17 ms·
Someone got the natural gas report 400 ms early
- kjackson2012 14y agoIf the report is accessed via HTTP, I wouldn't be surprised if the clocks on the government server are off by a few ms, so all the HFTs that are pounding the URL are trying to get access to the data. The first one who got it made their trades before everyone else.
- niggler 14y agoAfter seeing some of their posts earlier and comparing it to live data I record at the colocations, I've concluded that they have clock issues which makes these types of anomalies appear frequently. Or they have a bad data vendor. Interestingly enough, even the regulators don't have good (only millisecond-resolution) trade data.
- aidenn0 14y agoInteresting, so you are saying that Nanex is wrong about someone trading 400ms before the report?
- niggler 14y agoTo give an example of how this could happen (not saying this is what happened, but I've heard this happened before): Suppose you left ntpd running and automatically adjusting the clock every hour. If your clock is running faster than pool.ntp.org, and you are synchronizing to it, you may end up adjusting in the middle of an event. Because your clock is running fast, you would jump back in time, breaking the sequence of time (this is somewhat equivalent to what you see during daylight savings time if you aren't intelligent in the way you handle the backwards hour shift) In this case, if the adjustment was forward in time, there would be a gap.
- Firehed 14y agoMy understanding is that ntpd corrects clock drift by replaying milliseconds consecutively, not by actually jumping back. However I can't remember where I read that and could be totally wrong.
- wiml 14y agoI'm sure there are lots of buggy NTP implementations out there that "adjust the clock every hour", but the way it's supposed to work is by continuously varying the speed of the clock (for example, using adjtime()) to correct any discrepancies. At no point should the clock jump backwards or forwards, or even have milliseconds that are more than X percent longer or shorter than usual.
- nanex 14y agoThese are charted with CQS (official) timestamps. Try again.
- rikacomet 14y agohmm, its not only the activity just before the official announcement, but also, just after it. There is no way possible that people can just make make a trade 'after' hearing a report 100-200 milliseconds after the report. The trading before the official announcement is a concrete proof, if this is official, and bug/error free. But then again, this is not my forte.
- niggler 14y agoCQS has had issues in the past. You should know this. More importantly, why wouldn't you invest in colocations and collect the data yourself using direct feeds (with GPS clock synchronization etc to validate the data)?
- nanex 14y agoWe do. You are grossly misinformed. The charts correctly show the sequence and times of this event. I'm not going to engage this discussion further, though pmail is fine.
- rikacomet 14y agoHi, sorry for being off-topic for other reasons, I want to have a personal chat with you, my email is abtocool'at'gmail please send me a line, when you can. Cheers.
- scott_s 14y agoAs a bystander who does not have the background necessary to evaluate either of your claims at face value, I would really like to hear your explanation for why you disagree with his explanation.
- niggler 14y ago
- bentcorner 14y ago(I don't know a whole lot about the intricacies of trading) Is there a minimum standard "resolution" for trades, or is everything sort of a best effort based on the speed of the computing hardware involved?
- niggler 14y agoEach exchange is implemented differently. Some have much lower round trip latency times, but currently latency numbers are in the microsecond range. The quotes themselves are provided with resolution from 1msec to 1nsec (depending on the exchange and on the type of data you wish to receive)
- swalsh 14y ago400 ms is an eternity of time. I can't imagine they'd be off by that much.
- niggler 14y ago"is plotted with official exchange timestamps" suggests that they are doing it wrong. You can't compare apples to oranges without knowing how the exchanges are timed. For those who do latency tests, this is a very important point: you should always be on the lookout for what clock is recording the 'start' and the 'stop' and to be sure to consider clock skew. To get a sense for how far timestamps can diverge, OATS -- the reports that are sent to the Financial Industry Regulatory Authority -- require that machines be synced to within 3 seconds of NIST (which is nearly 7.5x longer than the 400ms quoted).
- nathan_f77 14y agoYou do seem to know a lot about this topic, but I don't think you should draw any conclusions based on speculation.
- niggler 14y agoThere is no "speculation" here: When you measure latency, you always have to be careful about clock issues at the point where you measure the start and the point where you measure the end. This is old-hat for sysadmins and others who deal with these types of issues. This is why round-trip latency numbers are easier to work with: both the start and the end times are taken on the same clock. It's clear, given nanex's responses, that they depended on someone else to give the timestamps. Before concluding that someone had inside information ahead of time, they should check their processes. It's like someone claiming they built a perpetual energy machine because they confused power with energy (i want to say it was paul newman but the name escapes me -- this actually happened)
- varelse 14y agoCould be completely explained by someone having the right relay for this data in the right place at the right time (which would have been the result of a considerable outlay of resources and compensation to establish, thus boosting economic output long ahead of any potential killing(tm) made here). And I can't see any particularly efficient way to level the playing field with a government that barely understands facebook and fair use. Just try to explain microsecond latency to them, go ahead, really, should be even more fun than a series of tubes(tm).
