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Contemplating Financial Trading At Picosecond Resolution
pbahra writes "One complaint made of the modern stock market is that it is concerned too much on the short term. A second is a long time in cash-equities trading. Four or five years ago, trading firms started to talk of trading speeds in terms of milliseconds. But in recent weeks trading geeks have started to talk about picoseconds, in what is a truly mind-boggling concept: a picosecond is one trillionth of a second. Put another way, a picosecond is to one second what one second is to 31,700 years."
These people are parasites. They provide nothing of value to the world; they just take. This crap should be illegal.
So unless they've found a way to break the light barrier, this is a load of bull.
I've started talking about femtoseconds.
Thanks for fucking up the market for the rest of the world. This image comes to mind..
http://farm4.static.flickr.com/3014/2907411559_117ac480b5.jpg
Only the State obtains its revenue by coercion. - Murray Rothbard
Wouldn't it be faster to just add some zeros to a number in a bank account? In the end, that is all that the modern stock market (AKA one giant ponzi scheme) does. Wall St. does sod all as far as producing real goods, real jobs and any real value.
And the rich get richer
light moves 0.3 millimeters in a pico-second. They are going to get all transactions on earth to occur in a sphere of 0.15 mm diameter? and somehow instantly get a traders transaction into that sphere from hundreds of kilometers away? That is pure inactionable bovine manure.
To put this in perspective:
---A picosecond is roughly "330 picoseconds (approximately) – the time it takes a common 3.0 GHz computer CPU to add two integers" (source)
---To put that in perspective, since obviously a large large amount of data must be inputted and then "processed" in real time, but then they are concerned with ~350 cpu cycles?
---Even if a processor can do tons of these operations a second, the amount of data they are receiving must be ghastly!
Makes me think of the patriot missile system and the round-off error tragedy that occurred. I am just hoping our market does not "experience the same fate". (I do understand it was all a fundamental bad programming situation before, but decisions that are made in picoseconds should be taken with some level of precaution.)
We should start a new Slashdot and return control to the geeks. It actually wouldn't be that hard to get some users to
BAN short-term micro trading. It causes problems and offers no real benefit.
In Kurt Vonnegut's 1997 novel Hocus Pocus, the United States is brought to its knees financially by a company called Microsecond Arbitrage. Everyone invests through them and makes lots of money until a glitch happens and someone else's computer is faster that day. Then the entire country loses its shirt.
Word to the wise.....
Honestly, this is really a bad idea for overall market stability. What we really need is a much slower, yet fairer system.
What I'd suggest is something similar to synchronous clocking:
Every second, on the second, prices are published.
500 ms later, orders are placed and fulfilled.
500 ms later, the updated prices are published.
Benefit #1: fairness - those who are closest to the exchange or have stupidly fast hardware can't get in front of the rest.
Benefit #2: slower responses. If the clock can only "tick" 60 times a minute, there is a chance for human intervention before disasters happen.
Benefit #3: markets are more able to serve the rest of society, rather than being used purely for "gambling". imho, the existence of "high frequency trading" is a kind of tragedy of the commons: nobody really "wins", but if everyone else does it, and you don't, you lose.
Unless your computer is within 0.3 millimeters of their server, this isn't going to work. Any talk of latencies of less than a nanosecond is insanity.
Speaking at a London conference on Tuesday, Donal Byrne, chief executive of Corvil, a high-speed trading technology company, caused a ripple of audible incredulity throughout the room when he suggested that trading speeds could be reduced to picoseconds in the not too distant future.
In the not too distant future it is possible that
Donal Byrne's nose could grow to tremendous lengths,
his pants could catch on fire,
and monkeys could fly out of his butt.
I'd suggest every minute and 30 seconds respectively so human beings can also participate.
sensationalist bullcrap. A journalist trying to sell a non-story.
The stock market is unstable. If stocks were based on real world value this would be a ridiculous concept.
There is a country in sub Saharan Africa (honestly forget which) where the stock market is open every Tuesday from 10:00 to 11:00AM. The trading session consists of back and forth negotiations and ends with a single daily transaction that occurs at a single price that maximizes volume and does not leave any unfilled orders. Once a week. That's all you need.
And the next guy suggests an hour and half hours. The guy following disagrees, 500ms should be enough, 250ms to split the difference. I agree in principle that a line should be drawn, but how do you draw an arbitrary line that's fair and agreeable to all? I don't believe that's possible, hence you can never draw a line at all. YEEEEAH! HENCE!!
The stock exchange should put in a random delay around a few seconds on each bid to prevent trying to game the system and wasting resources chasing one-up-man-ship.
If a trade depends on a given price range, then include an optional min and max range. If the target price after the delay is out of the specified range, then the bid is canceled (although with a small processing fee).
Table-ized A.I.
I was a software developer of risk analysis tools for companies on the CBOE (Chicago Board Options Exchange). Milliseconds are significant when you need to hedge a position (balance your risks). Picoseconds? That is just idiotic, IMHO. Personally, I think we need to throttle back the trend toward automatic computerized trading. There are too many badly understood issues with regard to chaos effects in these time frames.
Sometimes, real fast is almost as good as real-time.
Maybe once per day would be even better. Then we will all be able to see the train wreck in advance far enough that we can put a fix in before any real harm is done? (no sarcasm). Much like extending copyright to longer and longer periods, perhaps we have gone way too far with faster and faster trades and we need to seriously scale back to something that currently seems insane.
