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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-ru

by 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?

by raiyu 8y ago

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?