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First - super cool new fiber cable. Second - I'm not sure high frequency trading adds much to the world itself. But, have the algorithms or technology they dev

First - super cool new fiber cable. Second - I'm not sure high frequency trading adds much to the world itself. But, have the algorithms or technology they develop been taken and used elsewhere? Maybe without them, this kind of cable development would not have happened as quickly? Maybe it creates an increase demand for higher-level STEM degrees given the draw of earnings potential (and not all would make it, meaning some STEMs go on to work on actually valuable things for society?). It's interesting to think about. >Lumenisity, the startup backed by Jump, is betting that hollow-core fiber will find uses beyond trading, for instance in telecommunications and 5G networks. “We see HFT as an early adopter for the use of hollow-core,” Lumenisity Executive Chairman David Parker said in an interview. He declined to comment on his firm’s relationship with Jump. >Supporters say hollow-core fiber could be used for high-bandwidth links in places like northern New Jersey where the NYSE and Nasdaq have their data centers, or even under the Atlantic, connecting London and New York, if the technology gets good enough.

xwdv 6y ago
It is very valuable, but often misunderstood. Without high-frequency trades building market liquidity, there would be a massive gulf between bid ask spreads that ultimately loses people money in the long run.
- pfortuny 6y ago
  Someone downvoted you. I also think that getting rid of large arbitration opportunities as soon as possible is good for markets, as they behave “nearer” the ideal no-arbitration model. But that is just my opinion.
  - MagnumOpus 6y ago
    And what is the big-picture economic difference between getting rid of arbitrage opportunities with a millisecond (in the old times) or within a nanosecond? Because that's what we are talking about, not about inefficiencies remaining for hours.
    - pfortuny 6y ago
      That is just a property of competition, nothing to do with HFT per se.
    - Arnt 6y ago
      There's a hidden assumption in your statement. AIUI, you think that HFT has driven various numbers far down, the rest of us benefit from them being driven down, but don't benefit significantly from them being driven as far down as HFT actually has done. Right? I can agree with that. The hidden assumption is that if HFT hadn't done that, then something else would have come along to drive those numbers down, but not as far. If so, then the benefit to the rest of us would have been much the same as it actually is. You may be right, but I don't see what that "something else" could be. It would have to be something where some actor benefits from quick reaction and low spread, right? AFAICT, that must be either HFT or something indistinguishable from HFT. Something with the same traits, blamed by the same people for the same reasons.
      - maest 6y ago
        You can impose a floor beyond which lower latencies no longer provide an advantage by replacing the current continuous auction market with a periodic, blind auction. That is, have a market where orders accummulate in the order book and every, say, 15 seconds, the order book is crossed and trades are made.
        pfortuny 6y ago
        You can do a lot of things with norms and regulations but, in the end, why not let the market organize itself? Also, timing (as per your example) is very very very difficult to keep exactly. On the other hand, I think a kind of relation between prize of an operation and its energetic cost would be beneficial (like ---as an example--- forcing an operation to compute a hash of proportional difficulty, or whatever). But this is a different problem.
        maest 6y ago
- fsh 6y ago
  How does a spread make people lose money? Trades only happen if the buyer and seller agree on a price.
  - kasey_junk 6y ago
    Lower spreads are good for people who aren’t price sensitive but are getting in or out of positions for other reasons than market microstructure. This is largely everyone. If you need to rebalance your portfolio into more cash, say because you are paying for college, the lower the spread the lower your transaction cost.
  - ikrenji 6y ago
    it doesnt. HFT is pure rent seeking
    - sgt101 6y ago
      I wonder what the amount of money made by HFT taking advantage of "natural arbitrage opportunities" is, and how it compares to HFT as pure front running of known orders? My guess is ~0 vs ~lots.