We still haven't solved the problem that was first noticed in the Industrial Revolution: How to occupy workers replaced by technology, and share the financial benefits of technology equitably.
Luddites and Communists attempted to supply answers early on.
Both answers have obvious flaws.
Later in the 20th century, it looked like Keynsian economics and moderate socialism might be the answer; but that's debatable because WW2 caused massive re-employment and reconstruction which occupied a generation.
Things seemed to be humming along in the late 20th century, the problem was forgotten--then the dot-com crash initiated what will most likely, in retrospect, be regarded as the true beginnning of a new economic and social crisis.
Consider the postal service--essentially frozen in hiring, trying to cut service, and headed for bankruptcy without government support. The replacement of mail with email is cited as a major reason. This is just one small example of technological unemployment.
What does this have to do with HFT? Well, HFT is one example of something the market creates in this situation. There's a general consensus that it isn't productive, and perhaps even harmful. Yet at the same time, it absorbes some of the otherwise unemployed.
When discussing this issue with a friend, he actually labeled me as a neo-luddite. I think that's unfair. I'm not saying we should perpetuate something like the postal service, just to maintain the status quo. Plainly, a policy like that could have negative long-term consequences, since the economy as a whole would be discouraged from innovating.
At the same time however, we still need to come up with an orderly way of compensating displaced workers, and preventing harmful "innovations" from arising in the wake of technological progress. The problem is, determining what is "harmful", who is "displaced", and what, if any "compensation" should be dispensed is fraught with political peril.
The problem remains unsolved and, IMHO, inadequately acknowledged by policy makers.
Actually, I think we can draw a line. It takes about 200ms for an electrical pulse to travel round the world (speed of light in glass is lower than c), and we have a bit of switching delay. So this should imply the minimum timing limit. Anyway, fortunately the exchange can set the rules here, if it wants to.
Yes, light can only travel a tiny distance in 1 picosecond. You can still trade at that speed. It would require the traders to be running their programs on the same machine that is running the market. These programs would have to be implemented in silicon since 1/picosecond is a terahertz and we don't have general purpose terahertz machines - you'd even need more than a terahertz since a trade probably cannot be carried out in just 1 cycle. The real solution to this madness is to run the market at 1 hertz or less.
That would be a MUCH bigger change than you think it is. All the financial institutions have billions invested in ultra-fast trading infrastructure (messaging software, switches, routers, fiber links, etc...). Not to mention all of the actual algorithms trading assume each quote modifies the market, which is immediately tradeable.
I kind of doubt the SEC would be able to enforce that regulation on exchanges and ATS's.
I like that idea, and I've thought of things like that before, but wouldn't there still be in incentive to be first in line with putting in your order? If everyone gets the prices published at a server in NYC at a particular moment, then the knowledge of that publication still propagates away from NYC at the speed of light. It's an improvement for the markets in some ways, but I don't think in that way.
Meh, looks like it's irrelevant - the trade tax scenarios above seem to address the problem adequately.
This reminds me of the London gold price fixing which seems irrelevant because gold is also electronicly traded, and probably HFT'd; but it looks like they still do it.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
Well, you could put your order in any time before deadline, but orders are only executed at the instant of the deadline. So, you get all the "thinking" time you need, and once the deadline is reached, orders are processed simultaneously (or in random order). This is similar to how concert tickets (or, for that matter, new issues of stock) are sold: you have a week to post in your cheque, and then all envelopes are opened at the same time - in the interests of fairness, the should be shuffled first if there is a risk that not all orders can be fulfilled.
can't happen soon enough.
Come on, where else is so much effort being put into intelligent and prediction-capable computing? Mark my words, the first functional AI will come out of the stock market. That's actually a funny thought if you give it a minute, the world might not end when a sentient computer mainframe takes over the military systems of a major world power but instead when a sentient AI melts the financial system and plunges us into an economic dark age.
Ivar Kreuger aka the "Match King" pretty much just made up most of the rules of today's business world as get-rich-quick schemes for himself.
Off Balance Sheet Entities
This means that details of an enterprise do not appear in the parent company's financial statements. Some of these entities were more or less secret. The associated debt, called "off balance sheet obligations", didn't appear in any financial statements of the companies Ivar controlled other than in summary form, if at all.[41] (In this context, it should be kept in mind that most of these financial statements were figments of the imagination in any case.) Albert D. Berning of the firm Ernst & Ernst, International Match's auditor, rationalized it at the shareholder's meeting in 1926. He said "it is only customary to consolidate the assets and liabilities of companies in such a balance sheet when a substantial majority of the outstanding shares are owned by the parent company. Where less than such a majority is owned, the shares are included as investments." [42] This invention gained rapid acceptance by others, e.g. Goldman Sachs and Lehman Brothers. The former issued 250 million dollars worth of complex securities (equivalent to about 3.75 billion in today's money) in 1929. Lehman issued similar obligations, which immediately rose 30 percent.[43] Enron used them extensively and in the recent financial crisis they played a major role in bringing down Bear Stearns and Lehman Brothers.
Light travels 0.3 mm in a picosecond. The article author doesn't understand what the words mean, and Mr. Bryne is somewhere between a scammer and an idiot.
c = 30 cm / ns = 0.3 mm / ps
Microseconds, maybe. Picoseconds, though, is just taking trash.
It would be much better if the market solved this problem without government intervention and taxation. I doubt NYSE will or can. Goldman owns them. Another exchange could gain advantage by being trustworthy and level with all participants. It doesn't matter that the average investor doesn't play in day trading, much less anything shorter. Once you let the insiders openly tax the market nobody will ever trust them again.
