6 ms·

HFT in my backyard – V

117 points by omnibrain 12y ago

natebleker 12y ago
I love reading these articles, keep them coming!
- keithpeter 12y ago
  http://archive.wired.com/wired/archive/4.12/ffglass_pr.html http://archive.wired.com/wired/archive/4.12/ffglass_pr.html Just in case... (2004 vintage)
computer 12y ago
Why would you want to place the server in the center? If you have a computer on both ends, then the information from exchanges reaches the other exchange at the same time the instruction from a computer in the center would, so you can have those computers on the ends make exactly the same decision at approximately the same time, using the same data (or newer local data, even)?
- chollida1 12y ago
  > Why would you want to place the server in the center? Because for arbitrage you need to know the price in both area's before you can react. If its instantaneous at the collocated site and 5ms to get to your other machine, you need to wait 5ms to act and then add about the same time back on to send your order to the further location. If your machine is in the middle then you only need to wait 2.5ms to act and then add about 2.5 ms to send your orders. This type of arbitrage is much easier if all orders originate from one machine( as opposed to each collocated machine sending its piece of the stat arb order. If you have 2 machines sending their own parts of the arb order then you have to sync them if one fails to get its side of hte order, and hence more latency. EDIT in case I wasn't clear, the benefit is having one machine do the arb instead of two machines sending simultaneous orders. This way the two machines don't need to sync up to determine if one leg was done and one leg was hung. All the information is in the same program on the same machine so there is no distributed state to reconcile.
  - venaoy 12y ago
    No. The parent suggests having 2 machines (1 at each end), but each trading order would be issued by only 1 machine (not 2). So there is no synchronization issue. Example: machine A instantaneously become aware of some event at exchange A. It sends an order to remote exchange B (which takes 5ms) and at the same time sends a matching order to exchange A. Total time = 5ms, which is the same as having a machine in the middle having a latency of 2x2.5 = 5ms. [Edit #1: I edited this sentence to reflect the fact the algo sends the matching order immediately to the local exchange.] So I still don't understand why is there any advantage in having a computer in the middle. Edit #2: you wrote an edit ("This way the two machines don't need to sync up to determine if one leg was done and one leg was hung. All the information is in the same program on the same machine so there is no distributed state to reconcile.") which I think finally clarifies the advantage in having a computer in the middle. You don't run the risk of the 2 computers at each end executing orders that conflict with each other.
    - phdp 12y ago
      A signal for this type of trading requires knowledge of the bid ask in both locations.
      - computer 12y ago
        You do: that's the signal that's sent over in 5ms. You then combine it with the local price 5ms ago, and you can construct the exact same instruction the computer in the center would have come up with 2.5ms ago, based on the price in both locations 5ms ago. Both sides can this way make identical decisions to eachother, at the same time, and identical to those that would have been made by a computer in the center.
      - venaoy 12y ago