      - baybal2 6y ago
        If it was so, they wouldn't be losing money, closing the shop. Quite a number of them went under. So even such clearest cut front-running is not a fool proof strategy with "money out of thin air." Seeing somebody saying "give me money, and I will multiply them with some magic mumbo jumbo" they themselves don't seem to understand, if the most usual investment industry hot air.
      - Arnt 6y ago
        The big natural arbitrage opportunity is other people's coarse-grained price changes. HFTs make finer-grained changes at shorter intervals, and so win trades that the exchange directs to the best offer. If being a market maker is profitable, then this profit derives from executing trades. Because the exchange directs trade to the best offer, the profit goes to whoever offers the best price, which is whoever adjusts its offer prices quickest. That's the recipe for HFT.
- MichaelRazum 6y ago
  Actually I think it is not true. What is happening is that firms who can afford are investing in not necessary technology to be executed faster then others. That just creates a huge market barrier and a monopoly. Only the trading firms and in some way exchanges are creating value of it. For the normal user it doesn't matter if spreads or the orderbook is updated in a nano or microsecond.
- algo_trader 6y ago
  U r correct And i also un-downvoted you ;) For comparison, before the "internet", here were minimum $50 and $100 commissions on stock buys. 2%-3% buy-sell spreads were common. HFT is critical to allow each paper to be traded in multiple competing venues. etc etc
  - nicoburns 6y ago
    Couldn't you just legislate against this similar to maximum visa transaction fees in Europe?
    - xwdv 6y ago
      Will just create new opportunities for legislative arbitrage.
- MagnumOpus 6y ago
  You are incorrect. Market-makers who take the other side of trades and warehouse risk for minutes or hours create liqidity (for minutes or hours). And yes, some algo traders are market makers and thus have social utility. HFT who play market-maker for a microsecond do not create liqidity and have no value for society. Well, strictly speaking they create liquidity for the first 100-share lot of trades that a real-money market participant needs to do, and act as costly parasites for the other hundred or thousands lots that they need to do.
  - kasey_junk 6y ago
    Can you explain what costs the “parasites” add to the system?
  - chollida1 6y ago
    As someone in the industry and in that particular area, it seems like its you who are mistaken. Anyone whose a market maker is playing in the HFT space, otherwise you can't cancel fast enough when the market moves otherwise. Other uses of HFT are interlisted arb that keeps companies that trade in multiple countries at the appropriate non arbitrage price. Or even inter market arb that keeps prices on each exchange in the US at a non arbitrage price. I mean the entire currency market is kept in sync due to HFT. They also do ETF arb that keeps ETF prices at, you guess it, their non arbitrage price. These are all things that were done very poorly before HFT, and well computerization in general of the market. The one thing I find when making these comments is people keep moving the goal posts. Remember: At one point HFT was being able to trade multiple times a minute with a computer. That was HFT at a time in the 80s. Then being able to trade a a second level to keep exchange prices in sync, that was at one time HFT level speed. That was HFT in the 90s. People now take that HFT behaviour for granted and try to move the goal posts to micro second timing forgetting that the above are all hft activities, its just that many more people can do them now. HFT has undeniably shrunk spreads and decreased what the average person pays to buy the market.
- raverbashing 6y ago
  I have my doubts Because HFT would naturally operate over already high-liquidity papers. There's no point in HFTing low-volume stocks. Also not all HFT needs to rely on having the fastest transaction speeds. So, yeah, sure, having another buyer/seller does increase liquidity, but TSLA is liquid enough without it.
- magicalhippo 6y ago
  How exactly does it prevent other (non-HFT) people from losing money?
  - Traster 6y ago