- homosaur 14y agoIf we can't solve this problem, with the rise of machine driven microtrading, is there really any reason to place any faith in the stock market as a private investor?
- kmfrk 14y agoIt's not like it's the only of our concerns: http://www.zerohedge.com/news/2013-01-18/did-tim-geithner-leak-every-fed-announcement-banks http://www.zerohedge.com/news/2013-01-18/did-tim-geithner-le.... I'd love a blog that explained how investing in stocks with all this irregularity can be done consistently well. I imagine it gets harder and harder. Just look at LIBOR.
- homosaur 14y agoI agree that corruption is the larger and possibly more pressing issue, but that doesn't seem to be what happened here. I could be wrong of course, but this seems like a technical flaw and not intentional.
- kmfrk 14y agoOh no. I definitely don't mean to imply that corruption was involved here.
- drawkbox 14y agoSmall investors can only buy on bad news and long where applicable (i.e good company). Bad news and poor technical performance even if for a period is guaranteed almost to be driven down by HFT. And sometimes HFT over does it (maybe on purpose to let the suckers flood back in). I.e. Apple going to 430, Netflix to mid 50s after similar shorts/run ups and battle of machines. We all will be using HFT soon via proxy or already are. I would say this, possibly in the long run it is better as there will always be HFT algorithms that buy on the dip and take into account technical input as well as human input. Humans are irrational but machines only take a part of that into the algorithm, relying heavily on technicals, futures and news in addition. But there will also be massive shorting efforts as this used to be a tenured skill, but now a machine can match anyone on shorting. Flash crashes are now always possible but also recover quickly. The only way to change this is to charge more for trades and throttles, then there will always be inequality there as well. This also sort of lessens run away bull runs as well as the machines will always pull back first or buy first if past thresholds are met and futures line up.
- smcl 14y agoOr someone got the report a few hours early, didn't want to be seen to jump the gun (insider trading, and all that) and kicked off a new trading strategy 400ms earlier than they intended...
- rikacomet 14y agoand of course that also is only possible, when they know the exact time of when the news would go out. So that, they can time their activity just milliseconds before that, using tech.
- smcl 14y agoWell it seems to be known that the report is due for 10.30am, so it is possible. Just an additional possibility, though nanex are far more experienced in explaining odd activity in the markets than I am :)
- rikacomet 14y agoyes, I saw that, but think it in this way, that its a very unreasonable way, to give the time in advance. Its better for investers to have some luck with this, if the time is not given in advance, just the day roughly. The news will drop at any time during the 12 hours before or after the given day. This would cut the advantage those hardwired trading machines have, that do tons of trades in few seconds or even milliseconds. This should be one of the reforms against such things, in the interest of common folk investors.
- svachalek 14y agoIf your idea of investing involves reacting to news and trading stocks/bonds/commodities/derivatives on internationally automated markets then just donate all your money to a good cause because at least then you'll get a tax deduction out of it.
- tazzy531 14y agoFor a lot of these economic numbers and earnings report, they are provided to news organizations prior to the announcement with instructions that the information cannot be released prior to a certain time. So, for this example, that time was 10:30AM. The moment it hits that time, the reports get pushed out into the newswires and reported on-air. This allows the reporters to digest the numbers and figure out how to report it.
- unreal37 14y agoThis shows that not all investors acted on the information at once. But doesn't show that the report got out early. To the point of "private investors", if you are expecting to be able to see a news release the second it drops, spend 10 seconds reading it, make quick predictions on stock movements, and then buy/sell equities based on that... computers have had you beat for a long time on that game. Find another or automate that.
- jmix 14y agoSince it takes a while to digest the report after having seen it, chances are that they were in possession of the report far earlier than T-400ms but waited until they were in a time window where they knew the regulators would not come after them. This is how fortunes are made. By taking advantage of loopholes in the regulatory mechanism.
- homosaur 14y agoI don't know the way these reports are structured, but is it regular enough where there's even a possibility that a bot could digest, analyze, and act on the information there in near real time?
- lotyrin 14y agoThe thing is (supposedly and based on this chart) that this order was placed faster than that, even. Edit to clarify.
- yebyen 14y agoHow can you read this chart, and infer from it that the activity is due to having already read the report? Surely everyone knew that the report would be released at 10:30, and they had strategies (or hedged positions) that were not as likely to be influenced by the contents of the report as by the market forces surrounding their orders?
- lotyrin 14y agoI'm not, I'm not certain of that at all.
- yebyen 14y agoI don't have any idea, I don't want to sound snarky, I read the headline and jumped to the same conclusions as everyone else. Jumped on Twitter and re-tweeted, all I had to say was "incredible" After having some time to think about it, all I can say is... Can you imagine how many people would be fired already if their dots were 5 seconds on the wrong side of 10:30, instead of being 400ms early?
