11 ms·

HFT in My Backyard

193 points by cheatdeath 12y ago

spacefight 12y ago
Having read 'Flash Boys' by Michael Lewis, this post seems like the logical followup after someone discovered the first microwave tower at the end of the book. Didn't know that the same scam is running in Europe...
- Bootvis 12y ago
  How is microwave dish based communication a 'scam'?
  - spacefight 12y ago
    The scam is what you use the microwave communication for. If you have access to fast lines or even faster radio comms means, that you can rig the market more efficiently. It's called front running. http://en.wikipedia.org/wiki/Flash_Boys http://en.wikipedia.org/wiki/Flash_Boys
    - Bootvis 12y ago
      Being faster is rigging the market? How does that work? Also, it isn't called front running, at least not legally. It can't be, HFT don't have any customers. Maybe Michael Lewis has a different definition of front running but for the rest of us: words have a meaning. http://en.wikipedia.org/wiki/Front_running http://en.wikipedia.org/wiki/Front_running
      - spacefight 12y ago
        HFT might not have direct customers per se, but if an order matches, they have a counterpart on each trade they make. If you have an unfair advantage for that trade, what would you call that system? Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). On the term, you're right - front running might not have been the correct therm.
        wdewind 12y ago
        > Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). I can't personally afford to have a Bloomberg feed in my living room to trade off of. Why is this any different?
        spacefight 12y ago
        Neither can I. Do you feel having the same fair market access without the BB terminal at your disposal?
        tptacek 12y ago
        Does it upset you when you go to buy a car to think that Avis can buy that car at a gigantic discount because they buy in bulk?
        spacefight 12y ago
        I like where this is going :) I know, I have a choice of buying a car or participating with my own money on the stock market. I have no choice if the pension fund where I work at is investing in blue chips.
        tptacek 12y ago
        Once again, this time with feeling: HFT firms don't prey on pension funds, mutual funds, or value investors. They improve things for those kinds of investors. HFT firms prey on other sell-side firms.
        ldng 12y ago
        But it does if I have to buy it at higher price just because Avis knew a that I and a few fellows where to buy the car 2 min in advance because he saw us asking about that car, bought the available stock of car we were interested in to the car dealer, propose them at a slight premium to the the car dealer who then finally sell it to me and my fellow 1 minute later at another premium because, you know, it has to make its own margin. The whole thing happening just under my nose. That's how I (unobjectively I concede) feel about HFT.
    - spindritf 12y ago
      The book has been discussed here at length[1]. I never worked in finance but it doesn't seem to hold up very well under scrutiny from experts. Comments by 'kasey_junk and 'yummyfajitas were particularly informative. The latter even wrote a couple of blog posts, including "A Fervent Defense of Front-running HFTs"[2]. [1] https://news.ycombinator.com/item?id=7531429 https://news.ycombinator.com/item?id=7531429 [2] http://www.chrisstucchio.com/blog/2014/fervent_defense_of_frontrunning_hfts.html http://www.chrisstucchio.com/blog/2014/fervent_defense_of_fr...
    - mmaldacker 12y ago
      Front running is something else, http://en.wikipedia.org/wiki/Front_running http://en.wikipedia.org/wiki/Front_running
  - praptak 12y ago
    It introduces asymmetry of information. Some forms of such asymmetry are obviously unethical and illegal - the good old insider trading. Some are legal and ethical(#) - just having better research on public information is ok. Buying extra {milli, micro}seconds to get ahead of the competition is just too new to have a general consensus on its ethical status. (#) In the mainstream. Obviously you can find contrarians to any position.
    - joosters 12y ago
      People have been using technology to discover news sooner for centuries. Your ethical compass is too slow!
    - kasey_junk 12y ago
      A) these microwave towers are mainly on routes to/from commodities exchanges that have equities derivatives and the equities exchanges where the underlying equities are traded, or between 2 different commodities exchanges. Insider trading, you will find, is much less regulated in commodities trading as there is all manner of information asymmetry built into the market, in fact one of the purposes of the market is to discover a valid price in the face of this information asymmetry. B) Buying extra time via technology is as old as trading. If you read the article, or taken an architectural tour of the CBOT building in Chicago you will have noticed that one of its main design requirements was to house telecommunications gear.
      - spacefight 12y ago
        Only because B) has been there for ages doesn't mean, it has to stay that way, does it?
        kasey_junk 12y ago
        I was specifically replying to the idea that we haven't had time to judge the ethics of communication technology in trading, when it is in fact a basic market force. I'm not an ethicist so I'm hesitant to speak on the ethics of market forces, but I will say: A) How do you prevent some actors from getting information before others? Do all actors have to wait for the slowest participant? Why should we prevent it? B) In general, faster dissemination of information leads to a more efficient market, we should encourage this, not discourage it.