    HFT firms make the market. That is they place orders in the market that form the bid/ask spread. So I'll be an HFT and market make quoting $90 bid, $100 ask for S&P500. This means if you were to buy 1 lot and sell 1 lot it'd cost you $10 (you bought at 100 and sold again at 90). The reason I have a spread between bid and ask is because I'm taking a risk that someone will take me up on the offer, the market will move against me and I'll lose money. Now, I install a much faster connection to the exchange, which means I can respond to market events faster, and so if the market moves against me I can move my position or cancel my orders or I can buy a hedge much quicker. So the risk of losing money is lower, so now I can quote $94 bid, $96 ask. By quoting tighter I can beat my competitors and more people will trade against me. So now you can buy 1 lot, sell 1 lot and it'll cost you $2. So the better these HFT firms are, the less it costs you to get in and out of the positions you want.
    - magicalhippo 6y ago
      Thank you for the explanation. I was under the impression the HFT's raced my moves instead of sitting there waiting for me.
      - Arnt 6y ago
        They do, in a way... A HFT typically has a given stock of Siemens and offers to buy and sell. Suppose one has 100 shares and offers to buy and sell two, you want to buy forty. You'll get two, and the HFT will put two more on the market, at slightly higher prices, and wait to see whether you buy. How much higher/lower? Obviously they'd like to raise the price quickly to the highest price you'll pay, without raising it so high that you buy from someone else, and equally obviously you don't tell them what price that is. Will the HFT firm's software have better heuristics than your broker's?
    - nicoburns 6y ago
- Bakary 6y ago
  If high-frequency traders were to disappear overnight, what would the consequences be in terms of loss of quality of life for society?
  - Raidion 6y ago
    A few things instantly come to mind. Bid/ask spreads jump significantly because of the decrease in liquidity. This has a ton of weird downstream effects as the "market" prices are less efficient and more risky. You also lose all the money that's driving technological advancements (like that fiber cable). You can think of HFTs as market makers, liquidity providers, and automated price discovery. For their services, they end up being able to slice a penny off the top of a lot of orders.
    - Bakary 6y ago
      I admit I don't know much about this field (hence my question) so I will take your word for it. What sort of magnitude of problem are we talking about for the downstream effects? >You also lose all the money that's driving technological advancements (like that fiber cable). Isn't this circular? If they weren't capturing wealth created by other actors, they tautologically wouldn't have it to invest in the first place. That said, it's true that the money might not then be invested in this sort of technology.
      - Raidion 6y ago
        So I'm not an expert either, but financial books are some of my favorite. I think the easy take away is that the bid ask spread is the transaction cost. If you can buy and sell a stock for the same price (minus price movements), it's very efficient to move your money in and out of different assets. With the bid-ask spread being wider, that adds a transaction cost to every trade, as you can't sell for the price you just bought. This means that trades are more expensive and riskier. HFT provides liquidity that reduces those risks. HFT seems to me to be one of those words that means two different things and people select the version of HFT that fits their arguments. "Evil" HFT is a rent seeker that just can get in front of the trades you make without adding value, you're just paying an extra penny or something for transaction. "Good" HFT is a market maker with tons of info who just gets there first every time because they're FAST. You can see how the amount of info HFT turns it "good" or "bad", and that's a tightly held trade secret for most of the trading firms, so it's a grey area.
kasey_junk 6y ago
Routers with fpga/asic cards, very precise data center clocks, backhaul between Chicago/New Jersey & London/Frankfurt are all areas where HFT investments have made it to other commodity technology businesses.
baybal2 6y ago
> But, have the algorithms or technology they develop been taken and used elsewhere? I bet videogaming companies will go for this fibre, though it wasn't those bank companies doing the research of course. Imagine, pay $10 a month, and get half the ping than anybody else in Q3.
- jgalt212 6y ago
  > get half the ping than anybody else Has a similar effect to using an aimbot (which are dis-allowed).