- danielweber 14y agoEvery sell is someone else's buy, and every buy is someone else's trade. If you saw a bunch of activity happening milliseconds before it should, why would you be the other party to someone you suspect is committing fraud? You will be the primary victim of the fraud.
- vannevar 14y agoIf you saw a bunch of activity happening milliseconds before it should, why would you be the other party to someone you suspect is committing fraud? If no such report had come out milliseconds later, the activity wouldn't be suspect. How could a person (or in this case, given the timeframe, an algorithm) possibly distinguish this spike from a 'legitimate' spike? It doesn't make sense to blame the victim of a fraud when the victim has no way of knowing at the time that they are being defrauded.
- danielweber 14y agoI presume the report didn't just randomly come out at some random time. That is, everyone knew exactly when it was going to come out.
- vannevar 14y agoTo the millisecond? I suppose it's possible. Even so, rumors drive spikes all the time. Someone could put out a false report, committing fraud in the reverse direction. I still doubt such a fraud could be detected at the time in any remotely reliable way.
- sirclueless 14y agoThe report is a government report, in machine-readable format, that is taken from a government server. If you wanted to put out a false report, you would have to hack the server or the connection to the server.
- 14y ago
- Zenst 14y agoRemind me of the film Trading Places and the Orange Juice crop reports. A pico or nano second is in this digital age is an advantage - it is the fairness of that advantage be it routing or some more underlying more sinister aspect that is the real issue here.
- SanjayUttam 14y agoOff-topic; what was used to generate those graphs?
- mixedbit 14y agoI don't think that increased trading activity supports a conclusion that the report leaked. People may have anticipated increased trading after the rapport release and may have prepared algorithms to try to gain during this event. The algorithms may have started working before the release. I'm not saying this was actually the case, but my theory is as well supported as the claim in the post.
- madaxe 14y agoYou'd only stick algos to automatically sell at a given time if you were mad (as you'd act on a move, not a time) - and the down and half-up tick indicate straddles set around the position. This may have been a single rogue performing an initial sell, causing a drop which caused all the other pre-set strategies held by folks with very close to the exchange links to also sell, and then subsequently buy back to the midpoint.
- madaxe 14y agoSo, that initial downwards spike at -400ms that immediately kicks back up to the halfway point? Those can only possibly be pre-programmed strategies. From the big boys. 'Cos you can't stack 'em exchange side last I checked, if they're price dependent. Which means they have a gloriously low-latency-close-to-the-exchange-link. Which means this news was leaked well before the event.
- sirclueless 14y agoSure you can "stack" them. If you place a sell order larger than any of the buy orders on the exchange, then what you will see is a "stack" of executed orders beginning with the highest-priced buy order and working down to cheaper ones. In any case, the bounce back looks to happen over ~100 ms or so, which is plenty of time for anyone's strategy to catch up. I don't see how you can conclude there is some big player who knew "well before the event."
- mildavw 14y agoTo make shenangins more obvious, what if 1 minute were the maximum resolution that any trade could happen? Say, every order gets a random number of seconds between 0 and 60 added to it before it is executed. Or even longer. What would happen if everyone gets 10 minutes to digest any news?
- gamegoblin 14y agoThis sounds like the type of regulation that people outside of an industry put on the industry with good intentions but really no idea what the consequences would be. Consider a company who holds a press conference announcing something huge (either positive or negative). Anyone wanting to buy or sell in this tiny window pretty much gets shafted by such a system.
- mildavw 14y agoYes, I am admittedly absolutely naive to the inner workings of the market. So what would happen in the press conference case? You would make your move based on the news knowing that sometime in the next 10 minutes it would be executed. No one else has any advantage so they can't necessarily get it done quicker. The value of short term moves is reduced, so everyone plays with a longer view.
- gamegoblin 14y agoMy comment was predominately directed to the bit about adding a random number of seconds. As for the 10 minute idea, I'm not entirely sure. I'll ask some friends who are in the industry and see what they think. I am just generally wary of people in one industry proposing regulations for those in another industry.
- sirclueless 14y agoThere is one huge problem with this, which is that under no circumstances can you reward people for placing larger orders than they can actually execute. If you do, you encourage people to make large orders in the hope that only part of them will execute, which can have catastrophic consequences if for some reason the whole trade executes in some unexpected case. Any form of lottery is vulnerable to this. If you clamp all the timestamps to ten minute intervals, then you need some arbitrary rule to decide which of the valid trades in some time window to execute. If you randomly choose a few, you encourage people to put in more orders than they can execute. If you satisfy them partially, you encourage people to put in larger orders than they can execute. As a result, the only way to do this that encourages proper behavior is to have some arbitrary competitive rule in place. The easiest and most obvious such arbitrary rule is the fastest order wins. This might seem anti-competitive at first glance, because it keeps out the tiny investors who can't get enough capital to compete in this area. But really, it's not that bad because it only takes a few million dollars if that to get top-notch hardware in a Manhattan or Chicago datacenter. In addition, market-making is by-and-large a commodity service: the entire HFT community can only make money when the market is inefficient, and market-maker competition makes the market more efficient. The HFT world makes money off of market inefficiencies, which are capped by the size of the market and the amount of outside investment. It's a hyper-competitive world of arbitrary rules, in place to encourage a more efficient market for investors. So you don't want to do it yourself, and you don't want to regulate them because you want HFT to be a insane low-margin nightmare for the benefit of everyone else.