- _mulder_ 12y ago
  "scam"? Care to elaborate? HFT has been around in Europe and is as well established as the US, so I assume the alleged scam relates directly to buying and operating Microwave networks. Seriously, please do provide more information, I am keen to learn more. disclaimer: I've not read 'Flash Boys' yet, so apologies if it's all explained in that book
  - spacefight 12y ago
    Read the book and you'll learn why it's a scam. Only because something is well established, doesn't mean it's morally legal. Your pension funds (and so is mine) are getting screwed big time by HFT.
    - icebraining 12y ago
      So what are pension funds doing about it? If they're getting screwed, they should be speaking out. Are they? EDIT: Replying to my own question: http://blogs.wsj.com/law/2014/09/08/law-firms-sue-stock-exchanges-over-high-frequency-trading/ http://blogs.wsj.com/law/2014/09/08/law-firms-sue-stock-exch...
      - spacefight 12y ago
        Yes, some are, some will. And there's a new exchange open with fair access: IEX. http://www.iextrading.com/ http://www.iextrading.com/ http://en.wikipedia.org/wiki/IEX http://en.wikipedia.org/wiki/IEX "IEX's main innovation is a 38-mile coil of optical fiber placed in front of its trading engine, which adds a round-trip delay of 700 microseconds and is believed to limit traders' ability to respond on the dark pool ahead of IEX's own pricing algorithms."
        kasey_junk 12y ago
        IEX is not an exchange. It is a dark pool with technology, rules and special order types specifically in place to give large hedge funds advantages over "average" investors. They still allow collocation, venue arbitrage, and non-human timescale trading. Any electronic trade you could do on any other dark pool you can do on IEX. The main difference between IEX and other dark pools is that they are owned by hedge funds and they either duped or bribed a famous author to write about them. [edit] The comment below correctly points out my insinuation about bribery and Michael Lewis is unfair and snarky. I will point out that Michael Lewis wrote a glowing book about Jim Clark a decade ago, who happens to be an investor in IEX, so there is at least the potential for intentional bias.
- grinnbearit 12y ago
  HFT is not the same as front running, this post does a good job in explaining why. http://www.chrisstucchio.com/blog/2014/mark_cubans_hft_idiocy.html http://www.chrisstucchio.com/blog/2014/mark_cubans_hft_idioc... There are other posts by the same author which cover the same topic if you're interested.
  - artursapek 12y ago
    High Frequency Trading should have been called Low Latency Trading.
    - 1SockChuck 12y ago
      It was at first. But it didn't stick.
    - kasey_junk 12y ago
      There is a real problem when discussing this topic that many terms are bantered about without rigorously defining them. Most electronic trading (trading done via computers and computer networks instead of in person) exists on at least 4 spectrums. 1) How algorithmic is it? How much of the trading decision is made by a computer and how much human intervention is there. 2) How often does it trade? Some electronic trading systems can trade thousands and thousands of times a day, while others only trade a few times a quarter. 3) How long does it hold a position and/or leave a quote on the market? Some trading systems are designed to never hold positions and others hold positions constantly. 4) What latency requirements does the trade have from the time the exchange publishes data until the time an order needs to be in the market. There are electronic trading systems that exist with variables at every end of these spectrums.
akavel 12y ago
Nicely written piece; to give some taste of the article contents: "Height, then, played an important part in facilitating that speed. A trader’s physical height became an advantage, which is part of the reason some traders were former basketball or football players – “taller traders were easier to see”. In the 1990s, some traders wore high heels in the pits to trade faster, and inevitably experienced injuries due to lack of balance. This prompted the Chicago Mercantile Exchange (CME) to impose a ruling making the maximum size of platform heels two inches in November 2000."
anemitz 12y ago
Does anyone have insight into the go-to hardware used for these microwave links? I'm curious what vendors are pushing the limits in this space.
- jackgavigan 12y ago
  Cielo and Aviat have targeted this market.
- t3f 12y ago
  Along the lines of your question, the guys at escapecom also wrote a white paper [1] that covers the high level technical details, and talk through the Chicago to Jersey problem from the OP. They do also sell such gear, so there may be some bias and salesmanship in there as well, but it was a good read. [1] http://www.escapecom.com/pdf/low_latency_white_paper.pdf http://www.escapecom.com/pdf/low_latency_white_paper.pdf
mxfh 12y ago
So it seems inevitable that we'll get gravity trains some time soon as a HFT side product? http://www.uh.edu/engines/epi2703.htm http://www.uh.edu/engines/epi2703.htm
- k2enemy 12y ago
  Or for burrito delivery: http://idlewords.com/2007/04/the_alameda-weehawken_burrito_tunnel.htm http://idlewords.com/2007/04/the_alameda-weehawken_burrito_t...
- baddox 12y ago
  I wonder how low we could get friction for one of these things. An evacuated tunnel and magnetic suspension are probably decent, but I'm curious how much additional power would be required to get the train all the way up the uphill portion.