        In my scenario, a machine knows the local exchange price as of 0ms ago (instantaneously) but knows the remote exchange's price as of 5ms ago. You are saying it is better to know exchange A's price as of 2.5ms ago, and exchange B's price also as of 2.5ms. But why? Either way you are ignoring 5ms's worth of trading activity. Either 2.5ms on both exchanges, or 5ms on one exchange. Edit: I think I understand the advantage - see my edit #2 in my post above.
- Permit 12y ago
  >then the information from exchanges reaches the other exchange at the same time the instruction from a computer in the center would, Not necessarily. You could buy a line with less latency than that of the exchanges. This would allow you to act quicker at the second exchange.
washedup 12y ago
The red dots for the "The Future, II" segment are not exchanges but optimal server locations.
zzleeper 12y ago
Do the microwave networks suffer any problems (disconnections, etc.) under rain or other weather conditions?
- throwaway283719 12y ago
  Yes. You can get significant signal attenuation (particularly at high frequencies, i.e. above 10 GHz) when it is raining.
- freeasinfree 12y ago
  Not with a properly designed link budget.
- davidvaughan 12y ago
  Sleet, snow, rain and even clouds of insects can reduce or confuse the signal.
- ramLlama 12y ago
  Yes, they do. Microwave works on line-of-sight and weather patterns easily mess it up and drop the link. That's why you usually also run your microwave data over a fiber link as backup. Of course, when microwave works, it gives you a decent improvement in latency, at the cost of bandwidth.
nullc 12y ago
"a patent was filed in the U.S. by the Massachusetts Institute Of Technology, titled “System and method for relativistic statistical securities trading”," We should all be thankful to that proud institution for taking decisive action to ensure another wasteful technology well never see the light of day.
- minimax 12y ago
  There is some chance I'm misreading your sarcasm here, but if you are willing to accept that arbitrageurs provide a useful function in the markets by keeping prices equal for roughly equivalent instruments traded on geographically diverse trading centers, then what's wrong with arbitrageurs competing with one another to provide that function?
  - nullc 12y ago
    Equality at the speed of light limited timescale is of relatively small economic value to the world. They are basically equalizing prices faster than you could ever learn about them. The service of arbitrage is useful, but there is a bit of a winner take all here and a race to the bottom (meaning highest cost way of accomplishing the service). No one may care if it's equalized in 1ms vs 200ms, but the party that can do it in 1ms is going to take all the gain from the spread. (I don't really blame the arbitrageurs; the markets should be doing batched sealed bid or other mechanisms to equalize participants; and avoid diverting massive amounts of funds to floating balloons between trading centres)
    - minimax 12y ago
      there is a bit of a winner take all here and a race to the bottom (meaning highest cost way of accomplishing the service) It's true that the fastest arbitrageur takes most of the profit, but when we say the cost is going up (i.e. the "arms race"), that means a bigger chunk of the arb profits (which are basically fixed, regardless of cost) are going to network providers, NIC vendors, FPGA vendors, and so forth. The costs to investors are coming down as the chances of buying a mispriced instrument become smaller and smaller.