- arjn 14y agoSo is this evidence of insider-trading ? Why would they not prosecute or at least investigate ?
- peterwwillis 14y agoSomebody has to provide evidence (and, you know, a perpetrator) to a prosecutor first. But there's no real "investigation team", save maybe FINRA. If FINRA detects something they can refer an investigation to the S.E.C. or other law enforcement body. But they don't exactly have a stellar track record. And nobody even has to listen to them; they just gather evidence and make recommendations. It's very much a dog with no teeth.
- zwischenzug 14y agoSorry if this is a question with an obvious answer, but how is the report delivered/obtained?
- crypteasy 14y agoBy parsing this JSON file http://ir.eia.gov/ngs/wngsr.json http://ir.eia.gov/ngs/wngsr.json
- nisa 14y agoDo they hammer the webserver for this? Is the JSON pushed somehwere? I'm in Europe, so numbers are probably too high, but httping results for the file suggest this is not how it's done: % httping http://ir.eia.gov/ngs/wngsr.json PING ir.eia.gov:80 (http://ir.eia.gov/ngs/wngsr.json): connected to 205.254.135.25:80 (286 bytes), seq=0 time=459.92 ms connected to 205.254.135.25:80 (286 bytes), seq=1 time=230.15 ms connected to 205.254.135.25:80 (286 bytes), seq=2 time=232.81 ms connected to 205.254.135.25:80 (286 bytes), seq=3 time=235.23 ms I would love to have some background information about how this trading works. Are there any technical details available how this works?
- jcromartie 14y agoHFT traders are actually physically positioning their systems to be as unhindered by physics as possible. They likely have servers in DC just to check ir.eia.gov, and definitely have servers at (or as near as possible) to the exchange on direct lines with trading systems.
- davidmr 14y agoI'd be shocked if anybody big was doing that. There are news agencies (Reuters, Bloomberg, etc.) that get the reports early and sell exchange-quality news feeds. People subscribe to those news feeds, and at the appointed time, messages go out to the subscribers.
- zwischenzug 14y ago
- joering2 14y agoany idea what kind of profit we talking about here? Perhaps this is just not worth for Federalies to pursue...
- Raz0rblade 14y agoOR WOULD THEY RATHER HIDE SOMEONE ? names of the first hfst traders crash where never made public also..
- lostlogin 14y agoIs cost/return a factor in these things? I'd hope not. If expense stops prosecution, the offender can learn where the cut off lies, and just offend below the benchmark. Somewhat like the way I drive (speed camera goes at 10kmh above limit, I drive at just under this).
- A1kmm 14y agoA rough approximation off the graph: volume before the announcement ~190,000. The announcement pushed the price down by ~$0.30/share, so by trading before the announcement, they avoided losses of ~$57,000.
- achompas 14y agoIs there any way to subscribe to these Nanex posts? Couldn't find an RSS read but I'd like to slowly dip into HFT, and they like a good source of trading news.
- dfc 14y agoI always get a kick out of reading these NANEX reports. Reading a new report usually means I spend 30 or 40 minutes filling in the gaps (giant) in my knowledge. Are there any other organizations that put out similar quality reports?
- CarlTheAwesome 14y agoMaybe that news was published 400ms or even a little bit earlier. Such little difference human beings cannot notice. Those who trade early were those who utilized A.I. systems to watch and analyze the report and trade accordingly, 400ms is long enough for big expensive machines to accomplish that task. To add even more conspiracy into the story, you can imagine someone was paid to publish the report just about 400ms earlier than supposed to by those who use computers to trade, and not very many people will notice, or just like post said feds don't even think this matters.
- petercooper 14y agoIt is worth pointing out that the EIA Natural Gas Report comes out weekly (every Thursday at 10:30) and the market reacts within a few milliseconds. Since it's not the report producer's job for investors' computers to rapidly parse it, they should have some fun in phrasing and presenting the information in different ways each time. If nothing else, it could lead to an explosion in NLP and content parsing technology ;-)
- willis77 14y agoWingdings is suddenly relevant again.
- peejaybee 14y agoNot as long as they are presenting it in JSON format. http://ir.eia.gov/ngs/wngsr.json http://ir.eia.gov/ngs/wngsr.json
- VikingCoder 14y agoHaha - yeah, they still could: they could change the schema weekly.
- SilasX 14y agoHoly crap that is a good idea to get useful work out of these guys.
- Kliment 14y agoThe fuckers will keep it all secret anyhow - or worse, patent it. Zero net benefit for the world.
