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High-Speed Traders Are Taking Over Bitcoin
- kobeya 10y agoThere's nothing in this article that wasn't true in 2012...
- Lerc 10y ago>But for Zhou, a 35-year-old That wasn't true in 2012. :-)
- masterponomo 10y agoKapow!
- chubs 10y agoIs it possible to do HFT with bitcoin, given it has a 7 transactions-per-second maximum rate?
- drawnwren 10y agoThey aren't trading possession on the blockchain in most cases. Generally, the BTC is in an exchange's wallet and the exchange maintains the accounts of the traders until the traders withdraw their assets. edit: Some cross exchange trades (i.e. buy BTC on one exchange and sell on another) would still require a move across the chain, but it all really depends on what the exact mechanics of the trade are.
- runeks 10y agoNote: the article confuses two distinct things wth each other, or at least makes it unclear: the transaction volume that is allegedly dominated by high-speed traders is in the forex market, with people trading a promise to e.g. USD, EUR and Yuan for a promise to bitcoins. Only when someone withdraws his Bitcoin promise does it become a transaction on the blockchain. Until then it's just an exchange saying it owes you a certain amount of bitcoins. This becomes evident when an exchange defaults on this promise because of e.g. a hack, as has been the case with Mt. Gox, Bitfinex, Bitfloor and many others.
- deleted 10y ago[deleted]
- xeniak 10y agoHigh-speed trading on a "market" that allows ~10 transactions/second max?
- arthurcolle 10y agoThe exchanges in question are not implemented on top of any blockchain, so no
- Buge 10y agoJust like high frequency trading in the gold market doesn't require physically handing bars of gold for physical dollar bills at high speed, neither does high frequency trading bitcoin require any high speed blockchain transactions.
- netcan 10y agoGreat analogy.
- davidgerard 10y agoAll this is offchain and completely internal to the exchanges.
- pfarnsworth 10y agoThis was evident on Coinbase a couple of years ago. You could sit there and watch the bids and asks move up and down in a regular fashion on a Saturday night. Probably super amateur HFT but HFT nonetheless.
- greenleafjacob 10y agoOthers here are missing the point. Until platforms like Bitfinex allowed margin trading, arbitrage was impossible because the exchanges are extremely risk averse. In order to arbitrage you would have had to buy on one exchange, then wait for 3 confirmations (~40 minutes?) before the receiving exchange would take the risk that the bitcoin was actually transferred. Now with short selling it looks like you can instantly borrow a bitcoin on the exchange that's inflated, then sell it immediately. You don't need to transfer between exchanges - all done completely on internal paper transfers inside the exchange.
- runeks 10y ago> Now with short selling it looks like you can instantly borrow a bitcoin on the exchange that's inflated, then sell it immediately This sounds more like speculation than arbitrate. With arbitrage, you transfer liquidity from one exchange to another by having a short leg on the higher-price exchange and a long leg on the lower price one. This is great for Bitcoin because it evens out the price differences between the exchanges, and at the same time transfers the liquidity of one exchange to another one, while the arbitrageur makes a profit. I don't see how leveraged trading can replace this. Arbitrate is, essentially, taking orders from one exchange and selling them on another one, thereby matching a buyer and a seller on separate exchanges. It's a genuine service to the market.
- neximo64 10y agoLeverage does the same because the counter-party wouldn't be able to tell the difference on whether you used your own or borrowed bitcoin and hence the effect is the same.
- runeks 10y agoI see your point now. I guess it all comes down to whether the arbitrageur is willing to take the risk of not being able to cash out bitcoins on the leveraged exchange. Leverage certainly increases the risk of not being able to withdraw, and often when you need it the most.
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- kneel 10y ago"Taking over" is sensationalism. High-speed trader's are taking advantage of arbitrage on zero fee digital currency exchanges.
- ProAm 10y agoAnd by taking over they mean has been going on for 2+ years now.
- tajen 10y agoYep, plus arbitrage isn't "taking over", no more than "retail is taking over the manufacturing". It's just a characteristic of healthy stock exchanges. Is there a cap on the growth of the blockchain? Since every transaction is saved and every actor has all of the blockchain (Am I correct?), if HFT made it double it size every week, will it reach an unmanageable size after a few terabytes?
