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I'm not knowledgeble about HFT by any stretch of imagination, but I watched this epsiode of VPRO Backlight when it aired on dutch TV, and what I got from it (no

by w0utert 13y ago

I'm not knowledgeble about HFT by any stretch of imagination, but I watched this epsiode of VPRO Backlight when it aired on dutch TV, and what I got from it (not just from Bodek himself, but also the Nanex guy) that initially, these 'special' order types had been a close-kept 'secret' only known by insiders. Maybe not their existence, but how they could be used to 1-up every other HFT algo that wasn't in on this trick. The video isn't only interesting because of Haim Bodek's allegations by the way, there's quite a few fairly high-profile people (formerly) active in the HFT world commenting on how markets are effectively broken and unstable because of opaque HFT algorithms, stock exchanges actively promoting HFT to drive up the volume of trades (and hence their profits), and regulators not really doing anything to reduce the risk of flash crashes or penalize parties that completely break the market every once in a while.

yummyfajitas 13y ago
I don't know how Hide-not-slide orders could possibly be described as a "close-kept secret": http://bit.ly/17l8djU http://bit.ly/17l8djU Admittedly, just like Haim Bodek, DirectEdge uses an annoying voiceover format rather than just writing an easily skimmable document.
- strongvigilance 13y ago
  I don't think the actual order type was a secret, just that some HFT firms figured out a way to use it which gave them an advantage over other HFT firms. The firms who didn't understand it lost out.
  - yummyfajitas 13y ago
    OMFG, people with smarter strategies have an advantage in the marketplace! Call the SEC!
    - jmcmichael 13y ago
      The whole point is that these 'smarter strategies' are only smarter because they are exploiting arbitrary API conventions, not smarter because they improve the utility of markets to society in general. Which is a tragedy, because if all these geniuses were working in the fields they trained in - computer science, physics, or bioinformatics - they would be contributing to society on a more fundamental level.
      - kasey_junk 13y ago
        There are several fallacies to this sort of argument: 1) The myth of the HFT geniuses. Like any other industry there are smart people in HFT, there are also dumb people & bad software developers. In some ways the industry is very insular and has many bad habits. 2) We could harness all these people to something that provides more utility. It would be great if that were true, but how do you do that? Historically, centrally planning what careers people are required to follow has led to pretty bad outcomes. Conversely, if you think you can provide more utility by hiring away some of these smart people, nothing is stopping you.
        jmcmichael 13y ago
        > 1) The myth of the HFT geniuses. Myth? The finance industry, where the HFT folks are near the top, pays epic salaries for the smartest people. They do this to hire the best and the brightest, and would not continue to do so if it did not work. In the documentary, Haim relates a story where the team that he was on included PhDs in bioinformatics, physics, and mathematics. This does not look like a myth to me. The mathematical knowledge required to understand and be competitive in the HFT environment, coupled with the software development knowledge is very rare. This industry consumes the time of geniuses in order to function and pays them well for it - that this attracts dumb people and bad software developers that are occasionally hired hardly makes the existence of these geniuses a myth. > 2) We could harness all these people to something that provides more utility. It would be great if that were true, but how do you do that? Distributed self-organized common pool resources (http://en.wikipedia.org/wiki/Common-pool_resource http://en.wikipedia.org/wiki/Common-pool_resource).
    - _mulder_ 13y ago
      I'm sure selling on Sub-Prime mortgages was a completely legal 'smarter strategy' at one stage too.
theorique 13y ago
These order types are highly regulated by the SEC and FINRA. None of this is a secret - any new order type has to be submitted to the regulators in a public process before it is authorized. Exchanges and trading venues are required by law and regulation to be transparent.

by w0utert 13y ago

yummyfajitas 13y ago

I don't know how Hide-not-slide orders could possibly be described as a "close-kept secret": http://bit.ly/17l8djU http://bit.ly/17l8djU Admittedly, just like Haim Bodek, DirectEdge uses an annoying voiceover format rather than just writing an easily skimmable document.

strongvigilance 13y ago
I don't think the actual order type was a secret, just that some HFT firms figured out a way to use it which gave them an advantage over other HFT firms. The firms who didn't understand it lost out.
- yummyfajitas 13y ago
  OMFG, people with smarter strategies have an advantage in the marketplace! Call the SEC!
  - jmcmichael 13y ago
    The whole point is that these 'smarter strategies' are only smarter because they are exploiting arbitrary API conventions, not smarter because they improve the utility of markets to society in general. Which is a tragedy, because if all these geniuses were working in the fields they trained in - computer science, physics, or bioinformatics - they would be contributing to society on a more fundamental level.
    - kasey_junk 13y ago
      There are several fallacies to this sort of argument: 1) The myth of the HFT geniuses. Like any other industry there are smart people in HFT, there are also dumb people & bad software developers. In some ways the industry is very insular and has many bad habits. 2) We could harness all these people to something that provides more utility. It would be great if that were true, but how do you do that? Historically, centrally planning what careers people are required to follow has led to pretty bad outcomes. Conversely, if you think you can provide more utility by hiring away some of these smart people, nothing is stopping you.
      - jmcmichael 13y ago
        > 1) The myth of the HFT geniuses. Myth? The finance industry, where the HFT folks are near the top, pays epic salaries for the smartest people. They do this to hire the best and the brightest, and would not continue to do so if it did not work. In the documentary, Haim relates a story where the team that he was on included PhDs in bioinformatics, physics, and mathematics. This does not look like a myth to me. The mathematical knowledge required to understand and be competitive in the HFT environment, coupled with the software development knowledge is very rare. This industry consumes the time of geniuses in order to function and pays them well for it - that this attracts dumb people and bad software developers that are occasionally hired hardly makes the existence of these geniuses a myth. > 2) We could harness all these people to something that provides more utility. It would be great if that were true, but how do you do that? Distributed self-organized common pool resources (http://en.wikipedia.org/wiki/Common-pool_resource http://en.wikipedia.org/wiki/Common-pool_resource).
  - _mulder_ 13y ago
    I'm sure selling on Sub-Prime mortgages was a completely legal 'smarter strategy' at one stage too.

theorique 13y ago

These order types are highly regulated by the SEC and FINRA. None of this is a secret - any new order type has to be submitted to the regulators in a public process before it is authorized. Exchanges and trading venues are required by law and regulation to be transparent.