The government already has too much money and still prints more at ever increasing rates. They should concentrate on fixing their own mess. Freddy and Fanny are undeniably government messes and still fester.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
People will go where the money is, any artificial limitation that minimizes profit margins will be ignored as long as more lucrative alternatives exist. I'm not sure how one would devise a self-sustaining system of integrity considering such.
Once a week. That's all you need?
And as a reference you give us the economy of an unnamed southern African Nation? South Africa is the class of the lot and is nothing to envy.
How would that even work for an exchange that carried thousands of stocks?
What happens if 'shit happened' during the week. All the retail trades in a stock are ether buys or sells. Huge volume of done deals coming into the session and everybody knows it. Counter party holds their price and gets rich. Now retail has to deal with a week of trades at that price.
That extreme doesn't work ether.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
Picoseconds likely is an exageration.
Current time synchronization requirements are currently 3s, moving down to 1s soon. Reconciling these trades likely is going to be quite difficult if anybody is trying to commit fraud...
The London Stock exchange was recently bragging that they can do trades in 12 micro seconds (12,000,000 bigger than 1ps).
The state of the art for network synchronization is on the order of 10ns. You can push that to hundreds of pico seconds if you have a really good GPS receiver and custom hardware.
Pushing it down to a nanosecond would require compensating for thermal effects. Light travels about a 30cm in copper in 1 nanosecond. In 1 picosecond it travels .3mm. This means that variation of the length of the cables connecting the systems trying to synchronize on the order of .3mm can changing the timing (introducing variation in the round trip times, which is what is the biggest factor in determining time synchronization).
That's not even getting into the interconnect technologies having latencies that are still well above the picosecond level.
I guess this is a long way of saying that the state of the art is several orders of magnitude away from nanosecond-level trading, let alone picosecond-level trading. Simple physics makes picosecond-level synchronization extremely difficult, and without synchronization, trading is going to be extremely difficult.
Seen Superman 4? It is the equal of Legalized worms. its o.k though because they help get the ones who write the laws elected
And you also don't understand how deep this goes. This is not about trading fast. They are actually trading ahead of trade execution.
Flash trading is a practice in which some equity exchanges hold orders to buy and sell shares for a split second before making that information public (available to other exchanges). The exchanges' customers can view these prices ahead of other traders for a fee. High-speed computer software can take advantage of that brief period between when an order is placed and when it's executed to allow those members to potentially get better prices and profits by slipping in and making the trade themselves.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZwoslIGa5JQ
http://www.marketswiki.com/mwiki/Flash_trade
Now, the time window is about 50-300ms that the orders to be executed are posted and the automated systems can intervene. Basically, if you have orders like following coming in within 200ms (1/5 of a second),
PUT 1000@31
PUT 500@30
PUT 500@30.1
CALL 1000@market
CALL 100@29.5
the flash orders will come in, buy the two sell orders and sell it @ 31 to the market order and you end up with,
PUT 1000@31
CALL 100@29.5
This effectively stole $950 from the market order. But then they will pay 2x the trade fees to the exchange to split in their trades ahead of the others. This isn't about "testing" the market, but simply going right in the middle between transactions and milking them for the most they can. It is not trading - it is stealing.
It all depends on who's profit margins we're talking about. Traders trade, they generally don't buy or sell. Different participants etc.
It's not so much that Goldman Sachs can front load the day traders that bothers me (day traders are generally just gamblers/speculators, hence chumps). It's what else that access bought that brings the whole market into question. That can not be allowed to happen. All markets have skeletons in their closets and such snooping cannot be allowed. Even if it means Goldman has to give up a cash cow.
What I'm saying is perception is everything. If the general perception becomes that the NYSE is being skimmed by insiders many investors will go elsewhere.
If that loss of confidence were to somehow cascade into a loss of confidence in US government bonds then we would be done.
IMHO the only reason there is any interest in US government debt is an almost amazing lack of quality places to park capital. We owe the world a debt for being even more screwed up then we are.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
Thou shalt not process faster than your clock jitter will alloweth.
As of today, we have some pretty sophisticated equipment used to measure picosecond-sized times. I sincerely doubt that, for any definition of not too distant future, we'll get down to the level where something that is in only a few research labs is used for trades. Also speed of light.
Agree with those who say these guys are essentially parasites. But, it's worse.
The one thing that MUST change -- these high frequency trading systems have malfunctioned, so they end up dumping ~$30-40 a share stock for $1 a share. Did the company running it lose money (and, consequently, everyone else make a bit by getting stock at a substantial discount)? Oh no. The stock exchange *CANCELLED* their trades. If you, I, or some regular trader, accidentally put up stock for $1 instead of $41, would anyone "fix" it for us? Of course not. These true parasites benefit from their high frequency trades, but when that would lose them money at high frequency the exchange "fixes" it for them.
Millisecond trades make sense, you can reliably anticipate how many ms your latency is and plan your trades accordingly. No one further than the next room away can have any chance of predicting picosecond latency.
This would introduce some randomness into the process and introduce more opportunities for shenanigans.
Or is there some obvious benefit that I'm missing?
LK
"Hi. This is my friend, Jack Shit, and you don't know him." - Lord Kano
How pathetic is it that we need to bring discussions of the fucking speed of light into stock exchange? Is there any reason why these people can't participate at a normal speed like everyone else? Normally I have a fairly libertarian slant to my views, but when something this big and important is only being made fully available to a select few super-rich, there's a problem...
