7 ms·

Other than seemingly perverse incentives, is there a good reason not to quantize trading time?

mikewarot 2y ago
I've argued in the past that we should have batch settlements every 30 seconds, instead of in real time. We don't really need microsecond based skimming/front running.
- biomcgary 2y ago
  30 seconds seems reasonable. Don't the markets themselves make a fair amount of money off of providing fast access to the HFTs? Is that the primary perverse incentive?
- Loughla 2y ago
  I've read the arguments that the microsecond trading serves a purpose that benefits all of us, but I fail to see how, even with the explanations. I'm with you. Every 30 seconds. Cap the power of connection speed in trading. Trading should be based on the value of the item being traded, not on how short the fiber run is.
  - mhmmmmmm 2y ago
    CLOB's force market participants to compete on pricing (which is only indirectly related to latency, since you can quote tighter if you know your orders won't get picked off by other, faster, traders) Taiwan used to have Batching style auction and it ultimately led to worse prices: https://focus.world-exchanges.org/articles/citadel-trading-auctions https://focus.world-exchanges.org/articles/citadel-trading-a... > Our analysis of the TWSE’s transition clearly demonstrates that continuous trading results in better liquidity provision, lower bid-ask spreads, more stable prices and enhanced price discovery, as well as higher trading volumes.
  - JumpCrisscross 2y ago
    > read the arguments that the microsecond trading serves a purpose that benefits all of us, but I fail to see how, even with the explanations What about an empirical argument? Microsecond trading reduces spreads and decreases volatility. It looks useless, so people try to regulate it away, and every time they do spreads widen and trading firms' and banks' profits fatten. > Every 30 seconds. Cap the power of connection speed in trading I'd go back to Wall Street if this happened: it would make market making profitable again.
- harry8 2y ago
  so now the race is to get the order in (or out) @ 29.999999985 seconds or 15nS before the batch deadline. Interesting twist on the game. Unlikely to change who wins it, could it be worse for retail punters? We need to kill "front running" as a criticism of low-latency algo trding with fire. It's garbage. Front running is highly illegal and is where a broker knows a client is going to do a big trade due to inside information and trades on the account of others (themselves, typically) to exploit that inside information. It's a straight up cheat. Inferring from market data alone which way a price will move is legal, honest, been attempted since forever and absolutely fine. Also very, very difficult. Anyone who can do it makes the market more efficient, reduces the money available by doing it (which goes into investors pockets through tighter spreads) and really earns their money. You don't have to like them if you don't want to but it's worlds apart from front running using inside information. Where did algo trading profit come from? Won by being more competitive from brokers profit with a good chunk of that broker profit going to investors. Spreads are tighter. Where are the clients' yachts? Well tech did something about the some of the broker ripoffs earning their yachts - which puts money in your pocket.
  - aeries 2y ago
    You could randomize the batching deadline.
    - harry8 2y ago
      and it won't help retail investors either.
      - deleted 2y ago
        [deleted]
  - anonymoushn 2y ago
    Batching can greatly lower the returns to speed, which would be sufficient to get participants to invest less in speed. It doesn't need to reduce the returns to speed to 0, and indeed reducing the returns to speed to 0 is sort of an incoherent idea to begin with.
- infecto 2y ago
  Why not 1 minute then? You have ignored the whole issue of how are you then ordering those contracts in 30second batches?
  - mikewarot 2y ago
    We already have systems for that, I believe it's the highest prices get filled first, but I'm not a trader.
    - infecto 2y ago
      Certainly systems exist, it was mostly a rhetorical question though. People love to say just run batches every N without diving into the complexity that exists. All they would accomplish by creating batches is wider bid/ask spreads.
- usefulcat 2y ago
  If there are multiple orders at the same price on the same side, how should we determine which ones are filled first? Or put another way, how should we determine which orders are least likely to get filled?
  - hcks 2y ago
    Well either volume weighted or randomised then
    - Kstarek 2y ago
      HFT is still a massive thing in volume weighted (we call them pro-rata) markets, and it's even more toxic for retail as lots of people submit large orders that are unlikely to get filled immediately (which retail doesn't have the $ to do) to secure a bigger share of the pie
- renewiltord 2y ago
  I have made many very good arguments before that 45 seconds is ideal.
usefulcat 2y ago
If you're talking about something like having an auction (per security) every N seconds, I don't see how that addresses the underlying issue, which is how to determine order priority. If you have a bunch of orders at the same price on the same side, and an order comes in from the other side that crosses those orders (or there is an auction and there are orders on the other side which cross), how do you decide which of the resting orders at the same price should be filled first? The most common way is that the first order to arrive at the exchange at that price gets filled first, and for that reason being fast is inherently advantageous.
- ssivark 2y ago
  How about along a randomized delay (0-T time) to each order? For T=30s it will largely nullify millisecond latency advantages.
  - JumpCrisscross 2y ago
    > How about along a randomized delay (0-T time) to each order? This is the sort of good idea that just entrenches the algos. (Former algorithmic derivatives trader.) For small orders, these delays make no difference. For a big order, however, it could be disastrously embarassing. So now, instead of that fund's trader feeling comfortable directly submitting their trade using off-the-shelf execution algos, they'll route it to an HFT who can chunk it into itty bity orders diarrhea'd through to average out the randomness of those delays.
- api 2y ago
  Randomize orders using a cryptographic hash of the order, client info, and all other fields plus a random salt added when the order is submitted. Sort by hash. Impossible to game unless you can break the hash function.
  - mhmmmmmm 2y ago
    So now I probabilistically spam a ton of different orders to on average get my desired fill... This just turns it into a "whoever is best at DoS'ing the exchange" game. As the orderbook fills with competitor orders it makes sense for yourself to also spam orders so each of your orders maintains the same probability of being filled
infecto 2y ago
There are cases to be made that you get tighter spreads. The larger the time interval the larger the risk on pricing. If I am selling and it’s a large time to trade I am going to probably want to sell it for a higher price. The same goes on the bid.
anonymoushn 2y ago
The non-terrible version of this proposal is called Frequent Batch Auctions. I've read the paper and it seems like a decent idea to me. I have heard that some real-life venues have implemented the terrible version of this proposal instead though.
mhmmmmmm 2y ago
Taiwan Stock Exchange used to have quantized trading times (read "frequent batch auction"), but it led to worse price discovery and a bigger bid ask spread: https://focus.world-exchanges.org/articles/citadel-trading-auctions https://focus.world-exchanges.org/articles/citadel-trading-a... > Our analysis of the TWSE’s transition clearly demonstrates that continuous trading results in better liquidity provision, lower bid-ask spreads, more stable prices and enhanced price discovery, as well as higher trading volumes.
- deleted 2y ago
  [deleted]
- biomcgary 2y ago
  Thank you, it is nice to see an empirical observation of before and after the transition to continuous trading.
  - JumpCrisscross 2y ago
    Note that American exchanges open and close with a batched cross. This hybrid approach is why most objections to intraday continuous trading is misplaced.
- tzs 2y ago
  Is that better liquidity, etc., actually needed? If we consider the function of a market to be to arrive at prices that lead to the optimal allocation of the goods sold on that market, intuitively it would seem that there should be a limit on how fast trades need to propagate to achieve that, and the limit would be tied to how fast new information relevant to the producers and consumers of those goods comes out. I don't think I'm expressing this well but the idea is that prices of goods should be tied to things that actually affect those goods. That's generally going to be real world news. If you turn up trading speed much past the speed necessary to deal with that I'd expect that you could end up with the market reacting to itself. Kind of like when you turn an amplifier up to much and start getting distortion and even feedback.
  - 2y ago

