12 ms·

This Is What One Half Second of High Speed Trading Looks Like

166 points by sytelus 14y ago

Strilanc 14y ago
Why is the video showing redundant details? It looks like for each event it shows a packet going to every server. If they arranged the machines on the horizontal axis, time on the vertical axis, and showed 'packet sent' events it would look much simpler. Maybe simple enough to add in details about the trades, like dollar values, instead of pretty expanding explosions.
- cbhl 14y ago
  I believe that part of the actual infrastructure is you send the same message along multiple physical cables; one to each exchange. You also have to account for the delay that the message takes to be received by each exchange. (The speed of light isn't "instant" when you're working on the ms level.)
pxlpshr 14y ago
All in the name of "providing liquidity"...
- purplelobster 14y ago
  As someone who's not too familiar with economics, how is HFT supposed to be good for the economy?
  - dllthomas 14y ago
    If you want to buy/sell at a price, and there's no one ready to sell/buy at that price, a speculator (of any stripe) coming in and making that deal with you means you got the price you asked for. Maybe you could have got better - that's what the speculator is hoping - but you're no longer taking that risk. Statistically, the money going to the trader is similar to an insurance premium then. That's all "in principle" - whether the details work out right is a much deeper question.
    - joezydeco 14y ago
      Aren't these speculators constantly entering and withdrawing these orders from the market on the order of microseconds? It's not like the order book for Johnson and Johnson is completely empty and there is absolutely nobody out there willing to sell shares. If I understand it right, the HFT machines are poking numbers around the current price trying to step ahead of a regular order before it comes in.
      - skylan_q 14y ago
        Yes. That's what it does. If you, as a human, try to trade like this, the computers will destroy you. That's why people shouldn't trade like computers and they should use their experience and judgment to guide them.
        joezydeco 14y ago
        So you're implying we should all be complacent and let HFT machines take a small parasitic profit off of every stock transaction humans make?
        skylan_q 14y ago
        Complacent? Get in on HFT if you feel that it's making it unfair for human traders.
        joezydeco 14y ago
        I'm speaking for the majority of people that can't afford racks of servers and custom-laid transatlantic fiberoptic lines. I'm speaking about typical americans that have their money in 401(k) accounts or maybe buy stocks from an online broker to try and fund their kids' college accounts. These people are all being scraped, very slowly but very surely, by HFT. That's the point I'm making. At least we all admit that the modern stock market has absolutely no connection to the economy or to the interests of long-term investing or capital building. It's just a very large and very legal casino.
  - harryh 14y ago
    Because it's much cheaper to have computers do this than actual people which is what we used to have.
dirkgently 14y ago
>You already have welcomed your robot overlords, and they’re building our financial system. Enough said.
resu 14y ago
And the exchanges are making a killing off of this volume. You can thank the SEC and FINRA for this.
minimax 14y ago
If there was a similar video showing all of the electronic sensors of a modern airliner flowing into the central flight control computer would it would engender the same sort of trepidation about air travel? Should we be afraid of something just because it's "complicated" to someone unfamiliar with the state of the art? There are a lot of valid criticisms you can make about modern financial markets, but claiming that we are using computers to do things better than we did 10 years ago is a bad thing isn't something I'd expect to see here on HN.
- jussij 14y ago
  > but claiming that we are using computers to do things better than we did 10 years ago is a bad thing But they are not using those computer to do something better, they are using those computers to do something that was impossible 10 years ago. The problem I have with HST is what purpose does it serve, other than offer another way to gamble on stock price movements. Now there is nothing new about gambling on stock price movements but with HST it takes the control out of the market and puts it into the hands of a bunch of computer programs. And to say that can't cause problems, you have to look no further than the hoax bomb at the white house tweet that wiped out $130 billion in market value in the matter of seconds. Without those HST computers system all trying to out do each other, that event would not have been so dramatic.
  - Rangi42 14y ago
    If you can trade faster, the market can react to information faster. Stocks dropped almost as soon as the tweet was released, without needing to wait for a few major news channels -- and recovered in five minutes after people stopped panicking.[1] [1] http://21stcenturywire.com/2013/04/24/white-house-attacked-obama-injured-ap-tweet-hoax-crashes-us-stock-market/ http://21stcenturywire.com/2013/04/24/white-house-attacked-o...
    - jussij 14y ago
      So by making the system trade faster, they have made the market less stable and opened it up to outside manipulation. Hardly what you call progress.
jhales 14y ago
All comments so far are negative, but I fail to see how this video shows anything other than incredible engineering. The negativity seems to be a result of previous bias.
- SeanDav 14y ago
  It is incredible engineering and it has incredible downsides, not the least of which is the ability to destroy a market in seconds, due to a blip in information, with cascading domino effects.