CmonDev 12y ago
I hope one day speed of trade execution will depend on beating cancer. Those guys will solve it in a month.
- auntienomen 12y ago
  Are you yourself working on a cure for cancer?
  - enraged_camel 12y ago
    This fallacy is called tu quoque. http://en.wikipedia.org/wiki/Tu_quoque http://en.wikipedia.org/wiki/Tu_quoque
    - auntienomen 12y ago
      I am in fact not accusing CmonDev of hypocrisy. My point is that he very likely has good reasons for not working on a cure for cancer, such as knowing absolutely nothing about that very complicated subject. The same is true of the people who work in HFT. Frankly, "Why aren't you curing cancer instead?" ought to be a recognized logical fallacy.
  - makeset 12y ago
    I was. HFT is an interesting and rich problem on its own, but its complexity and difficulty pale in comparison to cancer research. And I don't get this "our brightest minds wasted on HFT/adclicks/etc" argument. Research positions at universities and labs are extremely competitive. There are hordes of brilliant people beating down the door to work on the problems that matter. The bottleneck is funding. A smart person who chooses to work in a higher-paying field and contributes enough financially may well have a larger impact on overall scientific progress than doing research in person.
    - shurane 12y ago
      I've never thought of that. But it sure feels liek there are a ridiculous number of positions in HFT/adclicks/etc compared to research in hospitals. Certainly, there is less respect attached to earning money than 'making a difference' in medical research, yes?
chollida1 12y ago
There is just so much competition in the HFT space. Its starting to clear out though. http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-high-frequency-tradings-rise-and-fall http://www.businessweek.com/articles/2013-06-06/how-the-robo... I think in the next 5 years we'll be down to a handful of true Ultra low latency, high frequency traders and they'll probably be the ones you know, TradeBot, Getco, Citadel, etc. I think I'm very fortunate not to have to compete in that space, it allows us to concentrate more on the algorithms than the execution. It's very hard to get started in it anymore. I work for a decent sized firm and we can get laughed out of meetings when we ask about some of the more desirable fiber routes. I can't imagine what it would take to get any microwave spectrum space:) The incumbents have the spectrum and fibre locked down and the bigger players like Citadel pay the retail brokers for their retail flow so they can trade against the "dumb" money before anyone else. I've heard that most Canadian banks sell their flow to a big US fund that has a chance to trade against it before it reaches the market. If the CN tower was available for renting out microwave signals I'm sure someone would have rented out the entire spectrum and held it for themselves. Its in a very good location for Inter-listed arbitrage between Toronto and Chicago and Toronto and New York:) This is a good article about the cutthroat business of being in the HFT space and the one I think the post was talking about. > "There are rumors in the industry that people have bought tower space or have bought frequencies that they don’t use,” Cumberland said. “We call it ‘frequency squatting’ or ‘tower squatting." > "Traders need multiple towers because signals run the risk of breaking up beyond 100 kilometers (62 miles). Controlling a single tower wouldn’t benefit a trader unless the goal was to force rivals to go around it by using a slower, less direct route, or hoarding the frequencies that companies rely on to transmit financial data, said Colt’s Cumberland." Meta note, if anyone wants to talk trading algos or technology feel free to reach out, email in my profile.
- minimax 12y ago
  You are being overly pessimistic about access to these microwave paths. In some cases in the U.S. you can purchase wireless market data directly from the exchanges†. I am less familiar with the Canadian markets so I can't speak to what is available there. † http://www.nasdaqtrader.com/content/Productsservices/trading/CoLo/microwave.pdf http://www.nasdaqtrader.com/content/Productsservices/trading...
moreentropy 12y ago
I don't see how HFT does any good for anyone. It adds no real value, and serves no purpose except to shift money from someone else's pockets, not by clever investment and market knowledge but pure technical advantage. It's a lot like BitCoin, it turns some expensive resource (be it CPU/GPU power or optimized data links) into money, but it doesn't help with earning/generating the money in the first place, so it just extracts it from someone else. It's a scam and should be banned worldwide. I don't know anything about trading, but I guess by making very small changes (make people hold stock for a few seconds?) you could render the whole HFT industry useless without any negative effects to the real economy.
- vasilipupkin 12y ago
  if you make people hold stock for a few seconds, you will increase bid/ask spreads and that extra cost will be imposed on the real economy. The cutthroat technical competition in HFT space serves the real economy by having HFT firms spend lots of money on technology, fast computers, etc.
  - moreentropy 12y ago
    OK, I guessed I don't have any knowledge to propose a solution here. :) I still doubt that HFT serves the real economy in any noticable positive way. Does the HFT firm's spending on technology really outweight their effect on the traded stock? And is it aceptable that they earn money purely by gaming the system?