<sig> </sig>
We are nerds. We know what picoseconds are. You don't have to give us the temporal equivalent of "1000 of them could fit across a human hair."
From what i have come to understand these short term traders does nothing good for the market at all. The only thing they do is skim money off it without adding even a hint of beneficial effects. They take from longer term investors and the only reason its allowed is that the middlemen gets a percentage of their profits. On a free market stupid stuff like this should be prevented, not encouraged.
HTTP/1.1 400
Light will travel 300 microns (about a quarter of a millimeter) in one picosecond. If it travels through a non-air medium such as fiber optic cable or ethernet cable then it will be slowed down even more. Even in a nanosecond light in air only travels about a foot in distance.
It is not physically possible for information to move an appreciable distance at a picosecond time scale, because the fastest speed that information can move is at the speed of light.
I found your article interesting and summarizes the situation perfectly. Thank you for sharing your knowledge.
http://www.leeandlee.com.au/
on all derivative trades? Combine that with having to own a stock at least a week and you should have most of the problems covered without forbidding trade.
No one wants to be ... second. (Pun half intended.)
I hadn't the slightest objection to his spending his time planning massacres for the bourgeoisie... (P.G. Wodehouse)
The article is rubbish (best app-to-app latencies right now are tens of microseconds). These comments are mostly rubbish too.
I'm not suggesting 15 minutes is the proper timeframe, but I do think the 15 minute time delay in trading info to the "average joe" was designed partially to prevent wild swings from widespread second-by-second trading. Day traders used to be able to take advantage of some 5 or 6 cent difference between buy and sell price of a stock, whereas now if they tried that they'll be beat coming and going by an HFT system, now the price difference will be 1/2 of a cent or less. In other words, HFT really does nothing but give a privileged few a source of incoming while providing no useful service for anybody.
Two recent papers that go along time constraint optimality and their theoretical limitations are by
Gross and Freer on "relativistic arbitrage trading" http://link.aps.org/doi/10.1103/PhysRevE.82.056104
and recently
Georgiadis "Binomial options pricing has no closed form solutions" http://ssrn.com/abstract=1773170
one deals with the inherent time complexity of evaluating pricing formulas .... regardless of how fast the hardware / cpus / etc... are and regardless of where on the planet you are located; if there is no closed form solution to a pricing problem then intrinsically the calculation is going to take longer.
then, even if there is a closed form solution and the you have the best hardware/cpus on the planet, you will need to be located optimatlly to exhaust all parameters in your favor when it comes to high frequency trading and relativistic arbitrage trading.
As a physicist: one ps is 0.3mm in space. It is my conviction that a global market needs an trading interval length of at least 50ms and a local stock market r/c where r is the sphere which includes the participants. If the interval is shorter (respectively somebody is out of the sphere, he lacks the possibility to participate). So for one ps you should then sell single cores on a multi-core processor to different market participants. They then play core wars.
There should be a massive delay on the order of an hour a trade to prevent all this bullshit exploitation of market prices.
I swear to God...I swear to God! That is NOT how you treat your human!
The potential value of millisecond, or indeed a picosecond, was vividly demonstrated during a particularly bloody period on Black Friday, October 10, 2008, when the UK market plummeted at a hair-raising £250m a second.
If they don't already have a programmatic stop-gap already in place, humans can hardly react in time - even at the "one-second" level, that's a heavy loss. So why give them something that will allow them to fuck up at the same money/second rate even if it's in 31,000 individual steps vs 1000 individual steps?
If anything, make the stop-gap program - let it run at the pico second level but traders continue at the micro second level (1000 times more 'frequent' than current). Note: the word "faster" is being used loosely in TFA as well as here, when it should actually be "more frequently".
Is there's only so "high frequency" that trades need to be to act as effective liquidity measures. I mean if we had a rule that stocks could only be sold once a year, well they'd be highly illiquid, you'd be better off with land in terms of something you could convert. Move that down to once a week and they are more liquid than land, but still pretty illiquid overall. However the function isn't linear, it is logarithmic, the more you move it down the less actual liquidity that gets added.
So what we need to do is figure out the lowest level that is really useful. My bet, just from looking at history, is it lies with no inherent limits other than humans. No more computer direct trading, everything has to go through a live broker. That slows everything down enough that the crap that happens now can't, but allows for day trading which is high frequency trading and gambling more or less, but does in fact keep the market pretty liquid.
So we shouldn't oppose any kind of fast trading, we shouldn't insist that the stock market is 100% buy and hold, that'd screw people over. However it is plenty reasonable, and these days necessary, to put an upper bound on trade speed. Slow things down to a level where they are still useful for liquidity, but not so harmful.
Looks like some stockbroker who never took a science class overheard their buddy talking about "milliseconds" in a bar, and decided to find a cool sounding word to one-up them with.
Somebody should just teach these dudes about the Planck Time and be done with it.
1 picosecond (ps) is 10^(-12) secs.
You can run a single instruction in a 1000 GHz CPU (please scale to your favourite multicore system) during 1 ps.
In 1 ps you can go as far as 0.03 cm at the speed of light in vacuum (wich is more than the speed of light in the fibers and the speed of electrons in a copper wire).
So are you insensitive clod designing such a system?
All this at zero latency along the full data path.
In the end there will only be random things happening. As random as the trading market.
Maybe Computers will never be as intelligent as Humans.