  - jrockway 14y ago
    Which market has been destroyed in seconds?
    - skylan_q 14y ago
      None. This provides profit opportunities to those who will "heal" the price. Also, exchanges will revert back trades that happen over these flash crashes.
      - omegant 14y ago
        How long before someone (a hacker no doubt) games the system to create a selling spiral, just waiting to take profit of the rebound. If it´s well planned the one causing the dive is not going to be the one taking the profit (at least that it can be proved).
        jermy 14y ago
        Well, it's been a common enough movie plot (cf. Casino Royale where the Antagonist engineers terrorist attacks on high-profile companies whilst short-selling their stocks).
        jzwinck 14y ago
        We need not wait for that to happen. Such shenanigans have been observed and documented already, such as in the book "Reminiscences of a Stock Operator." It was written in 1923, and worth reading today.
mortehu 14y ago
It seems that the counter at the bottom counts all updates, and ends up at 2380, so the overall rate would be something like 4760/second, or 17M/hour. Note that the rate has slowed down considerably before .25 seconds have passed, and this was recorded within 10 minutes after NYSE opened, so I suspect this is a bit above the average rate. Also, these are bids and offers, not actual trades.
wallflower 14y ago
Reminds me of: "The following animated GIF chronicles the rise of the HFT Algo Machines from January 2007 through January 2012." http://www.nanex.net/aqck/2804.HTML http://www.nanex.net/aqck/2804.HTML
snowwrestler 14y ago
One time I printed out all the code--at that time ASP, HTML, CSS, and Javascript--that got executed for one page load of the homepage of my employer's primary website. I taped the pieces of paper end-to-end and hung them on my wall. It made a great conversation piece with my coworkers. Non-technical folks (most of them) were astounded that so much text was being interpretted and executed every single time they loaded the homepage (in less than a second). What was the point? It helped set a certain emotional tone to our conversations. Folks found it a lot harder to demand their project be done "right now, it's easy" when directly confronted with the complexity behind a single page load. Likewise, stories that highlight the immense speed and complexity of high frequency trading help set an emotional tone of alienation and fear. It helps trigger the same reflex Frankenstein and The Terminator played off of: "maybe we're unleashing technological forces that no one can control." But of course if you are well and truly versed in a technology, that feeling goes away. I knew that our crappy brochure website was not very complicated as websites go.
- AdamTReineke 14y ago
  I really like that. Did you print libraries and the like, or just the stuff you wrote? I could see value in having a bound version of jQuery if it wasn't on the wall, "I didn't write this, but I know what is in it and how to use it."
  - snowwrestler 14y ago
    This predated the popularity of js libraries like jQuery, so it was all code that we had written ourselves. Into a text editor, I pasted the HTML source of a rendered page as presented to the end user, then went back and replaced every call to an external js or css with the actual contents of those files. Then at the top, above the doctype declaration, I pasted in the ASP bootstrap code that ran on every page load. I did not include any representation of the compiled code behind the site, like SQL Server, IIS, etc. If were going to do this now, I would definitely include js libraries like jQuery. The point for me was to illustrate just how complex websites are, not to take personal credit. If you wanted to illustrate it more precisely, maybe you could use different font colors for your code vs. library code.
pak 14y ago
If we eventually decide that all of this ridiculously fast bid/offer blitzing by our HFT overlords is a destabilization risk to the economy [1], couldn't we start taxing these transactions, or the bids/offers themselves? This level of high-frequency noise being thrown into the market can't reasonably go on increasing forever, right... at some point we just bury ourselves in a never-ending war of inscrutable, difficult to predict machine trading algorithms, and nobody will be able to translate market movements into anything linkable to reality, right [2]? Shouldn't either market operators or the government at some point in the future start dialing back the traffic with penalties on the sheer number of actions taken? ... or is that just an insane non-starter, since it affects too many rich people in the finance sector and their colleagues rotating through the current regulatory structure? I think it's an interesting long-term problem faced by society to decide whether we are OK with investment markets becoming completely impossible for "normal", human investors to navigate. It's already rapidly going that way--the capability to profit is already wildly tilted toward firms that act at HFT volume. If a poker site became overrun by bots to the extent that it was no longer fun for humans to play, they would fight back against the bots (as most do to some degree). But with investments... we may be getting to the point where the average day trader needs a 3000U server farm to compete effectively, and then I question whether we've lost sight of why we subsidize and spend money regulating that market at all. It's like a chess league where the grandmasters get to use computers as aids, and the newcomers have to play blindfolded. [1] Nothing catastrophic has happened yet, but there have been a few flash crashes that have necessitated trading to be shut down, and having to "roll back" trades is never perfectly equitable and only decreases confidence in a market. [2] Some of those flash crashes were traced back to one overzealous seller that threw HFT's for a loop (read http://en.wikipedia.org/wiki/2010_Flash_Crash http://en.wikipedia.org/wiki/2010_Flash_Crash -- it is quite interesting). I shudder to think of a day when the market fluctuates wildly and the data is literally too complicated for regulators to trace it back to any identifiable cause. That day is closer than anybody in finance is likely to acknowledge.