    - kasey_junk 12y ago
      HFT firms drive down the price of trading stocks by lowering the bid/ask spread, increasing competition amongst exchanges (especially in regards to fees), and spreading technology throughout the trading industry. There is an argument to be made that they also provide needed liquidity but it is a contentious one.
      - chrisbennet 12y ago
cyphunk 12y ago
what protects a HFT microwave line from a targeted (perhaps even legal) attack of drones that get between line of site? or is the wave length larger than this?
- minimax 12y ago
  I have not heard of anyone intentionally interfering with microwave links, but generally speaking these RF lines are not reliable and you get gaps from time to time due to weather and whatnot. There are a couple of ways to deal with this. In the market data case, the data only flows in one direction and usually consists of sequenced messages, so you just send the data down both the microwave and a fiber path simultaneously. You can do simple line arbitration (throw away duplicates) at the receiving end.
- Maxious 12y ago
  There are easier ways to annoy HFT: "Every day for up to ten minutes near the London Stock Exchange, someone blocks signals from the global positioning system (GPS) network of satellites ... timestamps on trades made in financial institutions can be affected. " http://www.economist.com/news/international/21582288-satellite-positioning-data-are-vitalbut-signal-surprisingly-easy-disrupt-out http://www.economist.com/news/international/21582288-satelli...
  - minimax 12y ago
    Throwing off the exchange generated timestamps doesn't mess with any HFTs. The exchanges themselves don't synchronize against one another so the timestamps are basically useless to begin with.
    - kasey_junk 12y ago
      If you are timestamping in a data center and they throw off the timestamp source for the entire data center that could theoretically cause you issues.
      - 12y ago
hammock 12y ago
Could these microwave transceivers be used to communicate while avoiding state surveillance? Insider trading, terrorism, etc
lpage 12y ago
The race to zero (or more accurately c) on the networking front is seeing significant action, largely because it's the "lowest hanging fruit." Network latency is six to eight orders of magnitude higher than processing latency in most case. By Amdahl's Law, it's a very good system to optimize. This is especially true for places like Korea, and for the US where there's significant geographic distance between futures and equities. Microwave is an "early adopter" technology that will soon be replaced with superior ones. The first microwave network was slated to cost 15M/yr at the time of its launch in 2012. However, competition dropped that number to around 2M by launch time, and within six months it was < 250K. Mind you, everyone was locked into a 1-2yr contract at the higher price points. For the U.S. Tradeworx (aka Thesys) is one of the fastest "publicly" available networks so they're commanding a premium at $250K, but microwave is now available for less than 80K a mere two years after launch. Same story for Spread - seven figures and a two year commitment at the time of launch, down to 15-60K. On days with snow, rain, or wind kicking up pollen/dust, packets are dropped at comical rates. Dropping a packet is more expensive latency wise than sending it over Spread, and if the weather is bad enough, you're not getting anything through at all, which leads to dual Spread/microwave deployments. Spread knows this which is why the introduction of microwave didn't dramatically drop the price of Spread. Bandwidth wise you used to get about 1.5Mbps over a shared link. That number is better now, but not substantially. Even with no loss there's barely enough bandwidth to carry L1 price updates on a single active market data symbol, so market data on the whole is a no go. From what I can tell most people have gone the route of transmitting many types of data over both fiber and microwave while leaving the responsibility of deduping to the receiver. There's not much coverage on it but we'll see some interesting things on the fiber front soon. Photonic-crystal fiber is getting cheaper and we'll continue to see interesting advances on the hollow-core photonic-bandgap front in general [1]. These technologies can theoretically get very close to the speed of light (.997c) with extremely high bandwidth and low attenuation (repeaters in either fiber or microwave networks add significant latency) at which point the race to zero will stair step down again. http://www.nature.com/nphoton/journal/v7/n4/full/nphoton.2013.45.html http://www.nature.com/nphoton/journal/v7/n4/full/nphoton.201...
- andyjohnson0 12y ago
  "The race to zero (or more accurately c)" Some interesting speculation on using Neutrino-based messaging to eliminate the latency caused by the Earth's curvature [1]. [1] http://www.forbes.com/sites/brucedorminey/2012/04/30/neutrinos-to-give-high-frequency-traders-the-millisecond-edge/ http://www.forbes.com/sites/brucedorminey/2012/04/30/neutrin...
NicoJuicy 12y ago
Okay, i just want to say... I live like 10 km's from Veurne (what are the odds that is ontopic... I can rarely even mention Belgium :P)
markvdb 12y ago
An important part of the Rothschild family fortune was apparently made in a similar way around Napoleon's Waterloo defeat, using an optical precursor of the telegraph networks. http://www.lowtechmagazine.com/2007/12/email-in-the-18.html http://www.lowtechmagazine.com/2007/12/email-in-the-18.html