- aianus 10y agoTrading is done off-blockchain on exchanges.
- wtbob 10y ago> while the increasing dominance of sophisticated traders begs the question of how long the juiciest arbitrage opportunities will last. Raises the question, not begs it. Begging the question would be to say, 'Bitcoin always generates profit, therefor it will always generate a profit.' Begging the question is assuming the consequent of the argument; raising a question is, well … raising one.
- umanwizard 10y agoThere's no objective standard for language usage, so it's perfectly possible for something to mean one thing in technical jargon of a specific field, and something else in colloquial usage. Therefore, your claim that "begs the question" can't mean what 99% of people understand it to mean in colloquial conversation because it's a term of art that means something else in logic/rhetoric is invalid. By the way, this reasoning is independent of etymology. "Beg the question" may at some point have only meant what you claim it means now (I don't know if it did or not) -- but that doesn't change anything, even if it's the case.
- anjc 10y agoThe fluidity of language doesn't get around the fact that it's perfectly possible to incorrectly use phrases and words.
- Dylan16807 10y agoAn idiom does not own the words inside of it. You're still allowed to use the same words for their literal meaning. Sure, the word 'for' is omitted, but that's acceptable usage. Note that "begging" in this context is likely a mistranslation in the first place. Therefore using it to actually mean "begging for" is less incorrect than the idiom.
- somestag 10y agoYes, it's no worse than beg your pardon or beg forgiveness. In fact, omitting "for" is so common after the word "beg" that it could be considered standard (correct) English.
- Avalaxy 10y agoThere are no HFT exchanges in the bitcoin world. All these trades are done over the internet using HTTP. Hardly HFT.
- csomar 10y agoWrong. Most exchanges support Websocket (well that's HTTP but am assuming you are talking about Rest) and some exchanges support FIX.
- netcan 10y agoI don't think there's a specific frequency that qualifies as "high." All the qualities of hft stay the same so long as you are fast relative to "normal."
- atemerev 10y agoMost exchanges support real-time Websocket and some even FIX protocol. Even HTTP-only for order entry is doable with advanced HTTP client frameworks (I use Akka-http). HFT is when you are faster than most other traders. ;)
- BrandonBradley 10y agoI saw your other top-level comment as well. Are you using Akka Websockets to interface with exchanges as well? Would love to share. See: https://github.com/blbradley/kafka-cryptocoin https://github.com/blbradley/kafka-cryptocoin
- atemerev 10y agoLooks nice! My own code is much messier (currently rewriting with akka-streams). Yes, I'm using WS client from akka-http. Liked how you pattern match directly on JSON messages, I should di it more. :)
- BrandonBradley 10y agoThanks! Feel free to continue the conversation through my listed GitHub e-mail.
- atemerev 10y agoI am one of those traders, and I'll happily share my observations. (Before you ask -- no, there are no any good books and tutorials on HFT trading. You need to grokk it on your own, or receive the knowledge by direct transmission if you are an employee of HFT firm. However, there is "The Problem of HFT" by Haim Bodek, which contains some nice essays from the insider perspective and even some basic examples, though too specific within US equity markets). 1) Bitcoin exchanges are the perfect playground to learn the basics of HFT. All trading data is free and public, most traders are not sophisticated enough, you can start as small as you like (being small is an advantage in HFT), lots of low-hanging fruit are to be picked. HFT proliferation and arms race is barely started on most exchanges. 2) The algorithms themselves are simpler than most people think. HFT trading is mostly unrelated to arbitrage (inter-exchange arbitrage is much slower, and it is a different discipline). 3) The engineering issues are _harder_ than most people think. Even more so with inter-exchange arbitrage. 4) Bitcoin markets are small, and HFT potential capacity is quite limited. Most algorithms I came up with work perfectly well on small scale (and running successfully in production), but I am not making any riches out of it yet.
- kasey_junk 10y agoHow do you handle counterparty risk?
