4 ms·

If they cared, they'd allow micropenny pricing. This would force competition on price instead of just time.

d--b 9y ago
Not sure that'd help. I think that would make the problem worse, because actual market participants don't care about micro pennies. When you buy a stock from your banker, you don't care that you buy it at 65 or 65.00001. Same thing for time, you don't care that you send the order at 15:14:25.0000001 or 15:14:25.5 Markets should be tailored to the needs of its users.
- 21 9y ago
  > Markets should be tailored to the needs of its users. Well, they are. HFTs do 70% of the volume, so the markets are tailored to their needs.
  - d--b 9y ago
    Right, exchanges benefit from HFT in transaction fees. Which is why they have little incentive to change anything.
    - dsacco 9y ago
      What about when exchanges pay out rebates to HFT firms for enhancing liquidity?
      - d--b 9y ago
        There is value in having subsecond liquidity, not submillisecond.
        dsacco 9y ago
        Why is there value in sub-second, but not sub-millisecond? What makes that distinction not just an arbitrary assessment?
        d--b 9y ago
        Replying here since I cant comment further: 1. Of course it's arbitrary. And the current time resolution (a computer tick = one ten-millionth?) is just as arbitrary. 2. The market is a man-made system, it's made by and for humans. It would make sense that the time resolution of events is mapped to human perception: You need subsecond liquidity because traders want to perceive their orders as being immediate. But as soon as the order looks immediate, you don't need further precision. The additional resolution is useless to anyone making decisions and only encourages a stupid race that requires immense investments. 3. Can you explain what you think is the value in submillisecond trading?
        dsacco 9y ago
        > Of course it's arbitrary. And the current time resolution (a computer tick = one ten-millionth?) is just as arbitrary. So why should we change it? > The market is a man-made system, it's made by and for humans. It would make sense that the time resolution of events is mapped to human perception: You need subsecond liquidity because traders want to perceive their orders as being immediate. But as soon as the order looks immediate, you don't need further precision. The additional resolution is useless to anyone making decisions and only encourages a stupid race that requires immense investments. I don't follow - by that logic, everything created by humans shouldn't have resolution greater than what we can perceive. Does this hold for, say, HTTP requests, or pings? > Can you explain what you think is the value in submillisecond trading? It allows me to complete trades before the market turns against me. In the absence of any particular harm, faster execution is better.
        consz 9y ago
        Why do you think the direct participants in the market are primarily humans? There are many automated, non-HFT strategies participating in the market which want, and benefit, from having a time resolution much smaller than what humans can perceive. Also, to your third point -- as a market maker, more information is strictly better than less information (as a corollary, shorter time resolution is better than longer time resolution). Any time I have less information, my predictions are worse, my risk goes up, and I have to either quote less or wider, making liquidity worse and hurting other (non-HFT) participants.
- nickles 9y ago
  > When you buy a stock from your banker, you don't care that you buy it at 65 or 65.00001. That's really not true. The microwaves in this case are being used to communicate between NYC and Chicago to trade products in increments of <1bp. Retail investors may not be as concerned about such fluctuations, but "actual market participants" most certainly do. > Same thing for time, you don't care that you send the order at 15:14:25.0000001 or 15:14:25.5 Again, this is not true. If Fed decides to adjust interest rates at FOMC (14:00:00), they likely do so in a 25bp increment. Market makers absolutely care whether the order is received at the matching engine at 14:00:00.01 vs 14:00:00.5, as such a move can cause large fluctuations in a portfolio's value. > Markets should be tailored to the needs of its users. Agreed. Market makers need to be able to adjust their pricing to reflect market conditions. This is critical to the price discovery process. Were they prohibited from updating their pricing rapidly, they would either cease providing liquidity entirely or show much wider spreads to reflect their increased levels of risk. Clearly such an outcome is not advantageous to the market.
- dsacco 9y ago
  > Not sure that'd help. I think that would make the problem worse, because actual market participants don't care about micro pennies. When you buy a stock from your banker, you don't care that you buy it at 65 or 65.00001. Who are the "actual market participants"? Why do you believe they don't care about sub-penny differences, or sub-second differences?
nayuki 9y ago
This proposal elaborates on the idea of finer pricing to reduce profits in HFT: https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...
vostok 9y ago
This is the best proposal I have seen so far. 1. It actually reduces HFT profits. 2. It actually benefits the markets.

d--b 9y ago

Not sure that'd help. I think that would make the problem worse, because actual market participants don't care about micro pennies. When you buy a stock from your banker, you don't care that you buy it at 65 or 65.00001. Same thing for time, you don't care that you send the order at 15:14:25.0000001 or 15:14:25.5 Markets should be tailored to the needs of its users.