I've argued in the past that we should have batch settlements every 30 seconds, instead of in real time. We don't really need microsecond based skimming/front running.

biomcgary 2y ago
30 seconds seems reasonable. Don't the markets themselves make a fair amount of money off of providing fast access to the HFTs? Is that the primary perverse incentive?
Loughla 2y ago
I've read the arguments that the microsecond trading serves a purpose that benefits all of us, but I fail to see how, even with the explanations. I'm with you. Every 30 seconds. Cap the power of connection speed in trading. Trading should be based on the value of the item being traded, not on how short the fiber run is.
- mhmmmmmm 2y ago
  CLOB's force market participants to compete on pricing (which is only indirectly related to latency, since you can quote tighter if you know your orders won't get picked off by other, faster, traders) Taiwan used to have Batching style auction and it ultimately led to worse prices: https://focus.world-exchanges.org/articles/citadel-trading-auctions https://focus.world-exchanges.org/articles/citadel-trading-a... > Our analysis of the TWSE’s transition clearly demonstrates that continuous trading results in better liquidity provision, lower bid-ask spreads, more stable prices and enhanced price discovery, as well as higher trading volumes.
- JumpCrisscross 2y ago
  > read the arguments that the microsecond trading serves a purpose that benefits all of us, but I fail to see how, even with the explanations What about an empirical argument? Microsecond trading reduces spreads and decreases volatility. It looks useless, so people try to regulate it away, and every time they do spreads widen and trading firms' and banks' profits fatten. > Every 30 seconds. Cap the power of connection speed in trading I'd go back to Wall Street if this happened: it would make market making profitable again.
harry8 2y ago
so now the race is to get the order in (or out) @ 29.999999985 seconds or 15nS before the batch deadline. Interesting twist on the game. Unlikely to change who wins it, could it be worse for retail punters? We need to kill "front running" as a criticism of low-latency algo trding with fire. It's garbage. Front running is highly illegal and is where a broker knows a client is going to do a big trade due to inside information and trades on the account of others (themselves, typically) to exploit that inside information. It's a straight up cheat. Inferring from market data alone which way a price will move is legal, honest, been attempted since forever and absolutely fine. Also very, very difficult. Anyone who can do it makes the market more efficient, reduces the money available by doing it (which goes into investors pockets through tighter spreads) and really earns their money. You don't have to like them if you don't want to but it's worlds apart from front running using inside information. Where did algo trading profit come from? Won by being more competitive from brokers profit with a good chunk of that broker profit going to investors. Spreads are tighter. Where are the clients' yachts? Well tech did something about the some of the broker ripoffs earning their yachts - which puts money in your pocket.
- aeries 2y ago
  You could randomize the batching deadline.
  - harry8 2y ago
    and it won't help retail investors either.
    - deleted 2y ago
      [deleted]
- anonymoushn 2y ago
  Batching can greatly lower the returns to speed, which would be sufficient to get participants to invest less in speed. It doesn't need to reduce the returns to speed to 0, and indeed reducing the returns to speed to 0 is sort of an incoherent idea to begin with.
infecto 2y ago
Why not 1 minute then? You have ignored the whole issue of how are you then ordering those contracts in 30second batches?
- mikewarot 2y ago
  We already have systems for that, I believe it's the highest prices get filled first, but I'm not a trader.
  - infecto 2y ago
    Certainly systems exist, it was mostly a rhetorical question though. People love to say just run batches every N without diving into the complexity that exists. All they would accomplish by creating batches is wider bid/ask spreads.
usefulcat 2y ago
If there are multiple orders at the same price on the same side, how should we determine which ones are filled first? Or put another way, how should we determine which orders are least likely to get filled?
- hcks 2y ago
  Well either volume weighted or randomised then
  - Kstarek 2y ago
    HFT is still a massive thing in volume weighted (we call them pro-rata) markets, and it's even more toxic for retail as lots of people submit large orders that are unlikely to get filled immediately (which retail doesn't have the $ to do) to secure a bigger share of the pie
renewiltord 2y ago
I have made many very good arguments before that 45 seconds is ideal.