- atemerev 10y agoBy working with multiple exchanges, regular withdrawals (my algos are limited by max usable inventory anyway), and being generally slightly paranoid. However, counterparty risk is real, and if you can't afford it, it's better to not engage.
- valarauca1 10y agoBitcoin Auto Trader. Not HFT I've done inter-exchange/inter currency arbitrage technically, most platforms take on the order of hours to extract so it isn't remotely HFT. 1. Private Wallets: Most your coin should be in wallets you control. Your profit margin should be transferred immediately to a cold wallet that your bot doesn't have keys too. 2. Only move coin to an exchange when you for a transaction, and immediately extract it once the exchange is complete. Yes this forces your swaps to have a fairly non-trivial margin. 3. My API tool scrapes several exchanges. But every 24 hours I have to manually input which exchanges to actively consider swaps between. The goal of this is to avoid exchange bad news. Even with all these safeguards I managed to lose ~$400 when Mt Gox shutdown. Now that I'm employed I mostly do day/casual trading on NASDAQ tech stocks based on personal tech news/market timing [1]. I went from ~110% yearly gain to ~380% yearly gain. It requires 1/100th the effort and leaves me time for FOSS projects. [1] Yes I'm aware this is generally considered the worst strategy ever.
- imperialdroid88 10y agowhat exchanges are people using for this?
- A_Crazy_Idea 10y agobitcoin
- cobbzilla 10y agoI heard somewhere that increasing HFT volume actually decreases overall volatility as the arbitrage windows get smaller & smaller. is this the case? is bitcoin any different in this regard?
- empath75 10y agoHere's an economics question that I used to think about when I was trading bitcoin: Does volatility of an asset itself create value? It seems like the more volatile the price is, the more opportunities there are to make big profits trading the swings using a 'reversion to mean' strategy. Which would mean more people trading it, which would mean that over time, the 'mean' price would keep trending upwards, until that volatility reduced to the point where the strategy was no longer profitable. Does that make any sense at all? I'm sure there's a broken link in that chain of logic somewhere.
- pdovy 10y agoI work in HFT, though we don't deal with Bitcoin. I don't think volatility creates any value, but it can be a sign of market inefficiency if it's caused by a lack of liquidity (demand > supply). A typical market making strategy would be to provide liquidity while betting on mean reversion, which will have the effect of dampening volatility. The price won't necessarily trend in any particular direction, it should just dislocate less from some "true" theoretical value.
- bb88 10y agoVolatility usually is considered bad. Why would you want to invest in something whose day to day price can change 20%? For day-traders and HFT volatility is good, since they can (as you have said) ride the swings. There's the value of a bitcoin, and the value that bitcoin brings to the market. And those are two different things. The value bitcoin brings is anonymous currency transactions and anonymous speculation. Now ask yourself what is the value of one bitcoin? It's not based on a physical scarce resource like coal or oil. It's not based upon an actual currency either (either gold backed or fiat). In fact the only value people have in it is that other people invest in it. So speculation has created value. Volatility in this case is just a side effect of speculation.
- logicchains 10y agoIn some cases volatility is categorically good, e.g. if you have a put option that's in the money. Volatility increases the chance of it either going far into the money (so you profit) or far out of the money (in which case you can just choose not to exercise the option): it increases potential reward without increasing potential loss (you'll never lose more than the premium you paid for the option).
- polskibus 10y agoWhich exchange doesn't take transaction fees? I checked BitMEX, GDAX and OKCoin - all have takers fees. When I post an order that gets filled immediately, I have to pay takers fee. Is my understanding correct that if I post a limit order that incidentally is filled immediately, I pay the takers fee ? Which exchanges only take commission on paying funds in/out ? Does maker/taker distinction ignore the side of the transaction (ie. does it matter whether an order is a bid or an ask to be considered a maker )?
- DINKDINK 10y agoTaker fees are assessed on the party that removes liquidity from a market. If one places a market order, you are removing liquidity either on the bid or ask side and are assessed a fee. If you place a limit order, you are providing liquidity and are not assessed a taker fee.