7 ms·

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 t

• darawk 10y ago
  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.
  • harryh 10y ago
    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.
    • deleted 10y ago
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    • Dylan16807 10y ago
      I don't understand your argument. If a firm is able to consistently get to all the other exchanges first, they can shave pennies off of a large percent of orders. That's a pretty big downside for everyone that trades. They get accurate prices to the market faster, but only by a millisecond or so. That's a miniscule upside. How is the bad not a thousand times the good?
      • gpderetta 10y ago
        If market makers (i.e. most HTF firms) weren't able react to large market moving trades very quickly, they would have to keep spreads wider to manage the risk of adverse selection. This increases the cost for everybody for the benefit of a few large investors.
    • Rainymood 10y ago
      >good for everyone else Except for those who have their pensions stored in Renaissance's own pension fund, hah!
    • darawk 10y ago
      You could say the same thing about insider trading. So, the argument that accurate prices reach the market faster is not, in and of itself, an argument that something is good.
      • deleted 10y ago
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      • eru 10y ago
        Why? He can argue that insider trading is good. Which is actually a pretty easy argument to make. (And places like Germany only recently tightened laws against it.)
        • darawk 10y ago
          What is your argument that insider trading is good?
          • kasey_junk 10y ago
            I don't know how I feel about it, but several relatively common arguments in favor of it are: 1) speeds up price discovery 2) makes complying with regulation cheaper 3) it is nearly impossible to enforce currently Some op-ed pieces arguing for it. http://www.marketwatch.com/story/why-insider-trading-should-be-legal-2011-05-17 http://www.marketwatch.com/story/why-insider-trading-should-... http://www.forbes.com/sites/jeffreydorfman/2015/03/22/a-modern-insider-trading-law-would-recognize-the-victims-of-current-law/#6ab092376d0c http://www.forbes.com/sites/jeffreydorfman/2015/03/22/a-mode... https://www.washingtonpost.com/news/wonk/wp/2013/07/26/insider-trading-makes-us-richer-better-informed-and-could-prevent-corporate-scandals-legalize-it/ https://www.washingtonpost.com/news/wonk/wp/2013/07/26/insid...
            • eru 10y ago
              Yes, that's along the lines I would be arguing. I am on the fence myself, not having thought about the matter too much. Instinctively, I'd say insider trading should be handled as a breach of contract (ie if I trade on something that I signed an NDA for), not as a criminal matter.
  • nsedlet 10y ago
    Isn't front-running big trades just a subset of algorithms that predict price movements? i.e. They're not mutually exclusive. Admittedly I have zero special knowledge of Renaissance and what particular strategies they use.
    • dsl 10y ago
      Front running is seeing your friend looking at a car on craigslist, buying it, and then selling it to him. Renaissance is using satellites to monitor retail store foot traffic to predict quarterly earnings. (both as hypothetical examples)
      • kasey_junk 10y ago
        Actually front running is your car broker buying the car after you told them you want it... But I'm no longer willing to fight the front-running term fight anymore. It will just have to be like my fight against the mainstream use of hacker.
        • pgwhalen 10y ago
          I think dsl's understanding is pretty good actually; the metaphor breaks down a bit with car buying. It's clearly better than nsedlet's definition.
        • Dylan16807 10y ago
          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 to be legal.
          • Lazare 10y ago
            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 killing someone", or "fraud, but without the deception". > What would you rather have them call it? They can't call it nothing. Not everything needs a name. Since what you seem to be describing is "reacting to the public actions of other market participants", does it need a name? Alternatively, if you think something serious is going on, why don't you define it, and then we can name it?
  • yummyfajitas 10y ago
    What you are describing is an acausal (i.e. physically impossible, since cause effect happens before cause) version of demand anticipation - changing prices in response to market demand. It's impossible because the HFT will only know your order has reached exchange A after exchange A has told him about it. Obviously A can't tell him about it until after your order has arrived. Front running is a strategy where your broker sees your order, trades ahead of it, and then routes your order to the market. It's highly illegal.
    • dllthomas 10y ago
      Perhaps the parent comment was edited after you posted, but while what is described is not "front running", it's not acausal. The observation is happening at Exchange A, the reaction at Exchange B.
      • yummyfajitas 10y ago
        If he sees an order on exchange A (which is completely anonymized and disconnected from anything on exchange B), he cannot know if you are making an order on exchange B. "Buying ahead of you" requires some kind of advance knowledge, and in the scenario described you simply don't have it.