For sure they won't ever become so stupid. [VR-1988]
Although the picosecond thing is silly, the New York Stock Exchange now operates a co-location facility in which each trading platform gets a uniform 35 microsecond latency for the incoming trade data. Some systems can turn around that data and do a trade within 12 microseconds.
Computers aren't fast enough for this. The latest thing is writing trading algorithms in Verilog and compiling them into an FPGA.
This worries me.
One cycle of a 4GHz CPU is 250 picoseconds. So what kind of hardware do they use so that they can operate 250 times faster than some of the fastest CPUs in trade?
45 5F E1 04 22 CA 29 C4 93 3F 95 05 2B 79 2A B2
There is a lot of talk about stock traders being thieves. Theft is the illegal taking of another person's property without that person's freely-given consent. The stock traders do everything they do with consent. So they are not thieves. On the other hand, they provide the liquidity real investors need. Real investors being people who buy a company to profit from dividends or actual increase in company value.
Heroes die once, cowards live longer.
the main problem then is that the (privately run!) exchanges make less money. The only solution to that would be systemic change to something that doesn't prioritize profits (gov't or nonprofit comes to mind)
Stock market must come back to their origins: let investors with money meet business with needs. All the rest should be tightly regulated, and thinks like HFT must be banned. Traders must be just a broker between their customers and the market, and their activities must have a strict policy of non interference.
If govs are not willing to do this regulation, stock markets will generate bubble after bubble, crash after crash, until all the real productive business go the way of the dodo.
Some markets are currently doing this already, though I think they will be deciding to go to immediate dissemination soon.
Light travels about 0.18mm per picosecond in fibre. For picosecond trading to matter traders would need to be closer than 0.18mm to each other, otherwise simply distance to ticker data will dictate who wins.
I believe low latency networking in low microseconds values already is irrelevant, due to latency and jitter introduced inherently by other sources (even FPGA based trading decision) and due to the distance differences between ticker source data and traders. Shops just do this, because it is cheap enough and doesn't hurt, like praying to a god. But like HIFI kooks, high frequency trading seems to be plagued by technical solutions which you could potentially measure to bring difference, but which could not affect results due to other factors masking these. And like in HIFI kookery, I'm not sure if it is ethical to sell these solutions.
Why do you want people trading? What's wrong with computers trading with each other?
A lot of people worry that some single glitch will bring down a computer based trading network. Nonsense, this software is heavily customised or unique to each company that runs it.
Anyone should be able to download a trading platform ( http://code.google.com/p/jbooktrader/ is a good start ) and be able to run it, so that's a good base time, but I fail to see why people have to be involved directly.
Also, if you think a minute 30 is a minimum for humans, scalpers will terrify you with their trading pace.
There is really no benefit to society from picosecond trading. All it produces is more fancy excuses the intelligent sociopaths can use to take money from us.
This.
"provide liquidity" is pretty words. They are inserting a middle man in every single trade to leech the difference between buyer and seller.
They are removing huge values from the system without providing any benefit. It should definitely be illegal.
I lost my sig.
Now the global economy can collapse, plunging the world into chaos and darkness, all in the blink of an eye
"Or at a very minimum, rewrite banking law so they never get my money like that again. Is that too much to ask?"
LOL. Damn right it is. You still think the government works for you?
The Federal Reserve was set up specifically so they could pass the cost of their failures on to society. That's the purpose of a central bank. How big are the QEs so far?
Banks are fundamentally unstable organisations (which is why they keep insisting that you must have confidence in them). Without the Fed, no bank could grow large enough to damage the national economy.
What you are asking for in reality is the end of the Federal Reserve.
Deleted
This is great news this will boost the tech section and especially quantum computing.
But most of all it will be boost help packages to banks and we all know banks have so bad most of their traders cannot afford a 3rd private jet this month.
seriously when are the financialtards going to stop fucking around with everybody else's money ?
to do the reverse and introduce buffers into the system?
Max one trade per stock and day or some such?
They are inserting a middle man in every single trade to leech the difference between buyer and seller.
Just like the tax man.
I don't know, some of them were quite untrusting of banks and the like. They probably wouldn't be all that surprised to find out that we had gotten fat and lazy and let banks take things over.
The biggest issue was not the major bankers, they were idiots and Leyman Brothers was allowed to fail, merrill lynch got taken over for way less than it was valued last years. The shareholders lost out yes, but frankly that's what happens with equity, you take a risk. Interestingly enough the major banks have now just about repaid the money they borrowed with interest, the federal government even made a $20 Billon profit on that.
The thing you should be upset about was the fact that the Feds were set up (by themselves) in the shape of Freddie Mac and Fannie Mae to be exposed to a level of risk which was foolish. This is where you guys will lose the majority of your TARP money not the actual banks.
No offence or anything but the traders are almost completely irrelevant, whether they trade at minutes, seconds, millisecond or picosecond timescales is neither here nor there.
Trading is a zero sum game, you win, the other guy loses and thinking you can beat the house in that zero sum game is... stupid.
Investing on the other hand is something else. You take all those random dice, add them up and you have something predictable.
Here is a little bit of truth about human nature. Your leaders are narcissistic cheating lying scum. Your bankers are narcissistic, cheating lying scum. Vanity is the human condition.
If you hand your rights, responsibilities and money over to narcissistic, cheating lying scum, WTF do you expect to happen?