21 9y ago
> Markets should be tailored to the needs of its users. Well, they are. HFTs do 70% of the volume, so the markets are tailored to their needs.
- d--b 9y ago
  Right, exchanges benefit from HFT in transaction fees. Which is why they have little incentive to change anything.
  - dsacco 9y ago
    What about when exchanges pay out rebates to HFT firms for enhancing liquidity?
    - d--b 9y ago
      There is value in having subsecond liquidity, not submillisecond.
      - dsacco 9y ago
        Why is there value in sub-second, but not sub-millisecond? What makes that distinction not just an arbitrary assessment?
      - d--b 9y ago
        Replying here since I cant comment further: 1. Of course it's arbitrary. And the current time resolution (a computer tick = one ten-millionth?) is just as arbitrary. 2. The market is a man-made system, it's made by and for humans. It would make sense that the time resolution of events is mapped to human perception: You need subsecond liquidity because traders want to perceive their orders as being immediate. But as soon as the order looks immediate, you don't need further precision. The additional resolution is useless to anyone making decisions and only encourages a stupid race that requires immense investments. 3. Can you explain what you think is the value in submillisecond trading?
        dsacco 9y ago
        > Of course it's arbitrary. And the current time resolution (a computer tick = one ten-millionth?) is just as arbitrary. So why should we change it? > The market is a man-made system, it's made by and for humans. It would make sense that the time resolution of events is mapped to human perception: You need subsecond liquidity because traders want to perceive their orders as being immediate. But as soon as the order looks immediate, you don't need further precision. The additional resolution is useless to anyone making decisions and only encourages a stupid race that requires immense investments. I don't follow - by that logic, everything created by humans shouldn't have resolution greater than what we can perceive. Does this hold for, say, HTTP requests, or pings? > Can you explain what you think is the value in submillisecond trading? It allows me to complete trades before the market turns against me. In the absence of any particular harm, faster execution is better.
        consz 9y ago
        Why do you think the direct participants in the market are primarily humans? There are many automated, non-HFT strategies participating in the market which want, and benefit, from having a time resolution much smaller than what humans can perceive. Also, to your third point -- as a market maker, more information is strictly better than less information (as a corollary, shorter time resolution is better than longer time resolution). Any time I have less information, my predictions are worse, my risk goes up, and I have to either quote less or wider, making liquidity worse and hurting other (non-HFT) participants.
nickles 9y ago
> When you buy a stock from your banker, you don't care that you buy it at 65 or 65.00001. That's really not true. The microwaves in this case are being used to communicate between NYC and Chicago to trade products in increments of <1bp. Retail investors may not be as concerned about such fluctuations, but "actual market participants" most certainly do. > Same thing for time, you don't care that you send the order at 15:14:25.0000001 or 15:14:25.5 Again, this is not true. If Fed decides to adjust interest rates at FOMC (14:00:00), they likely do so in a 25bp increment. Market makers absolutely care whether the order is received at the matching engine at 14:00:00.01 vs 14:00:00.5, as such a move can cause large fluctuations in a portfolio's value. > Markets should be tailored to the needs of its users. Agreed. Market makers need to be able to adjust their pricing to reflect market conditions. This is critical to the price discovery process. Were they prohibited from updating their pricing rapidly, they would either cease providing liquidity entirely or show much wider spreads to reflect their increased levels of risk. Clearly such an outcome is not advantageous to the market.
dsacco 9y ago
> Not sure that'd help. I think that would make the problem worse, because actual market participants don't care about micro pennies. When you buy a stock from your banker, you don't care that you buy it at 65 or 65.00001. Who are the "actual market participants"? Why do you believe they don't care about sub-penny differences, or sub-second differences?

nayuki 9y ago

This proposal elaborates on the idea of finer pricing to reduce profits in HFT: https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...

vostok 9y ago

This is the best proposal I have seen so far. 1. It actually reduces HFT profits. 2. It actually benefits the markets.