- twoodfin 14y ago
  What's stopping you from making lots of money by successfully predicting next year's stock price for Apple, IBM or Ford? Normal human investors can obviously keep doing normal human investment.
lifeformed 14y ago
Just how profitable is HFT anyways? What kind of returns do HFT traders get?
- mverwijs 14y ago
  In the Netherlands, there is a yearly list of the most rich people called "The Quote 500". Of those 500 richest dutch, I think about 15 are HFT owners and employees. See: http://www.amsterdamtrader.com/2012/10/duyfken-sails-into-quote-500.html http://www.amsterdamtrader.com/2012/10/duyfken-sails-into-qu...
- kasey_junk 14y ago
  Depends. It is mostly a zero sum game, so all told $0. Of course, some people make lots and some people make -lots.
  - HockeyPlayer 14y ago
    While intraday trading as a whole is zero-sum, the HFTs are taking profits from other traders, not from each other. HFTs as a group are profitable.
    - kasey_junk 14y ago
      It's hard to know how profitable HFTs are on the whole as for the most part they are very private. That said some very big names on HFT have recently laid folks off. As someone who hires and interviews in this space, HFT firms seem largely the same as old trading firms were. Boom bust cycles that comer and go as profitable trades shelf life expire.
    - adambratt 14y ago
      A good amount of HFTs fail. I've heard numbers ranging from 70%-90% of new HFTs fail within their first 2 years. Very similar to startups when you think about it. Also, HFTs are most definitely taking profits from each other. In fact, in a lot of cases the faster, more successful HFTs kill off the new ones to the market. Not to mention there are a good number of predatory HFTs who exist solely to game other HFTs
nohuck13 14y ago
Two things I take away from this 1) Cool use of infographic :) 2) The little dots represent price changes, not trades. FWIW, some more context around this would be- All the major exchanges stream their best prices to all the other exchanges. This is required because US exchanges must execute trades at the National Best Bid or Offer, or NBBO [1]. So how do you track the NBBO. In theory, by having all the exchanges send their best bids and offers to a central Securities Information Processor, or SIP (the 12:00 box) which then disseminates them (which you can see by the waves of stuff it sends out) In practice, it's slow to go through the SIP on every price movement and the exchanges want to have the best possible information, so the exchanges mostly stream prices directly from the other exchanges (hence the fanout effect on every price movement) Most of these prices movements don't result in trades, they just represent somebody entering or leaving the market at the BBO. This feels like a distinction that could have been made better, rather than just saying "yeah, this stuff's complicated." [1] http://en.wikipedia.org/wiki/Regulation_NMS http://en.wikipedia.org/wiki/Regulation_NMS edit: formatting / citing
- 0x0 14y ago
  That's a nice explanation of the graphics. I'm still having a very hard time understanding what kinds of events would cause so many rapid price changes. So many dots in just half a second -- even when time-stretched to 5 minutes! Are those price changes meaningful at all?
- mc-lovin 14y ago
  Thanks, that was a good explaination. If you look carefully, the timing between exchanges is identical, so hopefully they at least chose some representative latency between exchanges.
deleted 14y ago
[deleted]
robmcm 14y ago
Isn't the, "one" in the title redundant? Would you say two half seconds rather than just a second?
nnq 14y ago
Light bulb: tax all tradings with a tax percent increasing with the number of transactions per second, in a continuous way (even for less than 1 t/s) that would not make any difference for regular traders (and have a tweakable taxing formula that could regulate a market's stability and sensitivity to information by letting more or less HFT happen by setting the 100% taxation limit - the HFTs will have all incentives to stop trading when they are taxed 100% or beyond - i.e. when they are "fined")!
- washedup 14y ago
  A lot of those messages might not be trades, but actually update messages to resting orders.
- jellicle 14y ago
  Any kind of small transaction tax on trades would eliminate the worst excesses of HFT. It doesn't have to be complex at all.
philhippus 14y ago
The radiolab podcast is well worth a listen for a bit of layman's insight into HFT. The conclusion at the end makes it clear what the implications are.
washedup 14y ago
We will keep cutting up time into smaller and smaller chunks until we cannot go any further.
smoorman1024 14y ago
To get the perspective of different participants in the market watch this video from The Milken Institute featuring Bart Chilton (regulator), Terry Duffy (exchange), Jamil Nazarali (retail execution), and Lou Salkind (proprietary trading). They address a lot of the common criticisms of modern markets discussed here. It provides a good perspective of what people within the industry see as the current state and future of trading. http://www.youtube.com/watch?v=icNGvgd27-A&feature=youtu.be http://www.youtube.com/watch?v=icNGvgd27-A&feature=youtu...
snake_plissken 14y ago
HFT is used for many things, but it makes one task almost trivial: stop hunting.

