3 ms·

Can you expand on how IEX's delay isn't preventing HFT from succeeding? I don't really understand enough about the financial markets to know what you mean.

by wdewind 11y ago

vasilipupkin 11y ago
every exchange takes some amount of time to match orders. IEX is no different. Let me ask you this way. Why would you expect IEX delay to prevent HFT from succeeding ?
- wdewind 11y ago
  Most exchanges take considerably less time and there are a lot of HFT strategies that require low latencies in order to cancel certain trades before they happen.
  - vasilipupkin 11y ago
    without getting into the nitty gritty of how HFT works, suffice it to say that anywhere between 20 and 40% of IEX volume comes from HFT firms.
    - wdewind 11y ago
      Can you please get into the nitty gritty? Why is anyone using IEX if there is so much HFT on it? Edit: http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-frequency-trading-on-iex-muddied-by-trade-counting/ http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-f... Seems like there is some debate. IEX claims 17.7% which is still higher than I expected.
      - vasilipupkin 11y ago
        why not use it? if it has liquidity and an attractive fee structure, why wouldn't any trader trade on it, HFT or not ?
      - deleted 11y ago
        [deleted]
      - gd1 11y ago
        I believe the discrepancy comes down to whether you count opposing counterparties indivdually or not. i.e. If 6 trades involve 6 non-HFT/non electronic market-maker (referred to as 'naturals') trading against 6 other naturals, and the other 4 involve naturals trading against resting HFT liquidity, you could either count that by counterparty that is HFT - (4 out of 20 counterparties) = 20%, or the number of trades that involve someone taking HFT liquidty - (4 out of 10 trades) = 40%. So the 17.7% of HFT counterparties squares roughly with 30%+ HFT trades.
    - remarkEon 11y ago
      Second the call to get into the nitty gritty. I've read "Flash Boys" and consider myself reasonably aware of how HFT works but I'd like to know the technical aspects more in detail (understanding that some of that is, probably, proprietary). Any good resources?
      - vasilipupkin 11y ago
        Flash Boys is quite inaccurate with respect to how HFT works. Read this book instead http://www.amazon.com/Introduction-High-Frequency-Finance-Ramazan-Gen%C3%A7ay/dp/0122796713 http://www.amazon.com/Introduction-High-Frequency-Finance-Ra...
    - zhte415 11y ago
      Nitty gritty point: Volume is not equal to liquidity. Volume a low order values, provided by pinging, doesn't mean there's liquidity behind it that large block orders provide.
  - harmegido 11y ago
    Here's your nitty-gritty: If a participant places a large buy order into the IEX, this is going to affect the price of that asset, both at the IEX (obviously) and anywhere else it is listed, along with any correlated assets. Now, the original participant will have bought its shares at the price it wanted at the IEX and be happy about it. However, market makers at other exchanges will not be aware of this upward price shock just yet. They will be blindly quoting sell offers at a price that had just been bought in bulk at the IEX. Whoever can receive the information out of the IEX 'magic shoebox' first and shoot that information over to the other exchanges will be able to make a profit. You can see that it doesn't matter how long the IEX delay is. The original buyer will be the first to know of course, but they are unlikely to want to take on the risk of all available shares at that price at all exchanges. Thus, there will likely be some left for HFT to take.
    - wdewind 11y ago
      Right...but the important function of IEX is that it protects the block order buyer or seller, and it seems to still be doing that, so it sounds like what they are doing is working.
      - vasilipupkin 11y ago
        protects from what ?
  - consz 11y ago
    HFT requires low latency on their reactions, not the entire transaction. In IEX's situation, there are two major cases -- (1) A person decides to cross the spread on IEX first -- in this case, their order will be delayed by 350us (or whatever the shoebox delays), and no one in the world sees the result of their trade until the public data feed updates, in which case all participants are reacting off the same feed, same as any other US equity exchange. (2) A person hits another exchange first, in which case HFT races to cancel their orders on IEX or cross the spread against another firm's orders on IEX -- yes, their action is delayed by 350us, but so is every other person, so you're otherwise racing to get into the message queue at IEX, and the artificial shoebox delay is irrelevant, since all market participants are equally delayed by it. So while IEX's shoebox delays the latency on the result of an action, it doesn't make an appreciable difference in the typical HFT strategy. The primary difference is in (1), there is a higher chance that an unsophisticated large block trader (because a sophisticated one will have already set up the necessary delays to hit all exchanges simultaneously) will be able to hit market makers on both IEX and other exchanges before anyone has the time to react, thus being able to take large advantage of their own proprietary knowledge (their own order) some percentage of times more often. The only thing this results in a decrease in liquidity on IEX, but seeing as they're a dark pool/minor player anyways, the difference is negligible.
    - wdewind 11y ago
      Yes, that makes sense, but the trade that is done on IEX is still not affected by HFT. So I understand how HFTs can still use IEX to make money, but I don't think that means the 350us delay is a marketing gimmick as vasilipupkin said.
      - vasilipupkin 11y ago
        It's a marketing gimmick insofar as it claims to somehow protect investors from HFT. As I said elsewhere, every exchange has latency of processing, theirs is 305micros higher. That doesn't appreciably change anything for anyone.
        11y ago