usefulcat 2y ago

If you're talking about something like having an auction (per security) every N seconds, I don't see how that addresses the underlying issue, which is how to determine order priority. If you have a bunch of orders at the same price on the same side, and an order comes in from the other side that crosses those orders (or there is an auction and there are orders on the other side which cross), how do you decide which of the resting orders at the same price should be filled first? The most common way is that the first order to arrive at the exchange at that price gets filled first, and for that reason being fast is inherently advantageous.

ssivark 2y ago
How about along a randomized delay (0-T time) to each order? For T=30s it will largely nullify millisecond latency advantages.
- JumpCrisscross 2y ago
  > How about along a randomized delay (0-T time) to each order? This is the sort of good idea that just entrenches the algos. (Former algorithmic derivatives trader.) For small orders, these delays make no difference. For a big order, however, it could be disastrously embarassing. So now, instead of that fund's trader feeling comfortable directly submitting their trade using off-the-shelf execution algos, they'll route it to an HFT who can chunk it into itty bity orders diarrhea'd through to average out the randomness of those delays.
api 2y ago
Randomize orders using a cryptographic hash of the order, client info, and all other fields plus a random salt added when the order is submitted. Sort by hash. Impossible to game unless you can break the hash function.
- mhmmmmmm 2y ago
  So now I probabilistically spam a ton of different orders to on average get my desired fill... This just turns it into a "whoever is best at DoS'ing the exchange" game. As the orderbook fills with competitor orders it makes sense for yourself to also spam orders so each of your orders maintains the same probability of being filled

infecto 2y ago

There are cases to be made that you get tighter spreads. The larger the time interval the larger the risk on pricing. If I am selling and it’s a large time to trade I am going to probably want to sell it for a higher price. The same goes on the bid.

anonymoushn 2y ago

The non-terrible version of this proposal is called Frequent Batch Auctions. I've read the paper and it seems like a decent idea to me. I have heard that some real-life venues have implemented the terrible version of this proposal instead though.

mhmmmmmm 2y ago

Taiwan Stock Exchange used to have quantized trading times (read "frequent batch auction"), but it led to worse price discovery and a bigger bid ask spread: https://focus.world-exchanges.org/articles/citadel-trading-auctions https://focus.world-exchanges.org/articles/citadel-trading-a... > Our analysis of the TWSE’s transition clearly demonstrates that continuous trading results in better liquidity provision, lower bid-ask spreads, more stable prices and enhanced price discovery, as well as higher trading volumes.

deleted 2y ago
[deleted]
biomcgary 2y ago
Thank you, it is nice to see an empirical observation of before and after the transition to continuous trading.
- JumpCrisscross 2y ago
  Note that American exchanges open and close with a batched cross. This hybrid approach is why most objections to intraday continuous trading is misplaced.
tzs 2y ago
Is that better liquidity, etc., actually needed? If we consider the function of a market to be to arrive at prices that lead to the optimal allocation of the goods sold on that market, intuitively it would seem that there should be a limit on how fast trades need to propagate to achieve that, and the limit would be tied to how fast new information relevant to the producers and consumers of those goods comes out. I don't think I'm expressing this well but the idea is that prices of goods should be tied to things that actually affect those goods. That's generally going to be real world news. If you turn up trading speed much past the speed necessary to deal with that I'd expect that you could end up with the market reacting to itself. Kind of like when you turn an amplifier up to much and start getting distortion and even feedback.
- 2y ago