- iso-8859-1 14y agoWhat would happen if that crucial number was published as a riddle instead?
- mcherm 14y agoThe high-frequency traders would pay $1,000,000 /year salaries to high-speed riddle solvers who trained themselves on Jeopardy shows for high-speed buzzer pressing.
- tedunangst 14y agoPeople would write blog posts complaining that the supposedly transparent government is obfuscating critical economic numbers.
- parfe 14y agoWhy would trade relevant data be released while trading is open? Seems like it could screw tons of people with open orders who can't react within seconds of new information.
- mistercow 14y agoWell, depending on who is responsible for deciding when the data is released, you may have answered your own question.
- tedunangst 14y agoIf the release of information could affect you, don't trade until after its released. You are free to pretend the market is closed whenever you like. And it's not like this risk isn't there anyway. Earthquakes rarely coordinate their timing with market hours, to name one example.
- incision 14y ago>Earthquakes rarely coordinate their timing with market hours, to name one example. When speaking of trading and earthquakes, it's hard not to mention Nick Leeson. The beginning of the end occurred on 16 January 1995, when Leeson placed a short straddle in the Singapore and Tokyo stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson's trading positions, into a tailspin. Leeson attempted to recoup his losses by making a series of increasingly risky new trades (using a Long-Long Future Arbitrage), this time betting that the Nikkei Stock Average would make a rapid recovery. However, the recovery failed to materialize. Leeson left a note reading "I'm Sorry" and fled Singapore on 23 February. Losses eventually reached £827 million (US$1.4 billion), twice the bank's available trading capital. After a failed bailout attempt, Barings was declared insolvent on 26 February. http://en.wikipedia.org/wiki/Nick_Leeson http://en.wikipedia.org/wiki/Nick_Leeson
- JanezStupar 14y agoTrading is always open on exchanges around the world. So traders would duke it out by proxy instruments on a different exchange.
- thechut 14y agoCan someone explain what this means in practice. As in how much money did these people make or stand to make because of being 400ms early?
- lrm242 14y agoThe most likely explanation: no one got anything early. Venue timestamps can often disagree by a significant amount. It is very likely that SIAC (distributors of CQS and CTS) simply are not well synced to the reference clocked used to distribute the report. Nanex spends a lot of time doing analysis based on precision timing without providing any sort of error analysis as to how well timestamps produced from different references synchronize. It would lend credibility to their hypotheses if they either provided their own reference or provided some measure of margin of error to the timestamps they so heavily rely upon. For example, if Nanex had stated that they measured the time of release and the time of trades themselves as they appeared in CQS as observed from their machines then they could make a much more concrete statement as to whether: (a) the report was "early" or (b) the trades were "early" relative to one another. Most likely they would observe that the report appeared "early" as measured to their system clock (or possibly some other reference), but the trades did not appear before the report. Of course, Nanex would be smart enough to account for transit latency and other what-not.
- bvcqw 14y agoI was once like you, young and innocent :)
- bvcqw 14y agoFor some perspective, checkout GOOG's intraday movement between 2006-2009. It was the trader's dream come true.
- tjic 14y agoThen you took an arrow to the knee?
- ZoFreX 14y agoPlease try to keep comments constructive on Hacker News. Memes and other forms of joke regurgitation don't really fit in here.
- 14y ago
- apaprocki 14y agohttp://invezz.com/news/alternative-investments/625-uk-report-advises-against-more-hft-regulations http://invezz.com/news/alternative-investments/625-uk-report... "Veteran traders would usually wait in anticipation for the weekly report of gas-inventory figures by the U.S. Energy Information Administration released on Thursday at 10.30 AM and then dive into the busiest trading window of the week. This is no longer true as most traders are now staying out of the market due to the HFTs new strategy - sending floods of orders in an effort to trigger huge price swings just before the data gets released, also known as “banging the beehive”." edit: Fast algo puts orders out on multiple equity exchanges and then hedges itself with a slow algo in the futures market.
- lifeisstillgood 14y agoAt what point will HFT drive out the proper functioning of a Market? Have there been any studies on this? If human traders mostly reacted to "real" news (the Orange juice crop is bad this year) then human trading was mostly linked to actual changes that affect the price mechanism But if large volumes of trades are speculative, or even worse, are directed at affecting the behaviour of other large Market players, is there not a point where the selling of actual OJ is just noise in the Market? One can anticipate HFT bots acting like the strange Amazon pricing of obscure books in the millions of dollars, bots competing against bots to acquire more of the rent redistribution. If we can imagine that we can imagine a failed crop with prices being driven down in a frenzy. Surely some research exists on this? Where is the price signal tipping point?