xwdv 6y ago

It is very valuable, but often misunderstood. Without high-frequency trades building market liquidity, there would be a massive gulf between bid ask spreads that ultimately loses people money in the long run.

pfortuny 6y ago
Someone downvoted you. I also think that getting rid of large arbitration opportunities as soon as possible is good for markets, as they behave “nearer” the ideal no-arbitration model. But that is just my opinion.
- MagnumOpus 6y ago
  And what is the big-picture economic difference between getting rid of arbitrage opportunities with a millisecond (in the old times) or within a nanosecond? Because that's what we are talking about, not about inefficiencies remaining for hours.
  - pfortuny 6y ago
    That is just a property of competition, nothing to do with HFT per se.
  - Arnt 6y ago
    There's a hidden assumption in your statement. AIUI, you think that HFT has driven various numbers far down, the rest of us benefit from them being driven down, but don't benefit significantly from them being driven as far down as HFT actually has done. Right? I can agree with that. The hidden assumption is that if HFT hadn't done that, then something else would have come along to drive those numbers down, but not as far. If so, then the benefit to the rest of us would have been much the same as it actually is. You may be right, but I don't see what that "something else" could be. It would have to be something where some actor benefits from quick reaction and low spread, right? AFAICT, that must be either HFT or something indistinguishable from HFT. Something with the same traits, blamed by the same people for the same reasons.
    - maest 6y ago
      You can impose a floor beyond which lower latencies no longer provide an advantage by replacing the current continuous auction market with a periodic, blind auction. That is, have a market where orders accummulate in the order book and every, say, 15 seconds, the order book is crossed and trades are made.
      - pfortuny 6y ago
        You can do a lot of things with norms and regulations but, in the end, why not let the market organize itself? Also, timing (as per your example) is very very very difficult to keep exactly. On the other hand, I think a kind of relation between prize of an operation and its energetic cost would be beneficial (like ---as an example--- forcing an operation to compute a hash of proportional difficulty, or whatever). But this is a different problem.
        maest 6y ago
fsh 6y ago
How does a spread make people lose money? Trades only happen if the buyer and seller agree on a price.
- kasey_junk 6y ago
  Lower spreads are good for people who aren’t price sensitive but are getting in or out of positions for other reasons than market microstructure. This is largely everyone. If you need to rebalance your portfolio into more cash, say because you are paying for college, the lower the spread the lower your transaction cost.
- ikrenji 6y ago
  it doesnt. HFT is pure rent seeking
  - sgt101 6y ago
    I wonder what the amount of money made by HFT taking advantage of "natural arbitrage opportunities" is, and how it compares to HFT as pure front running of known orders? My guess is ~0 vs ~lots.
    - baybal2 6y ago
      If it was so, they wouldn't be losing money, closing the shop. Quite a number of them went under. So even such clearest cut front-running is not a fool proof strategy with "money out of thin air." Seeing somebody saying "give me money, and I will multiply them with some magic mumbo jumbo" they themselves don't seem to understand, if the most usual investment industry hot air.
    - Arnt 6y ago
      The big natural arbitrage opportunity is other people's coarse-grained price changes. HFTs make finer-grained changes at shorter intervals, and so win trades that the exchange directs to the best offer. If being a market maker is profitable, then this profit derives from executing trades. Because the exchange directs trade to the best offer, the profit goes to whoever offers the best price, which is whoever adjusts its offer prices quickest. That's the recipe for HFT.
MichaelRazum 6y ago
Actually I think it is not true. What is happening is that firms who can afford are investing in not necessary technology to be executed faster then others. That just creates a huge market barrier and a monopoly. Only the trading firms and in some way exchanges are creating value of it. For the normal user it doesn't matter if spreads or the orderbook is updated in a nano or microsecond.
algo_trader 6y ago
U r correct And i also un-downvoted you ;) For comparison, before the "internet", here were minimum $50 and $100 commissions on stock buys. 2%-3% buy-sell spreads were common. HFT is critical to allow each paper to be traded in multiple competing venues. etc etc
- nicoburns 6y ago
  Couldn't you just legislate against this similar to maximum visa transaction fees in Europe?
  - xwdv 6y ago
    Will just create new opportunities for legislative arbitrage.
MagnumOpus 6y ago
You are incorrect. Market-makers who take the other side of trades and warehouse risk for minutes or hours create liqidity (for minutes or hours). And yes, some algo traders are market makers and thus have social utility. HFT who play market-maker for a microsecond do not create liqidity and have no value for society. Well, strictly speaking they create liquidity for the first 100-share lot of trades that a real-money market participant needs to do, and act as costly parasites for the other hundred or thousands lots that they need to do.
- kasey_junk 6y ago
  Can you explain what costs the “parasites” add to the system?
- chollida1 6y ago
