2 ms·

Low latency trading is so crucial to the economy that the market mostly shuts down at 4pm every day and takes weekends and holidays, adding 2^47 nanosecond dela

by cma 5y ago

Low latency trading is so crucial to the economy that the market mostly shuts down at 4pm every day and takes weekends and holidays, adding 2^47 nanosecond delays every week without much outcry. And whoever wins by 20ns gets rewarded the same as the previous guy who was winning by 21ns. The magnitude of latency isn't rewarded, just coming in first, so more and is spent on less an less absolute improvements, none of which have been relevant to human reaction times for decades.

lotsofpulp 5y ago
> The magnitude of latency isn't rewarded, just coming in first, so more and is spent on less an less absolute improvements, none of which have been relevant to human reaction times for decades. So why are the HFT firms earning profits? There is no law that says people are obligated to do business with them. There is no law that says people have to buy at the prices HFT firms are selling at and sell at the prices HFT firms are buying at.
- cma 5y ago
  If someone come in and beats them by .001ns they get all their profits. Is .001ns really worth that reward? The utility provided is mostly detached from the reward, it is just winner gets it.
  - lotsofpulp 5y ago
    Worth what reward? Once an HFT firm buys a security, they now have to sell it again. Or vice versa if they sell a security. Do you think they earn a profit on every trade? There is risk in every trade, sometimes they overpay, sometimes they underpay. It makes no material difference to the profits of a buy and hold investor. If it did, buy and hold investors would not trade with HFT firms.
    - cma 5y ago
      The liquidity provider reward or index/underlying arbitrage reward, etc. Yes there is a stochastic component and various other things, I'm only talking about the edge from lower latency.
  - mgaunard 5y ago
    Not all markets are deterministic, in some there is some level of jitter so fastest guy doesn't always win anyway. Some markets also take steps to prevent the speed game too in how they define the rules. While for obvious big moves it might be all about latency, most events are more about the quality of your pricing, incorporating correlated information, edge requirement and risk management that decides what you go for and what you don't, and for those smarter trades you usually have microseconds to spare.
pgwhalen 5y ago
> Low latency trading is so crucial to the economy that the market mostly shuts down at 4pm every day and takes weekends and holidays, adding 2^47 nanosecond delays every week without much outcry. To this I would say: grocery stores (which serve as a sort of middleman to a whole host of necessary goods and are clearly crucial to the economy) close overnight without much outcry. (To be clear, I think grocery stores are far more important to the economy/society than HFTs, but I think your argument for why is poor)
- cma 5y ago
  One grocery store doesn't bury another by being humanly imperceptibly faster at returning carts than the other by a microsecond, and if they were forced by the structure of the market to spend tons of money on that before investing in being open 24/7 which real customers care far more about and provides far more value, it would seem really weird and like something was really messed up with market incentives in the grocery store industry.
  - pgwhalen 5y ago
    > One grocery store doesn't bury another by being humanly imperceptibly faster at returning carts than the other by a microsecond One trading strategy being faster than another does not automatically make it better. This is a common misconception.
    - cma 5y ago
      There are many, I'm only talking about the ones that get an edge through latency arbitrage.
      - pgwhalen 5y ago
        Sure, but at that point I would argue you metaphor is not very useful. One convenience store would likely "bury" another if it were one block closer to its customers than the other. I wouldn't say the food store industry was "really messed up with market incentives" because of it.

by cma 5y ago

lotsofpulp 5y ago

> The magnitude of latency isn't rewarded, just coming in first, so more and is spent on less an less absolute improvements, none of which have been relevant to human reaction times for decades. So why are the HFT firms earning profits? There is no law that says people are obligated to do business with them. There is no law that says people have to buy at the prices HFT firms are selling at and sell at the prices HFT firms are buying at.

cma 5y ago
If someone come in and beats them by .001ns they get all their profits. Is .001ns really worth that reward? The utility provided is mostly detached from the reward, it is just winner gets it.
- lotsofpulp 5y ago
  Worth what reward? Once an HFT firm buys a security, they now have to sell it again. Or vice versa if they sell a security. Do you think they earn a profit on every trade? There is risk in every trade, sometimes they overpay, sometimes they underpay. It makes no material difference to the profits of a buy and hold investor. If it did, buy and hold investors would not trade with HFT firms.
  - cma 5y ago
    The liquidity provider reward or index/underlying arbitrage reward, etc. Yes there is a stochastic component and various other things, I'm only talking about the edge from lower latency.
- mgaunard 5y ago
  Not all markets are deterministic, in some there is some level of jitter so fastest guy doesn't always win anyway. Some markets also take steps to prevent the speed game too in how they define the rules. While for obvious big moves it might be all about latency, most events are more about the quality of your pricing, incorporating correlated information, edge requirement and risk management that decides what you go for and what you don't, and for those smarter trades you usually have microseconds to spare.

pgwhalen 5y ago

> Low latency trading is so crucial to the economy that the market mostly shuts down at 4pm every day and takes weekends and holidays, adding 2^47 nanosecond delays every week without much outcry. To this I would say: grocery stores (which serve as a sort of middleman to a whole host of necessary goods and are clearly crucial to the economy) close overnight without much outcry. (To be clear, I think grocery stores are far more important to the economy/society than HFTs, but I think your argument for why is poor)

cma 5y ago
One grocery store doesn't bury another by being humanly imperceptibly faster at returning carts than the other by a microsecond, and if they were forced by the structure of the market to spend tons of money on that before investing in being open 24/7 which real customers care far more about and provides far more value, it would seem really weird and like something was really messed up with market incentives in the grocery store industry.
- pgwhalen 5y ago
  > One grocery store doesn't bury another by being humanly imperceptibly faster at returning carts than the other by a microsecond One trading strategy being faster than another does not automatically make it better. This is a common misconception.
  - cma 5y ago
    There are many, I'm only talking about the ones that get an edge through latency arbitrage.
    - pgwhalen 5y ago
      Sure, but at that point I would argue you metaphor is not very useful. One convenience store would likely "bury" another if it were one block closer to its customers than the other. I wouldn't say the food store industry was "really messed up with market incentives" because of it.