166 points by sytelus 14y ago

Why is the video showing redundant details? It looks like for each event it shows a packet going to every server. If they arranged the machines on the horizontal axis, time on the vertical axis, and showed 'packet sent' events it would look much simpler. Maybe simple enough to add in details about the trades, like dollar values, instead of pretty expanding explosions.

cbhl 14y ago
I believe that part of the actual infrastructure is you send the same message along multiple physical cables; one to each exchange. You also have to account for the delay that the message takes to be received by each exchange. (The speed of light isn't "instant" when you're working on the ms level.)

pxlpshr 14y ago

All in the name of "providing liquidity"...

purplelobster 14y ago
As someone who's not too familiar with economics, how is HFT supposed to be good for the economy?
- dllthomas 14y ago
  If you want to buy/sell at a price, and there's no one ready to sell/buy at that price, a speculator (of any stripe) coming in and making that deal with you means you got the price you asked for. Maybe you could have got better - that's what the speculator is hoping - but you're no longer taking that risk. Statistically, the money going to the trader is similar to an insurance premium then. That's all "in principle" - whether the details work out right is a much deeper question.
  - joezydeco 14y ago
    Aren't these speculators constantly entering and withdrawing these orders from the market on the order of microseconds? It's not like the order book for Johnson and Johnson is completely empty and there is absolutely nobody out there willing to sell shares. If I understand it right, the HFT machines are poking numbers around the current price trying to step ahead of a regular order before it comes in.
    - skylan_q 14y ago
      Yes. That's what it does. If you, as a human, try to trade like this, the computers will destroy you. That's why people shouldn't trade like computers and they should use their experience and judgment to guide them.
      - joezydeco 14y ago
        So you're implying we should all be complacent and let HFT machines take a small parasitic profit off of every stock transaction humans make?
        skylan_q 14y ago
        Complacent? Get in on HFT if you feel that it's making it unfair for human traders.
        joezydeco 14y ago
        I'm speaking for the majority of people that can't afford racks of servers and custom-laid transatlantic fiberoptic lines. I'm speaking about typical americans that have their money in 401(k) accounts or maybe buy stocks from an online broker to try and fund their kids' college accounts. These people are all being scraped, very slowly but very surely, by HFT. That's the point I'm making. At least we all admit that the modern stock market has absolutely no connection to the economy or to the interests of long-term investing or capital building. It's just a very large and very legal casino.
- harryh 14y ago
  Because it's much cheaper to have computers do this than actual people which is what we used to have.

