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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.

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.

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.