- josh2600 14y agoI think that HFT is responsible for over 70% of the volume on the major exchanges these days. Very little of what happens on the exchanges anymore is directly attributable to long positions. I'm not sure how current this is, but the average time a stock is held is roughly 20 seconds [1] and that's definitely not long-term value investing. I think we're already a long ways away from Kansas Dorothy, and I don't think we'll be going back any time soon. [1]http://seekingalpha.com/currents/post/110468 http://seekingalpha.com/currents/post/110468
- pbhjpbhj 14y agoWhat is the benefit of trading over ms resolutions. What problem is it solving? Wouldn't trade be more efficient if it were lock stepped - say one trade per hour (per day?): you agree your trade and the exchange processes it on the hour. What would be lost that benefits the pseudo-capitalism of these systems by having such a regime. How would this negatively impact production.
- varelse 14y agoIt reduces the bid/ask spread if there are more bidders and askers all doing their thing all the time: http://www.tradersmagazine.com/news/hfts-spreads-credit-suisse-110365-1.html http://www.tradersmagazine.com/news/hfts-spreads-credit-suis... This part is actually a good thing. That said, I remain gobstopped that HFT is such a whipping boy in a world where no one responsible for the 2008 crash has been prosecuted or jailed. The incident here seems to either be a clocking artifact or an excellent exploit of a momentary inefficiency in the market - just the sort of thing traders spend their careers on hunting down and exploiting - so why... so... serious???
- meric 14y agoThere are in fact places where the exchange processes trades once per hour. They are called "Call markets". Their disadvantage is trades only take place once per hour. http://www.investopedia.com/exam-guide/cfa-level-1/securities-markets/exchange-market-structure.asp#axzz2JabRkJbr http://www.investopedia.com/exam-guide/cfa-level-1/securitie...
- sseveran 14y agoNYSE offers this. http://www.nyse.com/pdfs/fact_sheet_Matchpoint_Intraday.pdf http://www.nyse.com/pdfs/fact_sheet_Matchpoint_Intraday.pdf
- lmm 14y ago>What is the benefit of trading over ms resolutions. What problem is it solving? The problem it's solving is that people want to do it. Exchanges on which they can't are outcompeted by exchanges on which they can. >Wouldn't trade be more efficient if it were lock stepped - say one trade per hour (per day?): No. >you agree your trade and the exchange processes it on the hour. You "agree" your trade outside the exchange? What do you think an exchange is? >What would be lost that benefits the pseudo-capitalism of these systems by having such a regime. How would this negatively impact production. Spreads would get wider, i.e. more investor cash would get creamed off by middlemen, leaving less for the productive companies it was actually invested in.
- geuis 14y agoWould putting a minimum time barrier on HFT systems help? Basically say, you can't make any trades faster than 100ms. You still get the benefit of fast HFT systems, but not the insane microsecond stuff going on now.
- fideloper 14y agoI really hate that I can't find articles when I need to. However, I have read that investment companies build datacenters as close to internet hubs as possible, to take advantage of the extra milliseconds gained. If I recall correctly, this is notable in Manhattan.
- sseveran 14y agoActually northern New Jersey.
- zaphar 14y agoThis has nothing to do with the main subject matter of the article but those graphs are almost unintelligible. I didn't even try to decode what they were trying to communicate.
- sseveran 14y agoAs someone who works in finance (the intended audience) they make perfect sense.
- cgcdesign 14y agoA little help on how to read the 2nd graph or maybe some source material to teach me. I'm not exactly sure how to even begun to research what kind of map it is, it looks like the matrix had an unfortunate mishap.
- sseveran 14y agoWhat you are looking at is a graph of the liquidity in the order book over time. A security does not have 1 price it has 2, the bid and the ask. The difference is called the spread. The bottom is showing the amount of liquidity at each price level. I don't know of a good source on how to read these charts since most people build their own viz tools.
- skilesare 14y agohttp://aqumin.com/ http://aqumin.com/
- cgcdesign 14y agoAwesome, this explaination and electronic derivatives trading lead me on the right path of reading candlestick graphs. I discovered stockcharts.com from doing some basic research and now have a pretty good understanding of them. I won't be trading any time soon but I can at least read it to some extent. Thanks a bunch. Sorry if I got a bit off topic, but I hate not knowing stuff.
- 14y ago
- SparrowOS 14y agoGod says... 32:28 For they are a nation void of counsel, neither is there any understanding in them. 32:29 O that they were wise, that they understood this, that they would consider their latter end! 32:30 How should one chase a thousand, and two put ten thousand to flight, except their Rock had sold them, and the LORD had shut them up? 32:31 For their rock is not as our Rock, even our enemies themselves being judges. 32:32 For their vine is of the vine of Sodom, and of the fields of Gomorrah: their grapes are grapes of gall, their clusters are bitter: 32:33 Their wine is the poison of dragons, and the cruel venom of asps. 32:34 Is not this laid up in store with me, and sealed up among my treasures? 32:35 To me belongeth vengeance and recompence; their foot shall slide in due time: for the day of their calamity is at hand, and the things that shall come upon them make haste. ---- God says... late Oklahoma ornamenting resisteth answered deferring cogo you're_nuts -Thou avail division fifth variously forbadest Knowing forceth knee fed flash I_got_your_back basically doors pay wit Royalties cursing poison condemned fifty-sixth babes livelihood discoverable Had ingrated discoverest -not exists reap beggar hereunto enabled usefully greatest finally balls begat half-divided life nill weal raged soul-sick
- benpbenp 14y agoA fun thought experiment. Suppose someone invents a time machine that gives the correct price of all securities at all future points in time. 1) Would it be against current rules to trade on this information? 2) If someone did use this machine surreptitiously to their own gain, how quickly will they approach owning 100% of everything? 3) If the entire data set of future prices were made publicly available, what would happen to markets? I mean, exactly, what would happen to stock prices?