dirkgently 14y ago

>You already have welcomed your robot overlords, and they’re building our financial system. Enough said.

resu 14y ago

And the exchanges are making a killing off of this volume. You can thank the SEC and FINRA for this.

minimax 14y ago

If there was a similar video showing all of the electronic sensors of a modern airliner flowing into the central flight control computer would it would engender the same sort of trepidation about air travel? Should we be afraid of something just because it's "complicated" to someone unfamiliar with the state of the art? There are a lot of valid criticisms you can make about modern financial markets, but claiming that we are using computers to do things better than we did 10 years ago is a bad thing isn't something I'd expect to see here on HN.

jussij 14y ago
> but claiming that we are using computers to do things better than we did 10 years ago is a bad thing But they are not using those computer to do something better, they are using those computers to do something that was impossible 10 years ago. The problem I have with HST is what purpose does it serve, other than offer another way to gamble on stock price movements. Now there is nothing new about gambling on stock price movements but with HST it takes the control out of the market and puts it into the hands of a bunch of computer programs. And to say that can't cause problems, you have to look no further than the hoax bomb at the white house tweet that wiped out $130 billion in market value in the matter of seconds. Without those HST computers system all trying to out do each other, that event would not have been so dramatic.
- Rangi42 14y ago
  If you can trade faster, the market can react to information faster. Stocks dropped almost as soon as the tweet was released, without needing to wait for a few major news channels -- and recovered in five minutes after people stopped panicking.[1] [1] http://21stcenturywire.com/2013/04/24/white-house-attacked-obama-injured-ap-tweet-hoax-crashes-us-stock-market/ http://21stcenturywire.com/2013/04/24/white-house-attacked-o...
  - jussij 14y ago
    So by making the system trade faster, they have made the market less stable and opened it up to outside manipulation. Hardly what you call progress.

jhales 14y ago

All comments so far are negative, but I fail to see how this video shows anything other than incredible engineering. The negativity seems to be a result of previous bias.

SeanDav 14y ago
It is incredible engineering and it has incredible downsides, not the least of which is the ability to destroy a market in seconds, due to a blip in information, with cascading domino effects.
- jrockway 14y ago
  Which market has been destroyed in seconds?
  - skylan_q 14y ago
    None. This provides profit opportunities to those who will "heal" the price. Also, exchanges will revert back trades that happen over these flash crashes.
    - omegant 14y ago
      How long before someone (a hacker no doubt) games the system to create a selling spiral, just waiting to take profit of the rebound. If it´s well planned the one causing the dive is not going to be the one taking the profit (at least that it can be proved).
      - jermy 14y ago
        Well, it's been a common enough movie plot (cf. Casino Royale where the Antagonist engineers terrorist attacks on high-profile companies whilst short-selling their stocks).
      - jzwinck 14y ago
        We need not wait for that to happen. Such shenanigans have been observed and documented already, such as in the book "Reminiscences of a Stock Operator." It was written in 1923, and worth reading today.

mortehu 14y ago

It seems that the counter at the bottom counts all updates, and ends up at 2380, so the overall rate would be something like 4760/second, or 17M/hour. Note that the rate has slowed down considerably before .25 seconds have passed, and this was recorded within 10 minutes after NYSE opened, so I suspect this is a bit above the average rate. Also, these are bids and offers, not actual trades.