  As someone in the industry and in that particular area, it seems like its you who are mistaken. Anyone whose a market maker is playing in the HFT space, otherwise you can't cancel fast enough when the market moves otherwise. Other uses of HFT are interlisted arb that keeps companies that trade in multiple countries at the appropriate non arbitrage price. Or even inter market arb that keeps prices on each exchange in the US at a non arbitrage price. I mean the entire currency market is kept in sync due to HFT. They also do ETF arb that keeps ETF prices at, you guess it, their non arbitrage price. These are all things that were done very poorly before HFT, and well computerization in general of the market. The one thing I find when making these comments is people keep moving the goal posts. Remember: At one point HFT was being able to trade multiple times a minute with a computer. That was HFT at a time in the 80s. Then being able to trade a a second level to keep exchange prices in sync, that was at one time HFT level speed. That was HFT in the 90s. People now take that HFT behaviour for granted and try to move the goal posts to micro second timing forgetting that the above are all hft activities, its just that many more people can do them now. HFT has undeniably shrunk spreads and decreased what the average person pays to buy the market.
raverbashing 6y ago
I have my doubts Because HFT would naturally operate over already high-liquidity papers. There's no point in HFTing low-volume stocks. Also not all HFT needs to rely on having the fastest transaction speeds. So, yeah, sure, having another buyer/seller does increase liquidity, but TSLA is liquid enough without it.
magicalhippo 6y ago
How exactly does it prevent other (non-HFT) people from losing money?
- Traster 6y ago
  HFT firms make the market. That is they place orders in the market that form the bid/ask spread. So I'll be an HFT and market make quoting $90 bid, $100 ask for S&P500. This means if you were to buy 1 lot and sell 1 lot it'd cost you $10 (you bought at 100 and sold again at 90). The reason I have a spread between bid and ask is because I'm taking a risk that someone will take me up on the offer, the market will move against me and I'll lose money. Now, I install a much faster connection to the exchange, which means I can respond to market events faster, and so if the market moves against me I can move my position or cancel my orders or I can buy a hedge much quicker. So the risk of losing money is lower, so now I can quote $94 bid, $96 ask. By quoting tighter I can beat my competitors and more people will trade against me. So now you can buy 1 lot, sell 1 lot and it'll cost you $2. So the better these HFT firms are, the less it costs you to get in and out of the positions you want.
  - magicalhippo 6y ago
    Thank you for the explanation. I was under the impression the HFT's raced my moves instead of sitting there waiting for me.
    - Arnt 6y ago
      They do, in a way... A HFT typically has a given stock of Siemens and offers to buy and sell. Suppose one has 100 shares and offers to buy and sell two, you want to buy forty. You'll get two, and the HFT will put two more on the market, at slightly higher prices, and wait to see whether you buy. How much higher/lower? Obviously they'd like to raise the price quickly to the highest price you'll pay, without raising it so high that you buy from someone else, and equally obviously you don't tell them what price that is. Will the HFT firm's software have better heuristics than your broker's?
  - nicoburns 6y ago
Bakary 6y ago
If high-frequency traders were to disappear overnight, what would the consequences be in terms of loss of quality of life for society?
- Raidion 6y ago
  A few things instantly come to mind. Bid/ask spreads jump significantly because of the decrease in liquidity. This has a ton of weird downstream effects as the "market" prices are less efficient and more risky. You also lose all the money that's driving technological advancements (like that fiber cable). You can think of HFTs as market makers, liquidity providers, and automated price discovery. For their services, they end up being able to slice a penny off the top of a lot of orders.
  - Bakary 6y ago
    I admit I don't know much about this field (hence my question) so I will take your word for it. What sort of magnitude of problem are we talking about for the downstream effects? >You also lose all the money that's driving technological advancements (like that fiber cable). Isn't this circular? If they weren't capturing wealth created by other actors, they tautologically wouldn't have it to invest in the first place. That said, it's true that the money might not then be invested in this sort of technology.
    - Raidion 6y ago
      So I'm not an expert either, but financial books are some of my favorite. I think the easy take away is that the bid ask spread is the transaction cost. If you can buy and sell a stock for the same price (minus price movements), it's very efficient to move your money in and out of different assets. With the bid-ask spread being wider, that adds a transaction cost to every trade, as you can't sell for the price you just bought. This means that trades are more expensive and riskier. HFT provides liquidity that reduces those risks. HFT seems to me to be one of those words that means two different things and people select the version of HFT that fits their arguments. "Evil" HFT is a rent seeker that just can get in front of the trades you make without adding value, you're just paying an extra penny or something for transaction. "Good" HFT is a market maker with tons of info who just gets there first every time because they're FAST. You can see how the amount of info HFT turns it "good" or "bad", and that's a tightly held trade secret for most of the trading firms, so it's a grey area.

kasey_junk 6y ago

Routers with fpga/asic cards, very precise data center clocks, backhaul between Chicago/New Jersey & London/Frankfurt are all areas where HFT investments have made it to other commodity technology businesses.

baybal2 6y ago

> But, have the algorithms or technology they develop been taken and used elsewhere? I bet videogaming companies will go for this fibre, though it wasn't those bank companies doing the research of course. Imagine, pay $10 a month, and get half the ping than anybody else in Q3.

jgalt212 6y ago
> get half the ping than anybody else Has a similar effect to using an aimbot (which are dis-allowed).