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I worked for the Pacific Options Exchange from 97-02. Ran a pit for about a year. We had this thing called the "Wheel", visible on a tiny TV buried in the sea of screens that covered the markets our LMM (Lead Market Maker) was financially responsible for. Electronic purchase were allow in small amounts (10 lots) every few minutes. But you weren't allowed by law to arbitrage on a single trade. Then we saw him.. His badge number on the screen was B29. We called him the "bomber". This bastard had some sophisticated algorithms, scanning hundreds thousands of strike prices in real time.
I finally caught it one day and did some homework. Had an in house system that gave me access to every trade executed for the prior year. Realized B29 had been buying on the Philly when they were an 1/8 less than us and automaticlly selling it to us to make his spread in the same timestamp. System didn't display fractions of a second. No monder, humans don't work that fast, duh. Bit more digging, I started seeing he was hitting hundreds of other underlining stocks around the floor 4 -5 times a day each.. This guy was making some serious cash by electronically exploiting price differences with an innovative system. We filed grievences with the SEC. Heard he got a slap on the hand, then he disappeared off our Wheel. Sure he got more sly. Can't imagine how many financial bot networks are running in trading rooms all over the world. The market is already an emotionally based casino drinking it's own Koolaid that it's based on underlining value. The crashes get progressively a little quicker with each round. Will never stop being interesting.
From the backstory of the roleplaying game shadowrun:
In 2033 was the infamous 63-second ride called the Nanosecond Buyout. This righteous hack utilized the
power of the Matrix (through Knights expertly-programmed computer in Stockholm) to commence with a
lightning-fast, incredibly complex series of stock transfers. When the dust settled, three corporations ceased to
exist, two multi-millionaires lost their fortunes, three others made theres, and Damien Knight (formerly known as
Major David Gavilan, head of Echo Mirage.) had 22.3% of Ares.
I'd rather have picosecond resolution and have money go to parasites than have to wait a minimum of three days to trade and have to pay tax on each transaction (rather than on income). Yep , that's the way the market works in some places.
So really , most of the guys complaining about all of this are just jealous they can;t compete on that scale. Move to a third world country you pussies.
I'd suggest every minute and 30 seconds respectively so human beings can also participate.
I would say every five minutes.
The UK already has such a tax. It is called Stamp Duty Reserve Tax, and is charged at 0.5%.
Not sure if you're trying for a funny mod or not. Anyway, you forgot that in the UK, the stamp duty has an explicit exemption for 'qualifying intermediaries' such as so-called market makers. In other words, the person who buys and holds the shares has to pay the tax, but all of the high-speed trading intermediaries who leeched some money out of the transaction do not.
Those who can make you believe absurdities can make you commit atrocities. - Voltaire
Except taxes are collected post facto (there has to be a transaction in order for it to be taxable) while the middle-man he is talking about is increasing the cost of the transaction by inserting itself INTO the transaction so that you can't complete the transaction at all without paying the middle-man.
Also... besides the fact that taxes can be deducted, reduced, returned etc. etc. taxes are the blood that makes and keeps the civilization alive.
Middle-men are parasites. Nothing more, nothing else.
Mit der Dummheit kämpfen Götter selbst vergebens
There is no business case for 'picosecond resolution', other than for fraudulent transactions.
In 1 picosecond light can travel about 0.3mm, you'd need a computer running faster than the speed of light (or a very very small optical chip) to actually do any processing,
Ob xkcd (bottom left)
Cloud Trading - The Stock Exchange can host all of the hardware, and the traders can upload their algorithms and send in customized hardware running whatever they want. There will be a electrical signalling specification for stock market trading.
War Trading - Traders can send in algorithms or "Trade Bots" that generate special wave patterns in the stock prices. These wave patterns can trigger dynamic instability ("bugs") in the competitors' bots.
You mean you need half of that time, after all we do not live on a flat Earth but on a sphere ;-)
They are inserting a middle man in every single trade to leech the difference between buyer and seller.
Just like the tax man.
Except that the tax man in civilized countries gives back the money for your health care, education, law and order, roads and multiple other things.
Man, there is so much misinformation in this thread, I could spend the whole day here.
HFT guys aren't stealing money from you- they are actually stealing money from the guys who have been ripping you off for decades- the exchanges, the market makers, the brokers, and everyone else in between.
Think about it- E-Trade and the like have brought down the cost of trading to about $9 a share (there is also the cost of the bid/ask spread, but we will leave that out for now, especially since these days its almost disappeared). How many other businesses do you know that can get away with a $9 transaction fee? Can you imagine going to a garage sale, buying a box of books, and having the seller say "ok that will be $5 + a $9 transaction fee?" That $9 fee is going to all the guys I mentioned above. Not too long ago, that fee was more like $50. But what's even worse is, and this is where HFT comes in, is that when you saw the stock ticker, and saw IBM trading at $80, you could neither buy nor sell that stock for $80. At best, you could buy that stock for $80.08 and sell it for $79.92, though it was just as likely to be 80.25 and 79.75. That "spread" went to a guy called the market maker. The market maker is the guy you actually buy and sell to, you don't directly buy and sell with other people (in our garage sale example, the seller would just bring his stuff to market, and the market maker would buy it off him, and then sell the stuff to you). When you watch movies showing the stock exchange, and everyone is yelling buy and sell, they are actually yelling at the guys in the middle of the floor- the market makers. The market maker collected that spread. In exchange for that privilege, he had some responsibilities- to always buy your stock, no matter if no one else wanted it.