193 points by cheatdeath 12y ago

Having read 'Flash Boys' by Michael Lewis, this post seems like the logical followup after someone discovered the first microwave tower at the end of the book. Didn't know that the same scam is running in Europe...

Bootvis 12y ago
How is microwave dish based communication a 'scam'?
- spacefight 12y ago
  The scam is what you use the microwave communication for. If you have access to fast lines or even faster radio comms means, that you can rig the market more efficiently. It's called front running. http://en.wikipedia.org/wiki/Flash_Boys http://en.wikipedia.org/wiki/Flash_Boys
  - Bootvis 12y ago
    Being faster is rigging the market? How does that work? Also, it isn't called front running, at least not legally. It can't be, HFT don't have any customers. Maybe Michael Lewis has a different definition of front running but for the rest of us: words have a meaning. http://en.wikipedia.org/wiki/Front_running http://en.wikipedia.org/wiki/Front_running
    - spacefight 12y ago
      HFT might not have direct customers per se, but if an order matches, they have a counterpart on each trade they make. If you have an unfair advantage for that trade, what would you call that system? Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). On the term, you're right - front running might not have been the correct therm.
      - wdewind 12y ago
        > Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). I can't personally afford to have a Bloomberg feed in my living room to trade off of. Why is this any different?
        spacefight 12y ago
        Neither can I. Do you feel having the same fair market access without the BB terminal at your disposal?
        tptacek 12y ago
        Does it upset you when you go to buy a car to think that Avis can buy that car at a gigantic discount because they buy in bulk?
        spacefight 12y ago
        I like where this is going :) I know, I have a choice of buying a car or participating with my own money on the stock market. I have no choice if the pension fund where I work at is investing in blue chips.
        tptacek 12y ago
        Once again, this time with feeling: HFT firms don't prey on pension funds, mutual funds, or value investors. They improve things for those kinds of investors. HFT firms prey on other sell-side firms.
        ldng 12y ago
        But it does if I have to buy it at higher price just because Avis knew a that I and a few fellows where to buy the car 2 min in advance because he saw us asking about that car, bought the available stock of car we were interested in to the car dealer, propose them at a slight premium to the the car dealer who then finally sell it to me and my fellow 1 minute later at another premium because, you know, it has to make its own margin. The whole thing happening just under my nose. That's how I (unobjectively I concede) feel about HFT.
  - spindritf 12y ago
    The book has been discussed here at length[1]. I never worked in finance but it doesn't seem to hold up very well under scrutiny from experts. Comments by 'kasey_junk and 'yummyfajitas were particularly informative. The latter even wrote a couple of blog posts, including "A Fervent Defense of Front-running HFTs"[2]. [1] https://news.ycombinator.com/item?id=7531429 https://news.ycombinator.com/item?id=7531429 [2] http://www.chrisstucchio.com/blog/2014/fervent_defense_of_frontrunning_hfts.html http://www.chrisstucchio.com/blog/2014/fervent_defense_of_fr...
  - mmaldacker 12y ago
    Front running is something else, http://en.wikipedia.org/wiki/Front_running http://en.wikipedia.org/wiki/Front_running
- praptak 12y ago
  It introduces asymmetry of information. Some forms of such asymmetry are obviously unethical and illegal - the good old insider trading. Some are legal and ethical(#) - just having better research on public information is ok. Buying extra {milli, micro}seconds to get ahead of the competition is just too new to have a general consensus on its ethical status. (#) In the mainstream. Obviously you can find contrarians to any position.
  - joosters 12y ago
    People have been using technology to discover news sooner for centuries. Your ethical compass is too slow!
  - kasey_junk 12y ago
    A) these microwave towers are mainly on routes to/from commodities exchanges that have equities derivatives and the equities exchanges where the underlying equities are traded, or between 2 different commodities exchanges. Insider trading, you will find, is much less regulated in commodities trading as there is all manner of information asymmetry built into the market, in fact one of the purposes of the market is to discover a valid price in the face of this information asymmetry. B) Buying extra time via technology is as old as trading. If you read the article, or taken an architectural tour of the CBOT building in Chicago you will have noticed that one of its main design requirements was to house telecommunications gear.
    - spacefight 12y ago
      Only because B) has been there for ages doesn't mean, it has to stay that way, does it?
      - kasey_junk 12y ago
        I was specifically replying to the idea that we haven't had time to judge the ethics of communication technology in trading, when it is in fact a basic market force. I'm not an ethicist so I'm hesitant to speak on the ethics of market forces, but I will say: A) How do you prevent some actors from getting information before others? Do all actors have to wait for the slowest participant? Why should we prevent it? B) In general, faster dissemination of information leads to a more efficient market, we should encourage this, not discourage it.
_mulder_ 12y ago
"scam"? Care to elaborate? HFT has been around in Europe and is as well established as the US, so I assume the alleged scam relates directly to buying and operating Microwave networks. Seriously, please do provide more information, I am keen to learn more. disclaimer: I've not read 'Flash Boys' yet, so apologies if it's all explained in that book
- spacefight 12y ago
  Read the book and you'll learn why it's a scam. Only because something is well established, doesn't mean it's morally legal. Your pension funds (and so is mine) are getting screwed big time by HFT.
  - icebraining 12y ago
    So what are pension funds doing about it? If they're getting screwed, they should be speaking out. Are they? EDIT: Replying to my own question: http://blogs.wsj.com/law/2014/09/08/law-firms-sue-stock-exchanges-over-high-frequency-trading/ http://blogs.wsj.com/law/2014/09/08/law-firms-sue-stock-exch...
    - spacefight 12y ago
      Yes, some are, some will. And there's a new exchange open with fair access: IEX. http://www.iextrading.com/ http://www.iextrading.com/ http://en.wikipedia.org/wiki/IEX http://en.wikipedia.org/wiki/IEX "IEX's main innovation is a 38-mile coil of optical fiber placed in front of its trading engine, which adds a round-trip delay of 700 microseconds and is believed to limit traders' ability to respond on the dark pool ahead of IEX's own pricing algorithms."
      - kasey_junk 12y ago
        IEX is not an exchange. It is a dark pool with technology, rules and special order types specifically in place to give large hedge funds advantages over "average" investors. They still allow collocation, venue arbitrage, and non-human timescale trading. Any electronic trade you could do on any other dark pool you can do on IEX. The main difference between IEX and other dark pools is that they are owned by hedge funds and they either duped or bribed a famous author to write about them. [edit] The comment below correctly points out my insinuation about bribery and Michael Lewis is unfair and snarky. I will point out that Michael Lewis wrote a glowing book about Jim Clark a decade ago, who happens to be an investor in IEX, so there is at least the potential for intentional bias.
grinnbearit 12y ago
HFT is not the same as front running, this post does a good job in explaining why. http://www.chrisstucchio.com/blog/2014/mark_cubans_hft_idiocy.html http://www.chrisstucchio.com/blog/2014/mark_cubans_hft_idioc... There are other posts by the same author which cover the same topic if you're interested.
- artursapek 12y ago
  High Frequency Trading should have been called Low Latency Trading.
  - 1SockChuck 12y ago
    It was at first. But it didn't stick.
  - kasey_junk 12y ago
    There is a real problem when discussing this topic that many terms are bantered about without rigorously defining them. Most electronic trading (trading done via computers and computer networks instead of in person) exists on at least 4 spectrums. 1) How algorithmic is it? How much of the trading decision is made by a computer and how much human intervention is there. 2) How often does it trade? Some electronic trading systems can trade thousands and thousands of times a day, while others only trade a few times a quarter. 3) How long does it hold a position and/or leave a quote on the market? Some trading systems are designed to never hold positions and others hold positions constantly. 4) What latency requirements does the trade have from the time the exchange publishes data until the time an order needs to be in the market. There are electronic trading systems that exist with variables at every end of these spectrums.

