3 ms·

isn't true HFT purely latency driven? ie: if you see a sell order for $0.10 and a buy order for $0.11 before anyone else, it is like free money.

dcolkitt 6y ago
A (relatively small) subset of HFT is purely latency driven. But the largest sub-category is probably market making. I.e. leaving open a buy order for $0.10 and a sell order for $0.11, and hoping that both get filled and you net the difference. You're taking real risk, in the sense that your buy order could get filled, your sell order doesn't, and the market moves down, so now you lose money. Latency is pretty important to market making for two reasons. One is because you want to quickly adjust your quotes before the market moves through you. If you're too slow, opportunists will pick you off in the wrong direction. Two is because exchanges mostly follow price-time priority. E.g. if me and you both enter buy orders for $0.10, the front of the "queue" to get matched, will be whoever's order arrives first at the gateway. Not only is that important for getting more opportunities, but generally orders in the front of the queue are less likely to be trade against "toxic flow", where the market moves through you. There's definitely a baseline minimum of latency that you need to play the game at all. But there's tons of ways to compete besides just being the fastest. You can build your own signals to internally predict which way the market moves before it does. You can have superior models to tell you when the risk of "toxic flow" is lower. You can use clever tricks to get to the front of the queue when others aren't paying attention.
smabie 6y ago
I'm a HFT quant trader and HFT is not purely latency driven. You don't want to be slow, but most firms are increasingly perusing longer and longer term strategies that aren't as latency sensitive. Pure risk free latency arb isn't really a profit center anymore. The speed wars are pretty much over. The industry has consolidated and any player that didn't adapt to the new, more cerebral game is dead.
- tijsvd 6y ago
  > The speed wars are pretty much over. The industry has consolidated and any player that didn't adapt to the new, more cerebral game is dead. Except for the one that won the speed war, and keeps investing massively to remain 10ns ahead.
  - smabie 6y ago
    No one "won" the speed wars: the top firms are all competitive with each other and have a gentleman's agreement against spending billions more for nanosecond gains.

dcolkitt 6y ago

A (relatively small) subset of HFT is purely latency driven. But the largest sub-category is probably market making. I.e. leaving open a buy order for $0.10 and a sell order for $0.11, and hoping that both get filled and you net the difference. You're taking real risk, in the sense that your buy order could get filled, your sell order doesn't, and the market moves down, so now you lose money. Latency is pretty important to market making for two reasons. One is because you want to quickly adjust your quotes before the market moves through you. If you're too slow, opportunists will pick you off in the wrong direction. Two is because exchanges mostly follow price-time priority. E.g. if me and you both enter buy orders for $0.10, the front of the "queue" to get matched, will be whoever's order arrives first at the gateway. Not only is that important for getting more opportunities, but generally orders in the front of the queue are less likely to be trade against "toxic flow", where the market moves through you. There's definitely a baseline minimum of latency that you need to play the game at all. But there's tons of ways to compete besides just being the fastest. You can build your own signals to internally predict which way the market moves before it does. You can have superior models to tell you when the risk of "toxic flow" is lower. You can use clever tricks to get to the front of the queue when others aren't paying attention.

smabie 6y ago

I'm a HFT quant trader and HFT is not purely latency driven. You don't want to be slow, but most firms are increasingly perusing longer and longer term strategies that aren't as latency sensitive. Pure risk free latency arb isn't really a profit center anymore. The speed wars are pretty much over. The industry has consolidated and any player that didn't adapt to the new, more cerebral game is dead.

tijsvd 6y ago
> The speed wars are pretty much over. The industry has consolidated and any player that didn't adapt to the new, more cerebral game is dead. Except for the one that won the speed war, and keeps investing massively to remain 10ns ahead.
- smabie 6y ago
  No one "won" the speed wars: the top firms are all competitive with each other and have a gentleman's agreement against spending billions more for nanosecond gains.