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How is this any different from algo trading on the stock market? I read or watched somewhere where the algo traders would skim a tiny percentage of every trans

How is this any different from algo trading on the stock market? I read or watched somewhere where the algo traders would skim a tiny percentage of every transaction of mutual funds because they know exactly when to strike. There are lots of sharks in the muddy water...

Scoundreller 8y ago
Anyone can watch crypto going into the exchange. Usually people don’t (shouldn’t?) hold it on the exchange for excessive periods of time, so once it confirms, they try to sell and withdraw. If you can see this, you can front the sell (before the deposit even confirms) and then be the buyer shortly after it confirms. But I don’t see this as being much different than providing liquidity and taking the risk that someone else doesn’t want to take.
- dfox 8y ago
  That depends on the underlying cryptocurrency, for example I think that there is no way to design exchange such that BTC deposit would be readily apparent on blockchain before it is credited to the exchange account. So it is simply another argument why "smart contracts" does not solve any useful problem.
raiyu 8y ago
Algorithmic trading is about building an algo that determines how a market or stock will move based on news, economy, other factors. In flash boys the front-running that these quant funds are running isn't about an algorithm, but literally all about having high capacity pipes that can see an order come in and then fill it between different exchanges and based on the minute differences in stock prices pocket the difference. So an algo fund can lose money if the algorithm is incorrect. While front-running you never lose money. It's basically like being a tax collector.
- phildaian 8y ago
  Great explanation! For an in depth and relatively formal (and mathematical) look at this from an economist I recommend https://faculty.chicagobooth.edu/eric.budish/research/HFT-FrequentBatchAuctions.pdf https://faculty.chicagobooth.edu/eric.budish/research/HFT-Fr...
- afarah 8y ago
  >all about having high capacity pipes that can see an order come in I don't understand how they can see the order come in. Is this something that only happens in decentralized exchanges?
  - aianus 8y ago
    You can pay the NASDAQ (or any exchange) to colocate your server beside their server with a low-latency network link and see a live feed of the orders as they hit the book.
    - chii 8y ago
      So isn't the problem with the exchange revealing data before it is "committed"? How does one frontrun if the exchange doesn't allow it?
    - afarah 8y ago
      I know about colocation, but I was under the impression that once you see an order in the book it is in the book. I.e. your order will be placed after it.
      - twic 8y ago
        If there are multiple exchanges trading the same (or very similar) products, then you might be able to see an order on one, and quickly send an order to the other one. In the US, equities trade on multiple exchanges.
- pbhjpbhj 8y ago
  People paying taxes, in theory at least, get a benefit (to them or society). Isn't it more like paying off mobsters, or just having someone steal a fraction of a penny from everyone?

Scoundreller 8y ago

Anyone can watch crypto going into the exchange. Usually people don’t (shouldn’t?) hold it on the exchange for excessive periods of time, so once it confirms, they try to sell and withdraw. If you can see this, you can front the sell (before the deposit even confirms) and then be the buyer shortly after it confirms. But I don’t see this as being much different than providing liquidity and taking the risk that someone else doesn’t want to take.

dfox 8y ago
That depends on the underlying cryptocurrency, for example I think that there is no way to design exchange such that BTC deposit would be readily apparent on blockchain before it is credited to the exchange account. So it is simply another argument why "smart contracts" does not solve any useful problem.

raiyu 8y ago

Algorithmic trading is about building an algo that determines how a market or stock will move based on news, economy, other factors. In flash boys the front-running that these quant funds are running isn't about an algorithm, but literally all about having high capacity pipes that can see an order come in and then fill it between different exchanges and based on the minute differences in stock prices pocket the difference. So an algo fund can lose money if the algorithm is incorrect. While front-running you never lose money. It's basically like being a tax collector.

phildaian 8y ago
Great explanation! For an in depth and relatively formal (and mathematical) look at this from an economist I recommend https://faculty.chicagobooth.edu/eric.budish/research/HFT-FrequentBatchAuctions.pdf https://faculty.chicagobooth.edu/eric.budish/research/HFT-Fr...
afarah 8y ago
>all about having high capacity pipes that can see an order come in I don't understand how they can see the order come in. Is this something that only happens in decentralized exchanges?
- aianus 8y ago
  You can pay the NASDAQ (or any exchange) to colocate your server beside their server with a low-latency network link and see a live feed of the orders as they hit the book.
  - chii 8y ago
    So isn't the problem with the exchange revealing data before it is "committed"? How does one frontrun if the exchange doesn't allow it?
  - afarah 8y ago
    I know about colocation, but I was under the impression that once you see an order in the book it is in the book. I.e. your order will be placed after it.
    - twic 8y ago
      If there are multiple exchanges trading the same (or very similar) products, then you might be able to see an order on one, and quickly send an order to the other one. In the US, equities trade on multiple exchanges.
pbhjpbhj 8y ago
People paying taxes, in theory at least, get a benefit (to them or society). Isn't it more like paying off mobsters, or just having someone steal a fraction of a penny from everyone?