And I also think that expectations of fairness are also misguided. As you mentioned, the exchanges are businesses - they are in business of making money, not of being fair. Unfortunately, most people are blind to that.
lordnacho 11y ago
--That means there is a latency arb opportunity when a trade happens at one venue. This is in fact the business proposition of a whole number of markets, vis-a-vis the HFT firms. If you didn't know this you might have wondered how on earth they get people to cross at midpoint.

vasilipupkin 11y ago

the direct feeds from exchanges are available to everyone not just HFT firms, so this is a misleading headline

beagle3 11y ago
Indeed, but they are incredibly expensive; as in tens of thousands of dollars per exchange per month. I think that the outrage against HFTs is basically that they've raised to bar - if you want to have a chance of getting the good fills, you have to spends hundreds of thousands of dollars per month. Personally, I think that this outrage is misplaced. Playing field was never fair. The costs of playing are just clearer now. (And higher, thanks to HFT, yes - but they weren't low before HFTs; just opaque)
- vasilipupkin 11y ago
  costs are lot lower than ever. Think about what you had to do before direct feeds and colocation. You had to have guys on the floor of the exchange. If you think paying them was cheaper than a direct feed, then you are wrong. Direct feeds cost money because....everything costs money. Exchanges are businesses, why should they give away their data for free ?
  - harmegido 11y ago
    Couldn't agree with you more. The question surrounding HFT should not be: "is this perfect?" , but instead should be: "is this better than before?". And also, I'd point out that it takes hundreds of thousands of dollars to start a bank as well. Do existing banks have an unfair advantage over prospective start-ups due to these barriers to entry? Of course, but that's pretty much how the world works everywhere. It's not specific to HFT.
  - beagle3 11y ago
    > costs are lot lower than ever. Depends on your time frame. Back in 2005 or so (until NASDAQ bought INET), you could get everything INET for ~$1000/month, and be on par with the big guys (as far as INET was concerned). And practically overnight after NASDAQ bought them, the price went up to ~$6000 (for exactly the same service). And HFTs are (at least partially) to blame - they all used INET, raising the volume there significantly, which got NASDAQ scared, rushed to buy INET, and jack up the price to pay for it (and because now, monopolizing the nasdaq trades again, they could). Also back in 2005, Eurex did NOT have a fast feed, only a slow one (updating twice a second, if memory serves me right, and fitting on a 512Kb line). And it cost just a couple of hundred dollars to get above infrastructure costs (dedicated line, data providers, trading systems, etc). Then the fast feed came, and it costs thousands of dollars per month (in addition to infrastructure). And it came because of the HFTs. Costs are lower than ever in the sense that slow data is cheaper than it was, and fast data is cheaper than it was. However, costs are not at all lower than ever in the sense that in 2000 to ~2006, you could be on par with the most sophisticated players for much cheaper than you can today. > You had to have guys on the floor of the exchange. If you think paying them was cheaper than a direct feed, then you are wrong. Although the floors still dominated in the early 2000s, you only needed to trade them if you traded huge blocks. Smaller blocks worked perfectly well (and more efficiently, and with much better price discovery) on the electronic exchanges. How far back are you thinking of? > Direct feeds cost money because....everything costs money. Exchanges are businesses, why should they give away their data for free ? They shouldn't. Some people (me not among them) think it's unfair that to get that data completely and timely is so expensive. Personally, I think the unfairness runs so much deeper that it makes no difference. And I also think that expectations of fairness are also misguided. As you mentioned, the exchanges are businesses - they are in business of making money, not of being fair. Unfortunately, most people are blind to that.

lordnacho 11y ago

--That means there is a latency arb opportunity when a trade happens at one venue. This is in fact the business proposition of a whole number of markets, vis-a-vis the HFT firms. If you didn't know this you might have wondered how on earth they get people to cross at midpoint.