wallflower 14y ago

Reminds me of: "The following animated GIF chronicles the rise of the HFT Algo Machines from January 2007 through January 2012." http://www.nanex.net/aqck/2804.HTML http://www.nanex.net/aqck/2804.HTML

snowwrestler 14y ago

One time I printed out all the code--at that time ASP, HTML, CSS, and Javascript--that got executed for one page load of the homepage of my employer's primary website. I taped the pieces of paper end-to-end and hung them on my wall. It made a great conversation piece with my coworkers. Non-technical folks (most of them) were astounded that so much text was being interpretted and executed every single time they loaded the homepage (in less than a second). What was the point? It helped set a certain emotional tone to our conversations. Folks found it a lot harder to demand their project be done "right now, it's easy" when directly confronted with the complexity behind a single page load. Likewise, stories that highlight the immense speed and complexity of high frequency trading help set an emotional tone of alienation and fear. It helps trigger the same reflex Frankenstein and The Terminator played off of: "maybe we're unleashing technological forces that no one can control." But of course if you are well and truly versed in a technology, that feeling goes away. I knew that our crappy brochure website was not very complicated as websites go.

AdamTReineke 14y ago
I really like that. Did you print libraries and the like, or just the stuff you wrote? I could see value in having a bound version of jQuery if it wasn't on the wall, "I didn't write this, but I know what is in it and how to use it."
- snowwrestler 14y ago
  This predated the popularity of js libraries like jQuery, so it was all code that we had written ourselves. Into a text editor, I pasted the HTML source of a rendered page as presented to the end user, then went back and replaced every call to an external js or css with the actual contents of those files. Then at the top, above the doctype declaration, I pasted in the ASP bootstrap code that ran on every page load. I did not include any representation of the compiled code behind the site, like SQL Server, IIS, etc. If were going to do this now, I would definitely include js libraries like jQuery. The point for me was to illustrate just how complex websites are, not to take personal credit. If you wanted to illustrate it more precisely, maybe you could use different font colors for your code vs. library code.

pak 14y ago

If we eventually decide that all of this ridiculously fast bid/offer blitzing by our HFT overlords is a destabilization risk to the economy [1], couldn't we start taxing these transactions, or the bids/offers themselves? This level of high-frequency noise being thrown into the market can't reasonably go on increasing forever, right... at some point we just bury ourselves in a never-ending war of inscrutable, difficult to predict machine trading algorithms, and nobody will be able to translate market movements into anything linkable to reality, right [2]? Shouldn't either market operators or the government at some point in the future start dialing back the traffic with penalties on the sheer number of actions taken? ... or is that just an insane non-starter, since it affects too many rich people in the finance sector and their colleagues rotating through the current regulatory structure? I think it's an interesting long-term problem faced by society to decide whether we are OK with investment markets becoming completely impossible for "normal", human investors to navigate. It's already rapidly going that way--the capability to profit is already wildly tilted toward firms that act at HFT volume. If a poker site became overrun by bots to the extent that it was no longer fun for humans to play, they would fight back against the bots (as most do to some degree). But with investments... we may be getting to the point where the average day trader needs a 3000U server farm to compete effectively, and then I question whether we've lost sight of why we subsidize and spend money regulating that market at all. It's like a chess league where the grandmasters get to use computers as aids, and the newcomers have to play blindfolded. [1] Nothing catastrophic has happened yet, but there have been a few flash crashes that have necessitated trading to be shut down, and having to "roll back" trades is never perfectly equitable and only decreases confidence in a market. [2] Some of those flash crashes were traced back to one overzealous seller that threw HFT's for a loop (read http://en.wikipedia.org/wiki/2010_Flash_Crash http://en.wikipedia.org/wiki/2010_Flash_Crash -- it is quite interesting). I shudder to think of a day when the market fluctuates wildly and the data is literally too complicated for regulators to trace it back to any identifiable cause. That day is closer than anybody in finance is likely to acknowledge.

twoodfin 14y ago
What's stopping you from making lots of money by successfully predicting next year's stock price for Apple, IBM or Ford? Normal human investors can obviously keep doing normal human investment.

lifeformed 14y ago

Just how profitable is HFT anyways? What kind of returns do HFT traders get?