117 points by omnibrain 12y ago

natebleker 12y ago

I love reading these articles, keep them coming!

keithpeter 12y ago
http://archive.wired.com/wired/archive/4.12/ffglass_pr.html http://archive.wired.com/wired/archive/4.12/ffglass_pr.html Just in case... (2004 vintage)

computer 12y ago

Why would you want to place the server in the center? If you have a computer on both ends, then the information from exchanges reaches the other exchange at the same time the instruction from a computer in the center would, so you can have those computers on the ends make exactly the same decision at approximately the same time, using the same data (or newer local data, even)?

chollida1 12y ago
> Why would you want to place the server in the center? Because for arbitrage you need to know the price in both area's before you can react. If its instantaneous at the collocated site and 5ms to get to your other machine, you need to wait 5ms to act and then add about the same time back on to send your order to the further location. If your machine is in the middle then you only need to wait 2.5ms to act and then add about 2.5 ms to send your orders. This type of arbitrage is much easier if all orders originate from one machine( as opposed to each collocated machine sending its piece of the stat arb order. If you have 2 machines sending their own parts of the arb order then you have to sync them if one fails to get its side of hte order, and hence more latency. EDIT in case I wasn't clear, the benefit is having one machine do the arb instead of two machines sending simultaneous orders. This way the two machines don't need to sync up to determine if one leg was done and one leg was hung. All the information is in the same program on the same machine so there is no distributed state to reconcile.
- venaoy 12y ago
  No. The parent suggests having 2 machines (1 at each end), but each trading order would be issued by only 1 machine (not 2). So there is no synchronization issue. Example: machine A instantaneously become aware of some event at exchange A. It sends an order to remote exchange B (which takes 5ms) and at the same time sends a matching order to exchange A. Total time = 5ms, which is the same as having a machine in the middle having a latency of 2x2.5 = 5ms. [Edit #1: I edited this sentence to reflect the fact the algo sends the matching order immediately to the local exchange.] So I still don't understand why is there any advantage in having a computer in the middle. Edit #2: you wrote an edit ("This way the two machines don't need to sync up to determine if one leg was done and one leg was hung. All the information is in the same program on the same machine so there is no distributed state to reconcile.") which I think finally clarifies the advantage in having a computer in the middle. You don't run the risk of the 2 computers at each end executing orders that conflict with each other.
  - phdp 12y ago
    A signal for this type of trading requires knowledge of the bid ask in both locations.
    - computer 12y ago
      You do: that's the signal that's sent over in 5ms. You then combine it with the local price 5ms ago, and you can construct the exact same instruction the computer in the center would have come up with 2.5ms ago, based on the price in both locations 5ms ago. Both sides can this way make identical decisions to eachother, at the same time, and identical to those that would have been made by a computer in the center.
    - venaoy 12y ago
      In my scenario, a machine knows the local exchange price as of 0ms ago (instantaneously) but knows the remote exchange's price as of 5ms ago. You are saying it is better to know exchange A's price as of 2.5ms ago, and exchange B's price also as of 2.5ms. But why? Either way you are ignoring 5ms's worth of trading activity. Either 2.5ms on both exchanges, or 5ms on one exchange. Edit: I think I understand the advantage - see my edit #2 in my post above.
Permit 12y ago
>then the information from exchanges reaches the other exchange at the same time the instruction from a computer in the center would, Not necessarily. You could buy a line with less latency than that of the exchanges. This would allow you to act quicker at the second exchange.

washedup 12y ago

The red dots for the "The Future, II" segment are not exchanges but optimal server locations.

zzleeper 12y ago

Do the microwave networks suffer any problems (disconnections, etc.) under rain or other weather conditions?

throwaway283719 12y ago
Yes. You can get significant signal attenuation (particularly at high frequencies, i.e. above 10 GHz) when it is raining.
freeasinfree 12y ago
Not with a properly designed link budget.
davidvaughan 12y ago
Sleet, snow, rain and even clouds of insects can reduce or confuse the signal.
ramLlama 12y ago
Yes, they do. Microwave works on line-of-sight and weather patterns easily mess it up and drop the link. That's why you usually also run your microwave data over a fiber link as backup. Of course, when microwave works, it gives you a decent improvement in latency, at the cost of bandwidth.

nullc 12y ago

"a patent was filed in the U.S. by the Massachusetts Institute Of Technology, titled “System and method for relativistic statistical securities trading”," We should all be thankful to that proud institution for taking decisive action to ensure another wasteful technology well never see the light of day.

minimax 12y ago
There is some chance I'm misreading your sarcasm here, but if you are willing to accept that arbitrageurs provide a useful function in the markets by keeping prices equal for roughly equivalent instruments traded on geographically diverse trading centers, then what's wrong with arbitrageurs competing with one another to provide that function?
- nullc 12y ago
  Equality at the speed of light limited timescale is of relatively small economic value to the world. They are basically equalizing prices faster than you could ever learn about them. The service of arbitrage is useful, but there is a bit of a winner take all here and a race to the bottom (meaning highest cost way of accomplishing the service). No one may care if it's equalized in 1ms vs 200ms, but the party that can do it in 1ms is going to take all the gain from the spread. (I don't really blame the arbitrageurs; the markets should be doing batched sealed bid or other mechanisms to equalize participants; and avoid diverting massive amounts of funds to floating balloons between trading centres)
  - minimax 12y ago
    there is a bit of a winner take all here and a race to the bottom (meaning highest cost way of accomplishing the service) It's true that the fastest arbitrageur takes most of the profit, but when we say the cost is going up (i.e. the "arms race"), that means a bigger chunk of the arb profits (which are basically fixed, regardless of cost) are going to network providers, NIC vendors, FPGA vendors, and so forth. The costs to investors are coming down as the chances of buying a mispriced instrument become smaller and smaller.