akavel 12y ago

Nicely written piece; to give some taste of the article contents: "Height, then, played an important part in facilitating that speed. A trader’s physical height became an advantage, which is part of the reason some traders were former basketball or football players – “taller traders were easier to see”. In the 1990s, some traders wore high heels in the pits to trade faster, and inevitably experienced injuries due to lack of balance. This prompted the Chicago Mercantile Exchange (CME) to impose a ruling making the maximum size of platform heels two inches in November 2000."

anemitz 12y ago

Does anyone have insight into the go-to hardware used for these microwave links? I'm curious what vendors are pushing the limits in this space.

jackgavigan 12y ago
Cielo and Aviat have targeted this market.
t3f 12y ago
Along the lines of your question, the guys at escapecom also wrote a white paper [1] that covers the high level technical details, and talk through the Chicago to Jersey problem from the OP. They do also sell such gear, so there may be some bias and salesmanship in there as well, but it was a good read. [1] http://www.escapecom.com/pdf/low_latency_white_paper.pdf http://www.escapecom.com/pdf/low_latency_white_paper.pdf

mxfh 12y ago

So it seems inevitable that we'll get gravity trains some time soon as a HFT side product? http://www.uh.edu/engines/epi2703.htm http://www.uh.edu/engines/epi2703.htm

k2enemy 12y ago
Or for burrito delivery: http://idlewords.com/2007/04/the_alameda-weehawken_burrito_tunnel.htm http://idlewords.com/2007/04/the_alameda-weehawken_burrito_t...
baddox 12y ago
I wonder how low we could get friction for one of these things. An evacuated tunnel and magnetic suspension are probably decent, but I'm curious how much additional power would be required to get the train all the way up the uphill portion.

