3 ms·

I always assumed that step 2 was "DoS your competitors". This is crudely done with volume of traffic, but more elegantly done with frequency and amplitude (and

by rsync 13y ago

I always assumed that step 2 was "DoS your competitors". This is crudely done with volume of traffic, but more elegantly done with frequency and amplitude (and so on) given some set of (possibly wrong) assumptions about how competing algorithms will respond to this rapid fire order placement. I know almost nothing (beyond ZH and chapters 1-5, so far, of _Dark Pools_) about HFT, but I can trivially think of ways you could be evil with quote stuffing as it is described in the OP.

wglb 13y ago
So since all orders have to go to the exchange first, how does DoS your competitors work?
- rsync 13y ago
  You're thinking of a crude, direct DoS attack wherein the "traffic" generated by one HFT directly overwhelms another HFT. But there are other ways to DoS - what if I observe your trading activity and I discern something about your underlying algorithms and how expensive those algorithms are in terms of memory or CPU or latency, and I make a bet that a certain trade pattern will dramatically overwhelm your resources via these second and third order effects... It's just speculation, but the point of the OP was that there was no way this could be useful to an HFT algo and I am pointing out that in a few minutes we can come up with all kinds of ways that it could be.
  - wglb 13y ago
    Uh, what if I observe your trading activity Since the traffic is anonymous, how do you propose to do this? [Edit] one HFT directly overwhelms another HFT No, the dos needs to go through the exchange, thus is is not "directly" but indirectly through the exchange.
    - dllthomas 13y ago
      "Since the traffic is anonymous, how do you propose to do this?" Traffic other than your own is anonymous, but that doesn't mean you can't spot patterns that are almost certainly the behaviour of one other agent. On some exchanges you can track the history of resting orders, too, which gives you some more info (though still doesn't tie all of any player's orders together, anywhere).
deleted 13y ago
[deleted]
hft_throwaway 13y ago
Manipulation definitely happens where traders will show non-bona fide interest on one side of the market to provoke other traders or algos to react. It's known as layering or spoofing and like any behavior where you're placing orders to influence others rather than out of an interest to trade, it's illegal. Most cases of this or similar behavior like stop running have involved human traders at loosely regulated click trading shops or smaller electronic firms that don't play by the rules: https://www.finra.org/Newsroom/NewsReleases/2012/P178687 https://www.finra.org/Newsroom/NewsReleases/2012/P178687 http://www.cftc.gov/PressRoom/PressReleases/pr6649-13 http://www.cftc.gov/PressRoom/PressReleases/pr6649-13 Aside from the regulatory risk, it doesn't fit the business model for most "HFT" firms, who generally are making many low-risk, low-reward trades with a small statistical edge based on proprietary models. Spoofing usually requires showing large false interest which entails considerable risk if you actually get elected. If you are fast enough to make markets or arb crude oil, you can make way more doing that than manipulating the DOM hoping to push algos into doing something stupid until they figure your tricks out. Predicting markets is hard. Predicting how thousands of heterogenous agents will react to your order is even harder, if not impossible.
- rsync 13y ago
  "Predicting markets is hard. Predicting how thousands of heterogenous agents will react to your order is even harder, if not impossible." My very small amount of knowledge on this topic leads me to believe that the idea that one algo would specifically target another algo is not at all farfetched. Who cares how the market responds to your weird trading if you're trying to create distortions for one, or a few, actors ?
  - hft_throwaway 13y ago
    Because the market has many actors. If I try to push the market down to shake out stop losses, another trader may say, "Hey, this price move doesn't make sense considering recent activity, how the broad market is moving, etc., I'm going to buy more" and prevent me from doing so. Likewise if I'm shifting the depth with a big false order. I might induce some actors to do bad trades, but another actor might see my order as a great opportunity to trade in size and trade against it, so I'll take a loss. Liquid markets with a diverse set of actors are more resilient to manipulation attempts. It's hard to do unless you have more capital or are willing to take risk that other actors in aggregate are not.

by rsync 13y ago

wglb 13y ago

So since all orders have to go to the exchange first, how does DoS your competitors work?

rsync 13y ago
You're thinking of a crude, direct DoS attack wherein the "traffic" generated by one HFT directly overwhelms another HFT. But there are other ways to DoS - what if I observe your trading activity and I discern something about your underlying algorithms and how expensive those algorithms are in terms of memory or CPU or latency, and I make a bet that a certain trade pattern will dramatically overwhelm your resources via these second and third order effects... It's just speculation, but the point of the OP was that there was no way this could be useful to an HFT algo and I am pointing out that in a few minutes we can come up with all kinds of ways that it could be.
- wglb 13y ago
  Uh, what if I observe your trading activity Since the traffic is anonymous, how do you propose to do this? [Edit] one HFT directly overwhelms another HFT No, the dos needs to go through the exchange, thus is is not "directly" but indirectly through the exchange.
  - dllthomas 13y ago
    "Since the traffic is anonymous, how do you propose to do this?" Traffic other than your own is anonymous, but that doesn't mean you can't spot patterns that are almost certainly the behaviour of one other agent. On some exchanges you can track the history of resting orders, too, which gives you some more info (though still doesn't tie all of any player's orders together, anywhere).

deleted 13y ago

[deleted]

hft_throwaway 13y ago

Manipulation definitely happens where traders will show non-bona fide interest on one side of the market to provoke other traders or algos to react. It's known as layering or spoofing and like any behavior where you're placing orders to influence others rather than out of an interest to trade, it's illegal. Most cases of this or similar behavior like stop running have involved human traders at loosely regulated click trading shops or smaller electronic firms that don't play by the rules: https://www.finra.org/Newsroom/NewsReleases/2012/P178687 https://www.finra.org/Newsroom/NewsReleases/2012/P178687 http://www.cftc.gov/PressRoom/PressReleases/pr6649-13 http://www.cftc.gov/PressRoom/PressReleases/pr6649-13 Aside from the regulatory risk, it doesn't fit the business model for most "HFT" firms, who generally are making many low-risk, low-reward trades with a small statistical edge based on proprietary models. Spoofing usually requires showing large false interest which entails considerable risk if you actually get elected. If you are fast enough to make markets or arb crude oil, you can make way more doing that than manipulating the DOM hoping to push algos into doing something stupid until they figure your tricks out. Predicting markets is hard. Predicting how thousands of heterogenous agents will react to your order is even harder, if not impossible.

rsync 13y ago
"Predicting markets is hard. Predicting how thousands of heterogenous agents will react to your order is even harder, if not impossible." My very small amount of knowledge on this topic leads me to believe that the idea that one algo would specifically target another algo is not at all farfetched. Who cares how the market responds to your weird trading if you're trying to create distortions for one, or a few, actors ?
- hft_throwaway 13y ago
  Because the market has many actors. If I try to push the market down to shake out stop losses, another trader may say, "Hey, this price move doesn't make sense considering recent activity, how the broad market is moving, etc., I'm going to buy more" and prevent me from doing so. Likewise if I'm shifting the depth with a big false order. I might induce some actors to do bad trades, but another actor might see my order as a great opportunity to trade in size and trade against it, so I'll take a loss. Liquid markets with a diverse set of actors are more resilient to manipulation attempts. It's hard to do unless you have more capital or are willing to take risk that other actors in aggregate are not.