        • dllthomas 10y ago
          If there's a pattern of sloppy traders trying to fill large orders by splitting them across exchanges and firing them off at roughly the same time, then having seen a trade at one exchange and not yet at another, it might be a good guess that a trade was incoming, if I'm faster enough to make those decisions. I don't really know if that is the case (or ever was). In any event, it's not acausal.
          • yummyfajitas 10y ago
            It's a really terrible guess, actually. Suppose there is a pattern of 10% of traders being sloppy, and 90% being not sloppy. If you run this strategy, you lose 90% of the time. Additionally, whenever a small trader comes along, you are again overreacting. I.e., I make quite a few (automated) trades. I never cross exchanges or blow up more than 1 level. Whenever I trade you are again buying all the shares and probably losing money. What I described as acausal is responding to an order at BATS before it gets there. Guessing that maybe an order might go to BATS because you saw one at ARCA isn't acausal.
  • Lazare 10y ago
    Front running is a serious crime, with clear definitions. What you are describing isn't front running (or even illegal).
    • darawk 10y ago
      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.
      • gpderetta 10y ago
        'Front running' has specific legal definition (which has existed for a long time) which definitely doesn't apply to these cases. The contortion is in fact on your side. But it is a lost battle anyway.
      • Lazare 10y ago
        Front running is trading in front of an unexecuted order, which you have because of your fiduciary responsibility to a client. You're discussing trading in response to an executed order, which you have as a member of the general public. If that's front running, then what isn't? Is my purchasing wheat futures in response to news of an predicted drought "front running" the orders that bakeries will be making?
  • andylei 10y ago
    this is what the term "front running" means: https://en.wikipedia.org/wiki/Front_running https://en.wikipedia.org/wiki/Front_running
    • darawk 10y ago
      I'm familiar with the legal definition. This behavior, however, is identical to it in spirit and moral character.
      • kasey_junk 10y ago
        There is a key difference, your broker has a fiduciary duty to you. You've entered into a good faith relationship with them based on this duty. You've entered no such agreement with other market participants.
      • Lazare 10y ago
        Actual front running requires your broker to violate the fiduciary responsibility they have to you, and violating fiduciary responsibilities is both immoral and illegal. The behaviour your discussing does not involve any fiduciary responsibilities. > This behavior, however, is identical to it in spirit and moral character. That seems self-evidently false, but okay, I'll bite: What moral precept is being violated here, and why is it "identical" to the fairly serious sin of someone with a fiduciary responsibility to you violating your trust? Let's play fill in the blanks: "Goldman Sachs wants to buy $400m stock in Apple, but after they buy $20m, a member of the public sees the strange pattern of executed orders, guesses that someone is buying a lot of Apple stock, and starts buying up stock too. This is highly immoral, because members of the public have a ______ duty to ______, and not allowing Goldman Sachs to manipulate the market in peace violates it." What phrases can we put in the blanks that makes that not nonsense? I'm pretty sure it's not a fiduciary duty, and it seems quite clear it's not to Goldman. What duty is it, and to whom is it owed?
• Johnie 10y ago
  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-located servers to be executed at specific times. This is harder than it sounds. Coordinating a number of servers in different locations to send a trade at a specific time is not that straightforward when you're dealing with microsecond or nanosecond transactions. Forget the trade, just trying to synchronize the time on all of the different servers in different locations is a large challenge. NTP has an accuracy of 10ms on the open internet [1]. The state of art in HFT is sub-microseconds [2]. This is at least 2 orders of magnitude faster than the NTP margin of error. [1] https://en.wikipedia.org/wiki/Network_Time_Protocol https://en.wikipedia.org/wiki/Network_Time_Protocol [2] http://stackoverflow.com/questions/17256040/how-fast-is-state-of-the-art-hft-trading-systems-today http://stackoverflow.com/questions/17256040/how-fast-is-stat...
  • polskibus 10y ago
    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).
  • welterde 10y ago
    You have to keep in mind that the mentioned sub-microseconds are the _reaction time_. HFT can't beat the speed of light either. Therefore if your orders are synchronized to better than the speed of light distance to the next exchange, HFT traders won't be able to profit off them (-> you have milliseconds). With GPS receivers or very good network connectivity to your ntp server (ie. not home dsl) you can easily get down to below 1ms.
  • Bromskloss 10y ago
    > They are publicly advertising to their investors that they have a weapon to defeat HFT. I thought RenTech didn't have investors anymore.