6 ms·

It's basically arbitrage. Information and time difference arbitrage. Different exchanges on the East Coast, because of their different locations receive trade i

by chirau 8y ago

It's basically arbitrage. Information and time difference arbitrage. Different exchanges on the East Coast, because of their different locations receive trade info at different times. This is what they are trying to capitalize on. And also, the obvious race to first receiver of information from Chicago.

MuffinFlavored 8y ago
I'd be curious to hear some statistics on how much money a ~10ms difference in time of information received can actually make.
- deleted 8y ago
  [deleted]
- kasey_junk 8y ago
  I don’t have any statistics but I have an anecdote. I built a trading platform ~6 years ago that had a 100 microsecond tick to trade (a term that means from the time a market update hits your nic to the time an order leaves your nic). We knew then that we were too slow for large swaths of the HFT space & wouldn’t even attempt those trades. I haven’t kept up with the industry but I’d guess tick to trade times at the speed edge are in the low hundreds of nanos now. In an environment like that a 1ms time improvement is out of the capabilities of your software/hardware engineers and can only happen at the network.
  - aldanor 8y ago
    If we’re really talking “at the speed edge”, low hundreds of nanos would be already considered too slow these days :)
- chirau 8y ago
  Hold my beer ... https://www.youtube.com/watch?v=L5cZaIZ5bWc https://www.youtube.com/watch?v=L5cZaIZ5bWc And that was more than 6 years ago, one ticker symbol only. You can imagine now.
  - titanomachy 8y ago
    Holy shit. That gave me a much better sense of scale than hearing "a trade takes 200ns" or whatever. The engineering that goes into making this possible must be just insane.
- SpicyP 8y ago
  If you’re an options market maker and you are 10ms slower, you legitimately will be obsolete in the market. You will be arbitraged against when stocks move and you are slow to update quotes. This happens all the time, and it makes it so that you have to quote so wide that you aren’t competitive. Milliseconds are the difference from being competitive and going broke in the industry.
- lordnacho 8y ago
  10ms is way too long. Think about 3D graphics drawn at 60fps. That's 16ms you get for each frame. But 3D graphics calculates a LOT of stuff for your whole game in that time. In trading you're not calculating nearly as much stuff. In trading it's probably very sharp, the line between making and losing money. You want to be under 100us for sure. That's micros. Depends on what you're doing of course but 10ms is OOM to slow.
GusRuss89 8y ago
Do the companies that do this make any claims about how they benefit society? To me, stock traders in general seem a departure from the idea that money is a result of providing value to society, but arbitrageurs seem even further detached. I'd be interested to hear if there are arguments I haven't thought of.
- lordnacho 8y ago
  A guy is willing to buy some shares at 101 on exchange A. Another guy is willing to sell the same shares at exchange B for 99. Neither of them has the budget to connect to both exchanges. HFT has connections to both and can see the cross. Everyone is better off. This might be different in the US due to NMS, but HFT strategies are all pretty similar: they can provide liquidity better if they are fast, and other people can take advantage of that.
- URSpider94 8y ago
  High frequency traders create liquidity. Arbitrage in general helps ensure that prices are uniform across geographies and across linked securities (e.g. options are priced appropriately vs. the underlying asset). You can argue that there is no incremental value in going to shorter and shorter timescales, but fundamentally this mechanism is how information moves around the economy.
  - tcbawo 8y ago
    There used to be less sensitivity to the receive-side time by exchanges, but in many cases there had been an emphasis on fairness and high res timestamps (they sell colocation services). Now, many times the first through the post wins. This creates a constant arms race and narrows the field to a handful of competitors. Many companies that survived in the fat tail can no longer do so.

by chirau 8y ago

MuffinFlavored 8y ago

I'd be curious to hear some statistics on how much money a ~10ms difference in time of information received can actually make.

deleted 8y ago
[deleted]
kasey_junk 8y ago
I don’t have any statistics but I have an anecdote. I built a trading platform ~6 years ago that had a 100 microsecond tick to trade (a term that means from the time a market update hits your nic to the time an order leaves your nic). We knew then that we were too slow for large swaths of the HFT space & wouldn’t even attempt those trades. I haven’t kept up with the industry but I’d guess tick to trade times at the speed edge are in the low hundreds of nanos now. In an environment like that a 1ms time improvement is out of the capabilities of your software/hardware engineers and can only happen at the network.
- aldanor 8y ago
  If we’re really talking “at the speed edge”, low hundreds of nanos would be already considered too slow these days :)
chirau 8y ago
Hold my beer ... https://www.youtube.com/watch?v=L5cZaIZ5bWc https://www.youtube.com/watch?v=L5cZaIZ5bWc And that was more than 6 years ago, one ticker symbol only. You can imagine now.
- titanomachy 8y ago
  Holy shit. That gave me a much better sense of scale than hearing "a trade takes 200ns" or whatever. The engineering that goes into making this possible must be just insane.
SpicyP 8y ago
If you’re an options market maker and you are 10ms slower, you legitimately will be obsolete in the market. You will be arbitraged against when stocks move and you are slow to update quotes. This happens all the time, and it makes it so that you have to quote so wide that you aren’t competitive. Milliseconds are the difference from being competitive and going broke in the industry.
lordnacho 8y ago
10ms is way too long. Think about 3D graphics drawn at 60fps. That's 16ms you get for each frame. But 3D graphics calculates a LOT of stuff for your whole game in that time. In trading you're not calculating nearly as much stuff. In trading it's probably very sharp, the line between making and losing money. You want to be under 100us for sure. That's micros. Depends on what you're doing of course but 10ms is OOM to slow.

GusRuss89 8y ago

Do the companies that do this make any claims about how they benefit society? To me, stock traders in general seem a departure from the idea that money is a result of providing value to society, but arbitrageurs seem even further detached. I'd be interested to hear if there are arguments I haven't thought of.

lordnacho 8y ago
A guy is willing to buy some shares at 101 on exchange A. Another guy is willing to sell the same shares at exchange B for 99. Neither of them has the budget to connect to both exchanges. HFT has connections to both and can see the cross. Everyone is better off. This might be different in the US due to NMS, but HFT strategies are all pretty similar: they can provide liquidity better if they are fast, and other people can take advantage of that.
URSpider94 8y ago
High frequency traders create liquidity. Arbitrage in general helps ensure that prices are uniform across geographies and across linked securities (e.g. options are priced appropriately vs. the underlying asset). You can argue that there is no incremental value in going to shorter and shorter timescales, but fundamentally this mechanism is how information moves around the economy.
- tcbawo 8y ago
  There used to be less sensitivity to the receive-side time by exchanges, but in many cases there had been an emphasis on fairness and high res timestamps (they sell colocation services). Now, many times the first through the post wins. This creates a constant arms race and narrows the field to a handful of competitors. Many companies that survived in the fat tail can no longer do so.