Anyway, for decades this was a very lucrative business. Partially because market structure made the spreads so wide, and partially because it was so easy for these guys to front run, and also the chummy nature of these groups lead to a lot of gentleman's agreements where everyone kind of agreed to not step on each other's toes too often. Then came electronic trading, and subsequently decimalization. The HFT guys came in and just started spiking the volume in the markets, and also acting as market makers themselves to an extent. This has tightened spreads to the point where if you see an $80 print on IBM, you can almost certainly buy it for $80.01 and sell it for $79.99. The result of this means that any "manual" (not electronic) market maker has been wiped out or moved to automated quoting systems. They are tightening the spreads and taking money from the MM's and in some cases side stepping the brokers, and keeping the profit for themselves.
So no, they aren't stealing from Joe Retail trader in any way. If anything, they are helping you- you don't get ripped off when you sell your 50 shares of IBM anymore. Your broker and the market makers are the ones who are being stolen from- market making is now a highly competitive difficult business, and brokers are staying alive mostly by internalizing flow (and the smaller guys who can't do that are scrambling right now, and will have to consolidate).
This idea actually benefits the high frequency traders just as much. You think they're going to junk all their existing tech because of this? Far from it.
During those 500ms a bunch of orders to buy or sell just accumulated. But there's only a finite number of shares available, you can't give everyone who wanted to buy at that price the shares. So who gets them at that price? The first person to get an order in? Well guess who that's going to be. It's your local HFT, with his low latency network and servers. You were even kind enough to give him 499 extra ms to calculate and execute his valuation before he got to the front of the line.
If you don't allocate the shares in a FIFO method...then what method do you use? And what allocation method is not, in some way, impacted by speed.
This is one of those articles where the writer does not fully understand what is really going in and is fascinated by jargon he or she misunderstands.
There is no way a trade on any financial system will occur in a piconet. If you have a super fast computer ever on the planet that was plugged directly into the exchange's server with a super high speed connection you could get your bid or ask lot on in a picosecond (as other posters have pointed out). But first you have to make the decision, and that takes some processing time even if you have your technical analysis rules well developed. Your decision making process has to scan the current bid's and ask's list and make a decision, something taking more than a picosecond even with the greatest computer ever. That bid and ask table can change in the middle of your calculation and then your back to square one. Once you have decided to put your bid or ask in it is then just posted, you haven't bought or sold anything until some one else takes up your offer.
There is a lot going on between the time you press the buy/sell button and an actual trade occurring on the market. The process takes much longer than a picosecond I can assure you. Milliseconds I can buy, but not picoseconds. No computer network or processor is that fast yet.
If everybody's making so much money with these high-speed stocks, who exactly is losing?
I believe that the best ability to time macroscopic events (like laser pulses) is currently about 30 picoseconds, roughly 1 centimeter in vacuum, or 3 to 5 mm in fiber or coax.
I have tried to do picosecond level clock synchronization and it is very hard, as almost anything can introduce picosecond level delays. However, I wouldn't worry about that here as this is just FUD, as there is no way all traders are going to be located centimeters away from the trading "floor."
They are (as someone pointed above) creating an artificial line in front of you at the register so that each item goes unnecessarily through many hands before you finally pay for it.
Although, it would be more accurate to say that the line is actually between the person stocking the shelves and you taking the item off the shelve.
And since this analogy has gone off the deep end, lets start a new one. With cars, as it is the custom of the realm.
It's like having an army of midgets in your car that follow each of your actions that you perform in order to drive a car (turning wheel, pushing pedals, pressing various buttons...) with a series of actions that take place picoseconds after your action - which actually tell your car what you want from it to do.
I.e. You push the gas pedal to accelerate, and a hundred midgets pushes a hundred pedals until the last midget in the line pushes the pedal that actually makes the car drive faster.
Since those midgets are really fast, you never actually see them - until you look at the gas and maintenance bills.
Which are higher than what they should be, cause you are actually carpooling an army of freeloading midgets.
Mit der Dummheit kämpfen Götter selbst vergebens
...Wringing out a sponge, trying to get all the water out of it.
While most people are happy with squeezing most of the water out and letting it be, these insolent pricks in the financial sector want to get every little molecule out of that sponge even if it means ripping the sponge apart and incinerating the pieces.
Replace sponge with stock market, water with money.
Seriously - 9:00am to 4:30pm is 450 minutes per day, 450 opportunities for price adjustment - I'd think that dog track pace, once every 5 minutes, or 90 times a day, would be adequate for market liquidity.
Problem is, you'll get people doing eBay style "sniping" milli(pico?)seconds before the interval closes.
Ever see a tax on the rich that gets past a Republican controlled body?
The insiders are already openly taxing the market with electronic trading, and they're hurting the overall market valuation by doing it. Problem is, it's still the most profitable game around, so they still get players.
Except I can't vote this tax man's bosses out of office.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
What you are talkinga bout is what is called the rake or vig in poker and gambling terms respectively. The rake has decreased drastically in poker and it sure isn't caused by the influx of poker bots. The reason for the decrease is online poker which makes it much cheaper to host poker games than in real life, similar to how e-trading made trading cheaper. Just as with poker, taking a rake on buying and selling stocks is a hugely profitable business which is why the stiff competition has driven prices down.
Football Odds
At least the tax man ostensibly provides funding for foodstamps for teachers and bombing brown people.
the preceding comment is my own and in no way reflects the opinion of the Joint Chiefs of Staff
...but how do you draw an arbitrary line that's fair and agreeable to all? I don't believe that's possible, hence you can never draw a line at all.