mverwijs 14y ago
In the Netherlands, there is a yearly list of the most rich people called "The Quote 500". Of those 500 richest dutch, I think about 15 are HFT owners and employees. See: http://www.amsterdamtrader.com/2012/10/duyfken-sails-into-quote-500.html http://www.amsterdamtrader.com/2012/10/duyfken-sails-into-qu...
kasey_junk 14y ago
Depends. It is mostly a zero sum game, so all told $0. Of course, some people make lots and some people make -lots.
- HockeyPlayer 14y ago
  While intraday trading as a whole is zero-sum, the HFTs are taking profits from other traders, not from each other. HFTs as a group are profitable.
  - kasey_junk 14y ago
    It's hard to know how profitable HFTs are on the whole as for the most part they are very private. That said some very big names on HFT have recently laid folks off. As someone who hires and interviews in this space, HFT firms seem largely the same as old trading firms were. Boom bust cycles that comer and go as profitable trades shelf life expire.
  - adambratt 14y ago
    A good amount of HFTs fail. I've heard numbers ranging from 70%-90% of new HFTs fail within their first 2 years. Very similar to startups when you think about it. Also, HFTs are most definitely taking profits from each other. In fact, in a lot of cases the faster, more successful HFTs kill off the new ones to the market. Not to mention there are a good number of predatory HFTs who exist solely to game other HFTs

nohuck13 14y ago

Two things I take away from this 1) Cool use of infographic :) 2) The little dots represent price changes, not trades. FWIW, some more context around this would be- All the major exchanges stream their best prices to all the other exchanges. This is required because US exchanges must execute trades at the National Best Bid or Offer, or NBBO [1]. So how do you track the NBBO. In theory, by having all the exchanges send their best bids and offers to a central Securities Information Processor, or SIP (the 12:00 box) which then disseminates them (which you can see by the waves of stuff it sends out) In practice, it's slow to go through the SIP on every price movement and the exchanges want to have the best possible information, so the exchanges mostly stream prices directly from the other exchanges (hence the fanout effect on every price movement) Most of these prices movements don't result in trades, they just represent somebody entering or leaving the market at the BBO. This feels like a distinction that could have been made better, rather than just saying "yeah, this stuff's complicated." [1] http://en.wikipedia.org/wiki/Regulation_NMS http://en.wikipedia.org/wiki/Regulation_NMS edit: formatting / citing

0x0 14y ago
That's a nice explanation of the graphics. I'm still having a very hard time understanding what kinds of events would cause so many rapid price changes. So many dots in just half a second -- even when time-stretched to 5 minutes! Are those price changes meaningful at all?
mc-lovin 14y ago
Thanks, that was a good explaination. If you look carefully, the timing between exchanges is identical, so hopefully they at least chose some representative latency between exchanges.

deleted 14y ago

[deleted]

robmcm 14y ago

Isn't the, "one" in the title redundant? Would you say two half seconds rather than just a second?

nnq 14y ago

Light bulb: tax all tradings with a tax percent increasing with the number of transactions per second, in a continuous way (even for less than 1 t/s) that would not make any difference for regular traders (and have a tweakable taxing formula that could regulate a market's stability and sensitivity to information by letting more or less HFT happen by setting the 100% taxation limit - the HFTs will have all incentives to stop trading when they are taxed 100% or beyond - i.e. when they are "fined")!

washedup 14y ago
A lot of those messages might not be trades, but actually update messages to resting orders.
jellicle 14y ago
Any kind of small transaction tax on trades would eliminate the worst excesses of HFT. It doesn't have to be complex at all.

philhippus 14y ago

The radiolab podcast is well worth a listen for a bit of layman's insight into HFT. The conclusion at the end makes it clear what the implications are.

washedup 14y ago

We will keep cutting up time into smaller and smaller chunks until we cannot go any further.

smoorman1024 14y ago

To get the perspective of different participants in the market watch this video from The Milken Institute featuring Bart Chilton (regulator), Terry Duffy (exchange), Jamil Nazarali (retail execution), and Lou Salkind (proprietary trading). They address a lot of the common criticisms of modern markets discussed here. It provides a good perspective of what people within the industry see as the current state and future of trading. http://www.youtube.com/watch?v=icNGvgd27-A&feature=youtu.be http://www.youtube.com/watch?v=icNGvgd27-A&feature=youtu...

snake_plissken 14y ago

HFT is used for many things, but it makes one task almost trivial: stop hunting.