CmonDev 12y ago

I hope one day speed of trade execution will depend on beating cancer. Those guys will solve it in a month.

auntienomen 12y ago
Are you yourself working on a cure for cancer?
- enraged_camel 12y ago
  This fallacy is called tu quoque. http://en.wikipedia.org/wiki/Tu_quoque http://en.wikipedia.org/wiki/Tu_quoque
  - auntienomen 12y ago
    I am in fact not accusing CmonDev of hypocrisy. My point is that he very likely has good reasons for not working on a cure for cancer, such as knowing absolutely nothing about that very complicated subject. The same is true of the people who work in HFT. Frankly, "Why aren't you curing cancer instead?" ought to be a recognized logical fallacy.
- makeset 12y ago
  I was. HFT is an interesting and rich problem on its own, but its complexity and difficulty pale in comparison to cancer research. And I don't get this "our brightest minds wasted on HFT/adclicks/etc" argument. Research positions at universities and labs are extremely competitive. There are hordes of brilliant people beating down the door to work on the problems that matter. The bottleneck is funding. A smart person who chooses to work in a higher-paying field and contributes enough financially may well have a larger impact on overall scientific progress than doing research in person.
  - shurane 12y ago
    I've never thought of that. But it sure feels liek there are a ridiculous number of positions in HFT/adclicks/etc compared to research in hospitals. Certainly, there is less respect attached to earning money than 'making a difference' in medical research, yes?

chollida1 12y ago

There is just so much competition in the HFT space. Its starting to clear out though. http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-high-frequency-tradings-rise-and-fall http://www.businessweek.com/articles/2013-06-06/how-the-robo... I think in the next 5 years we'll be down to a handful of true Ultra low latency, high frequency traders and they'll probably be the ones you know, TradeBot, Getco, Citadel, etc. I think I'm very fortunate not to have to compete in that space, it allows us to concentrate more on the algorithms than the execution. It's very hard to get started in it anymore. I work for a decent sized firm and we can get laughed out of meetings when we ask about some of the more desirable fiber routes. I can't imagine what it would take to get any microwave spectrum space:) The incumbents have the spectrum and fibre locked down and the bigger players like Citadel pay the retail brokers for their retail flow so they can trade against the "dumb" money before anyone else. I've heard that most Canadian banks sell their flow to a big US fund that has a chance to trade against it before it reaches the market. If the CN tower was available for renting out microwave signals I'm sure someone would have rented out the entire spectrum and held it for themselves. Its in a very good location for Inter-listed arbitrage between Toronto and Chicago and Toronto and New York:) This is a good article about the cutthroat business of being in the HFT space and the one I think the post was talking about. > "There are rumors in the industry that people have bought tower space or have bought frequencies that they don’t use,” Cumberland said. “We call it ‘frequency squatting’ or ‘tower squatting." > "Traders need multiple towers because signals run the risk of breaking up beyond 100 kilometers (62 miles). Controlling a single tower wouldn’t benefit a trader unless the goal was to force rivals to go around it by using a slower, less direct route, or hoarding the frequencies that companies rely on to transmit financial data, said Colt’s Cumberland." Meta note, if anyone wants to talk trading algos or technology feel free to reach out, email in my profile.

minimax 12y ago
You are being overly pessimistic about access to these microwave paths. In some cases in the U.S. you can purchase wireless market data directly from the exchanges†. I am less familiar with the Canadian markets so I can't speak to what is available there. † http://www.nasdaqtrader.com/content/Productsservices/trading/CoLo/microwave.pdf http://www.nasdaqtrader.com/content/Productsservices/trading...

moreentropy 12y ago

I don't see how HFT does any good for anyone. It adds no real value, and serves no purpose except to shift money from someone else's pockets, not by clever investment and market knowledge but pure technical advantage. It's a lot like BitCoin, it turns some expensive resource (be it CPU/GPU power or optimized data links) into money, but it doesn't help with earning/generating the money in the first place, so it just extracts it from someone else. It's a scam and should be banned worldwide. I don't know anything about trading, but I guess by making very small changes (make people hold stock for a few seconds?) you could render the whole HFT industry useless without any negative effects to the real economy.

vasilipupkin 12y ago
if you make people hold stock for a few seconds, you will increase bid/ask spreads and that extra cost will be imposed on the real economy. The cutthroat technical competition in HFT space serves the real economy by having HFT firms spend lots of money on technology, fast computers, etc.
- moreentropy 12y ago
  OK, I guessed I don't have any knowledge to propose a solution here. :) I still doubt that HFT serves the real economy in any noticable positive way. Does the HFT firm's spending on technology really outweight their effect on the traded stock? And is it aceptable that they earn money purely by gaming the system?
  - kasey_junk 12y ago
    HFT firms drive down the price of trading stocks by lowering the bid/ask spread, increasing competition amongst exchanges (especially in regards to fees), and spreading technology throughout the trading industry. There is an argument to be made that they also provide needed liquidity but it is a contentious one.
    - chrisbennet 12y ago

cyphunk 12y ago

what protects a HFT microwave line from a targeted (perhaps even legal) attack of drones that get between line of site? or is the wave length larger than this?