Can you expand on how IEX's delay isn't preventing HFT from succeeding? I don't really understand enough about the financial markets to know what you mean.

by wdewind 11y ago

Can you expand on how IEX's delay isn't preventing HFT from succeeding? I don't really understand enough about the financial markets to know what you mean.

vasilipupkin 11y ago

every exchange takes some amount of time to match orders. IEX is no different. Let me ask you this way. Why would you expect IEX delay to prevent HFT from succeeding ?

wdewind 11y ago
Most exchanges take considerably less time and there are a lot of HFT strategies that require low latencies in order to cancel certain trades before they happen.
- vasilipupkin 11y ago
  without getting into the nitty gritty of how HFT works, suffice it to say that anywhere between 20 and 40% of IEX volume comes from HFT firms.
  - wdewind 11y ago
    Can you please get into the nitty gritty? Why is anyone using IEX if there is so much HFT on it? Edit: http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-frequency-trading-on-iex-muddied-by-trade-counting/ http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-f... Seems like there is some debate. IEX claims 17.7% which is still higher than I expected.
    - vasilipupkin 11y ago
      why not use it? if it has liquidity and an attractive fee structure, why wouldn't any trader trade on it, HFT or not ?
    - deleted 11y ago
      [deleted]
    - gd1 11y ago
      I believe the discrepancy comes down to whether you count opposing counterparties indivdually or not. i.e. If 6 trades involve 6 non-HFT/non electronic market-maker (referred to as 'naturals') trading against 6 other naturals, and the other 4 involve naturals trading against resting HFT liquidity, you could either count that by counterparty that is HFT - (4 out of 20 counterparties) = 20%, or the number of trades that involve someone taking HFT liquidty - (4 out of 10 trades) = 40%. So the 17.7% of HFT counterparties squares roughly with 30%+ HFT trades.
  - remarkEon 11y ago
    Second the call to get into the nitty gritty. I've read "Flash Boys" and consider myself reasonably aware of how HFT works but I'd like to know the technical aspects more in detail (understanding that some of that is, probably, proprietary). Any good resources?
    - vasilipupkin 11y ago
      Flash Boys is quite inaccurate with respect to how HFT works. Read this book instead http://www.amazon.com/Introduction-High-Frequency-Finance-Ramazan-Gen%C3%A7ay/dp/0122796713 http://www.amazon.com/Introduction-High-Frequency-Finance-Ra...
  - zhte415 11y ago
    Nitty gritty point: Volume is not equal to liquidity. Volume a low order values, provided by pinging, doesn't mean there's liquidity behind it that large block orders provide.
- harmegido 11y ago
  Here's your nitty-gritty: If a participant places a large buy order into the IEX, this is going to affect the price of that asset, both at the IEX (obviously) and anywhere else it is listed, along with any correlated assets. Now, the original participant will have bought its shares at the price it wanted at the IEX and be happy about it. However, market makers at other exchanges will not be aware of this upward price shock just yet. They will be blindly quoting sell offers at a price that had just been bought in bulk at the IEX. Whoever can receive the information out of the IEX 'magic shoebox' first and shoot that information over to the other exchanges will be able to make a profit. You can see that it doesn't matter how long the IEX delay is. The original buyer will be the first to know of course, but they are unlikely to want to take on the risk of all available shares at that price at all exchanges. Thus, there will likely be some left for HFT to take.
  - wdewind 11y ago
    Right...but the important function of IEX is that it protects the block order buyer or seller, and it seems to still be doing that, so it sounds like what they are doing is working.
    - vasilipupkin 11y ago
      protects from what ?
- consz 11y ago
  HFT requires low latency on their reactions, not the entire transaction. In IEX's situation, there are two major cases -- (1) A person decides to cross the spread on IEX first -- in this case, their order will be delayed by 350us (or whatever the shoebox delays), and no one in the world sees the result of their trade until the public data feed updates, in which case all participants are reacting off the same feed, same as any other US equity exchange. (2) A person hits another exchange first, in which case HFT races to cancel their orders on IEX or cross the spread against another firm's orders on IEX -- yes, their action is delayed by 350us, but so is every other person, so you're otherwise racing to get into the message queue at IEX, and the artificial shoebox delay is irrelevant, since all market participants are equally delayed by it. So while IEX's shoebox delays the latency on the result of an action, it doesn't make an appreciable difference in the typical HFT strategy. The primary difference is in (1), there is a higher chance that an unsophisticated large block trader (because a sophisticated one will have already set up the necessary delays to hit all exchanges simultaneously) will be able to hit market makers on both IEX and other exchanges before anyone has the time to react, thus being able to take large advantage of their own proprietary knowledge (their own order) some percentage of times more often. The only thing this results in a decrease in liquidity on IEX, but seeing as they're a dark pool/minor player anyways, the difference is negligible.
  - wdewind 11y ago
    Yes, that makes sense, but the trade that is done on IEX is still not affected by HFT. So I understand how HFTs can still use IEX to make money, but I don't think that means the 350us delay is a marketing gimmick as vasilipupkin said.
    - vasilipupkin 11y ago
      It's a marketing gimmick insofar as it claims to somehow protect investors from HFT. As I said elsewhere, every exchange has latency of processing, theirs is 305micros higher. That doesn't appreciably change anything for anyone.
      - 11y ago