- dclowd9901 14y agoI'll bite. Chances are, the existence of a perfect trader would cause enormous shifts in how a market handles trading. This trader would, by default, be barred from trading, because her influence on the market would be staggering to the effect that it would influence the market itself. Even Warren Buffet has to temper things he says, so as not to accidentally push the market around. But, assuming the FTC just decided to take a nap on the whole thing, I imagine those shifts in trading would so quickly dilute value that you'd end up with a system very similar to one we see now: machines doing the majority of the trading, but rather than on algorithms, more on observing Perfect Trader X.
- alexmchale 14y agoIf I were the trader with perfect information, I'd program my trading algorithms to lose (or at least not be guarenteed to win) 40% of the time. This would make you look merely like a incredibly fortunate trader, and not a perfect one. Just make sure that your algorithm guarantees an X% return per year.
- cgmorton 14y agoThey wouldn't even need to trade securities. Just search the future data for some successful tech IPOs and then invest in those companies early and heavily. Returns would be fantastic, and the risk of feedback from your future-influenced actions would be much lower.
- ZachPruckowski 14y agoOn 3, I think it depends on your time-travel rules. Because the first thing that would happen is that people would flock to retool to produce the higher value commodities (if corn price > wheat price, people would stop making wheat and start making corn), causing a supply glut and price collapse.
- Raz0rblade 14y agoBTW 400ms rules out that someone had a closer internet connection. As in 400ms light travels 119917 kilometers. Someone sure new something earlier. But those high frequency traders don't go by names, and so never can be put to normal justice.
- vincefutr23 14y ago"There is the old story about the market craze in sardine trading when the sardines disappeared from their traditional waters in Monterey, California. The commodity traders bid them up and the price of a can of sardines soared. One day a buyer decided to treat himself to an expensive meal and actually opened a can and started eating. He immediately became ill and told the seller the sardines were no good. The seller said, "You don't understand. These are not eating sardines, they are trading sardines."
- jwallaceparker 14y agoI thought you were going to tell the even older story about the early days of the Monterey sardine markets. The sardine report would be released every Friday morning at the docks. The sardine traders would employ runners to physically run the reports back to the market. The traders who employed the fastest runners were naturally the most successful. There was one runner nicknamed Slippery Jimmy not only for his elusive speed but also as a fish reference. Years later Jimmy started one of Monterey's first sporting goods stores. He called it Slippery Shoes. Sadly, the company went bankrupt.
- aleyan 14y agoSome back of the envelope calculation for UNG (ETF in the top Nanex graph) profits for the early mover. In the second before the announcement UNG was trading at $18.72 High and $18.55 Low. According to some minutely data I saw 400,000 shares where traded between 10:29:00 and 10:30:00; I believe this ties out with the first Nanex chart where there are 490,000 shares traded, with majority of it coming in 400 ms before the 10:30:00 mark. 4 Seconds after the 10:30:00 report release the price had stabilized at around 18.51. I will consider this $18.51 the fair price with all resonably fast algos having made their post release moves. Let us assume that there was a single trader/algo who got the report early and executed all of the 400,000 share sells 400ms before 10:30:00 and all other market participants only bought. Additionally assume that the average fill for these sell trades was the average of the High and the Low at (18.72 + 18.55)/2= $18.635. I believe this fair because looking at the first Nanex graph the early trades are somewhat uniformly distributed between the high and the low. In a simple arb on UNG, where the trader went short 400ms before the the announcement and closed the position at the fair price a few seconds after the announcement he stands to make a profit of (18.635 - 18.51) * 400,000= $50,000. For a trade that lasts 5 seconds, making $50,000 is nothing to sneeze at, it is not that much in grand scheme of things. Additionally other ETFS and futures were impacted and could have made more or less money. TL;DR: If one guy captured all the profit from the early UNG trade, the max he made was roughly $50,000.
- elemeno 14y agoIf the total value of any trades that might have been made in the claimed 400ms window was only $50k, it would suggest to me that there was nothing untoward going on, and that this story is most likely nothing more than a clock error. For any of the HF firms, prop houses and Hedge Funds that I've run into (which is not a short list, but my no means exhaustive, given that I work in finance) $50,000 is not interesting action - especially since transaction fees will eat away a reasonable chunk of that.