minimax 12y ago
I have not heard of anyone intentionally interfering with microwave links, but generally speaking these RF lines are not reliable and you get gaps from time to time due to weather and whatnot. There are a couple of ways to deal with this. In the market data case, the data only flows in one direction and usually consists of sequenced messages, so you just send the data down both the microwave and a fiber path simultaneously. You can do simple line arbitration (throw away duplicates) at the receiving end.
Maxious 12y ago
There are easier ways to annoy HFT: "Every day for up to ten minutes near the London Stock Exchange, someone blocks signals from the global positioning system (GPS) network of satellites ... timestamps on trades made in financial institutions can be affected. " http://www.economist.com/news/international/21582288-satellite-positioning-data-are-vitalbut-signal-surprisingly-easy-disrupt-out http://www.economist.com/news/international/21582288-satelli...
- minimax 12y ago
  Throwing off the exchange generated timestamps doesn't mess with any HFTs. The exchanges themselves don't synchronize against one another so the timestamps are basically useless to begin with.
  - kasey_junk 12y ago
    If you are timestamping in a data center and they throw off the timestamp source for the entire data center that could theoretically cause you issues.
    - 12y ago

hammock 12y ago

Could these microwave transceivers be used to communicate while avoiding state surveillance? Insider trading, terrorism, etc

lpage 12y ago

The race to zero (or more accurately c) on the networking front is seeing significant action, largely because it's the "lowest hanging fruit." Network latency is six to eight orders of magnitude higher than processing latency in most case. By Amdahl's Law, it's a very good system to optimize. This is especially true for places like Korea, and for the US where there's significant geographic distance between futures and equities. Microwave is an "early adopter" technology that will soon be replaced with superior ones. The first microwave network was slated to cost 15M/yr at the time of its launch in 2012. However, competition dropped that number to around 2M by launch time, and within six months it was < 250K. Mind you, everyone was locked into a 1-2yr contract at the higher price points. For the U.S. Tradeworx (aka Thesys) is one of the fastest "publicly" available networks so they're commanding a premium at $250K, but microwave is now available for less than 80K a mere two years after launch. Same story for Spread - seven figures and a two year commitment at the time of launch, down to 15-60K. On days with snow, rain, or wind kicking up pollen/dust, packets are dropped at comical rates. Dropping a packet is more expensive latency wise than sending it over Spread, and if the weather is bad enough, you're not getting anything through at all, which leads to dual Spread/microwave deployments. Spread knows this which is why the introduction of microwave didn't dramatically drop the price of Spread. Bandwidth wise you used to get about 1.5Mbps over a shared link. That number is better now, but not substantially. Even with no loss there's barely enough bandwidth to carry L1 price updates on a single active market data symbol, so market data on the whole is a no go. From what I can tell most people have gone the route of transmitting many types of data over both fiber and microwave while leaving the responsibility of deduping to the receiver. There's not much coverage on it but we'll see some interesting things on the fiber front soon. Photonic-crystal fiber is getting cheaper and we'll continue to see interesting advances on the hollow-core photonic-bandgap front in general [1]. These technologies can theoretically get very close to the speed of light (.997c) with extremely high bandwidth and low attenuation (repeaters in either fiber or microwave networks add significant latency) at which point the race to zero will stair step down again. http://www.nature.com/nphoton/journal/v7/n4/full/nphoton.2013.45.html http://www.nature.com/nphoton/journal/v7/n4/full/nphoton.201...

andyjohnson0 12y ago
"The race to zero (or more accurately c)" Some interesting speculation on using Neutrino-based messaging to eliminate the latency caused by the Earth's curvature [1]. [1] http://www.forbes.com/sites/brucedorminey/2012/04/30/neutrinos-to-give-high-frequency-traders-the-millisecond-edge/ http://www.forbes.com/sites/brucedorminey/2012/04/30/neutrin...

NicoJuicy 12y ago

Okay, i just want to say... I live like 10 km's from Veurne (what are the odds that is ontopic... I can rarely even mention Belgium :P)

markvdb 12y ago

An important part of the Rothschild family fortune was apparently made in a similar way around Napoleon's Waterloo defeat, using an optical precursor of the telegraph networks. http://www.lowtechmagazine.com/2007/12/email-in-the-18.html http://www.lowtechmagazine.com/2007/12/email-in-the-18.html