- niggler 14y agoIt is a clock issue, as observed by others in this thread. I would point to http://news.ycombinator.com/item?id=5146571 http://news.ycombinator.com/item?id=5146571 because its clear from nanex's response that he hasn't fully thought through the clocking issues with using CQS data without observing it directly himself.
- camkego 14y agoThose are some heavy graphs, but I wonder what was the spread before the release of the news? Traders buying early on the news might be dealing with a big spread as everybody is expecting the news to come out.
- unclebucknasty 14y agoThere is a lot of philosophizing over whether HFT harms or helps the market, etc. Much of the pro camp centers around liquidity, but as someone else mentioned, much of that liquidity is absorbed by offsetting HFT. Rather than get lost in all of the gnarly details, however, I think it is easier to simply look at the purpose of the market and ask whether HFT serves or harms that purpose. IMO, it is pretty clear that it represents a hijacking of the market's true purpose and functioning in the service of that purpose. For example, is it helpful in setting a price which reflects true supply and demand that we have algorithms designed specifically to manipulate the pricing mechanism by creating artificial supply and demand. These algorithms place phony orders, never intended for execution, but instead merely to trigger a move from the other side. How can that possibly be helpful to such a fundemental market mechanism as pricing? HFT uses the market for an entirely different purpose. Anyone who defends it must acknowledge this point and argue that the purpose is good if they wish to defend HFT honestly. Otherwise, to couch pro HFT arguments in terms of it being supportive of the market's true purpose and functioning is to mislead.
- varelse 14y agoSo what is the market's true purpose?
- unclebucknasty 14y agoI assume that such a simple question is intended to allow its author to make a point. So, perhaps we can skip the dance and get right to what your point is? Else, if you really are unaware of the market's purpose, perhaps you can spend a little time on Google. There is much available information online that you might find helpful in answering your question.
- varelse 14y agoWhat perplexes me here is the enthusiastic response received for the development and deployment of bitcoin mining hardware (for which the motive is giving a hardware edge to people in order to make lots and lots of money) versus the condemnation of HFT (for which the motive is giving a hardware edge to people in order to make lots and lots of money). Both cases require a significant outlay of resources and talent and I have respect for the work that went into each. And this gets at a bunch of people, including yourself, claiming that HFT somehow defeats the "purpose of the market(tm)." But if I look this up on Wikipedia, I get the notion that it exists to help corporations raise money and secondarily to provide an indicator of the general economic mood. I fail to see how HFT goes against this. That said, I'd support everything Mark Cuban suggested short of the trading tax (because I believe (without proof) that it would have unintended negative consequences far beyond HFT). Mark Cuban aside, I mostly see various people who, to quote an Amazon review of "Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio", sound like the reviewer's grandparents explaining why they don't use computers. No hard proof - just lots and lots of fear-mongering. So much so that I'm starting to believe that the underlying issue here is resentment and jealousy that they didn't pull these hacks off themselves and walk away with the big bucks. Finally, how is HFT worse than the "good old days(tm)" where major brokerages all had seats on trading room floors from which they could manipulate the bid/ask spread with impunity? I'd counter that it's actually better now that anyone capable of getting the cash and talent upfront can get into the same game that's been played since the very beginning, except that the pace is continually accelerating and those left out in the cold are succumbing to future shock. Buffett knows how they'll deal with the events preceding an actual Singularity(c) if one occurs. But that's just my opinion, feel free to disagree.
- eksith 14y agoDelay every trade by 10 seconds. Not only does it prevent spikes like this, but it will ensure trades done with thousands of transactions per second by software are brought down as to not cause stupid crashes : http://en.wikipedia.org/wiki/2010_Flash_Crash http://en.wikipedia.org/wiki/2010_Flash_Crash
- lefinita 14y agoThey really should learn data visualization to make it more readable and beautiful.
- fnordfnordfnord 14y agoFor those who are skeptical of Nanex, or want some background on some of the problems with HFT, here is a Dec 2012 analysis by Credit Suisse. HFT Measurement Detection and Response http://www.scribd.com/doc/116761218/CS-HFT-DETECTION http://www.scribd.com/doc/116761218/CS-HFT-DETECTION
- undrcvr 14y agoif the market was architected to be fair, all data releases would happen at midnight london time. it just isn't and will never be...
- martinced 14y agoWhat if someone got the natural gas report was earlier than 400 ms but used a computer whose clock set 400ms too early? It then would be the regular "insider" knowledge trying to pretend business is as usual. But he got noticed because instead of starting abusing the system at 10:30:000 he unknowingly started abusing it at 10:29:400. Petty amounts of money anyway and nobody is forcing to gamble in the stock market ; )
- MrMan 14y agoyou guys remember the uproar that the telegraph caused in the trading community? the street has never recovered.
- swah 14y agoIs there some kind of wargame where we could all write little algorithms to trade/compete with one another for a couple minutes, and then check the winners/learn strategies?