Of course, if you insist on the line being "fair" AND "agreeable to all", because some people will never agree to any fair drawing of the line. There are probably a wide variety of ways to draw the line that would be fair.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
Every minute? How much genuinely new information really comes up in that time, and how can you expect a human to analyze it that fast anyway? Once a *week* seems much more reasonable.
I'm working on a TDT technology where we measure signal propagation velocity down to ps accuracy using ensemble averaging and some fancy LVPECL circuitry.
Once we achieve this accuracy, you'll be able to watch someone tighten the hex nut on the coax feed. I worked it out once that 1ps is about 60 degrees of arc on the SMA hex nut. c in coax is often 0.68 or 0.86 off the top of my head.
The obsession with first mover advantage is obscene, but it's not as easy to eliminate as it looks. In any discrete system (trade auctions executing at fixed points in time), there is still a first mover advantage to the party who learns a fact about the world just in time to make the next auction, while the guy down the street doesn't.
If you follow the game theory in this scenario, soon corporations will be timing their press releases to the microsecond to ensure that favoured parties get in on the next auction tick and disfavoured parties don't.
What would work is that if all new knowledge about the universe arrived on the rising edge to all parties, and all auctions cleared on the falling edge. I doubt this could be arranged at the Planck scale, but I think it would be a level playing field, regardless.
First mover advantage has been shaping neurology since it was a glint in a skin patch. Traders are seeking picosecond advantage, but the same force can't evolve an eyeball in a billion years, in pre-Newtonian plausibility calculus. Lucy, you got some splainin' to do.
The speed of light is a foot per nanosecond. Communication cannot possibly occur over distances greater than 12 thousandths of an inch in one picosecond. For this to be feasible, even in principle, trades would have to take place on the same CORES. Even the same host wouldn't be enough. Not to mention, picosecond latencies even within a core seem a bit, ahem,optimistic.
Just let these idiots waste their resources developing an impossible capability.
This is not a vig. Market Makers have responsibilities to be in the market whenever they can, and also take on risk as they have to buy and sell securities in which they are making markets. They had to buy GM off of people all the way down to zero. Casino's, specifically in poker rooms, don't take on any risk at all. They just provide the venue, which attracts players.
I would agree with you though on your last point- stiff competition by HFT firms has driven stock spread prices down.
Nice try but no cigar! There is one problem with standardized time. There is the matter of Einsteins theory of relativity. In our daily lives, time seems to be constant but time really is relative. If you are talking about the millisecond scale, a fixed time might seem possible. At the picosecond scale, a single time for all the earth is not possible. It only seems that there is a single time for everybody but in reality, it's an illusion.
It's also true when vast distances are involved. For example, an event in a galaxy a million light years is observed. Did it happen a million years ago? To astronomers, it is irrelevant because looking at objects that are far away can be thought of happening in the past. The catch is we are just now observing them so to us, it is just now happening and since time is relative, who it to say whose clock is right.
Now, back to high frequency trading. Why the push to faster transactions? The answer is simple: if you get there first, you do better. Believe it or not, firms with faster computers which are physically closer to the exchange have an advantage over those which are slower or farther away. The speed of light is actually something people consider when they are running financial transactions. If this seems ridiculous to you, it should. Traders argue that the existence of high frequency trading increases market liquidity. Let's assume for the moment that this is true (it's not 100% clear to me that it is) - is there a better way to achieve this goal? Everything I have read on this topic suggests that the typical business model is for large financial institutions to buy really expensive hardware which they place between legitimate buyers and sellers, siphoning off some cash in the process.
So, what is the alternative? How do we prevent time, money, and effort going into executing financial transactions on such ludicrous timescales?
I think the answer (as a Canadian I feel qualified to propose this), is that we need to establish Standard Financial Time. The concept is similar to Universal Time - if you want to build a railway, people need to agree what time it is. With SFT, exchanges need to establish the equivalent of a financial pulse. Transactions take place at regular intervals. The fact that you submitted your buy slightly before mine should mean nothing, provided they both arrive before the next beat. What should this timescale be? Well, if we want to have an efficient system (in the global sense), then everyone who would like to make a buy or sell offer needs to have an opportunity to do so. That means the pulse can be, at minimum, the time it takes to send a buy/sell order from any terminal in the world. For light to go from one side of the world to the other takes ~ 0.13 seconds. Anything faster than that, and you end up with financial types buying up computers in random spots on the earth trying to take advantage of information asymmetry due to the speed of light.
One problem this does create is that it is possible now to have two buys for a single sell, or vice versa. Fortunately the fix is straightforward. You either match the buyer and seller by a random number or, if you want to get fancy, you do something like the single transferable vote. Every buy order consists of an initial offer and a max offer (think of what happens when you bid on ebay). This works out well for sellers since they will maximize their sale price, and it works for buyers because they can minimize their payout. No matter how you go about doing it, the monetary advantage to shorter ethernet cables goes away; that can only be a good thing.
Make all trades simultanous, and happen every second. Change the game from "make any decision as fast as possible" to "what's the best plan you can come up with in this time"
My (admittedly limited) understanding of these sort of thing is that since you can make so many trades so fast, they let things "average out" - you jump in quick, and if a nano later the system realizes it's wrong, it can jump back out (generally before us meatsacks realize they screwed up in the first place).
Other markets such as BrokerTec have mechanisms such as a workup period where liquidity providers have the option to pull out order when someone is trying to cross them.
I've seen all kinds of exchanges through my years of work in high-frequency trading and in my experience such 'quirks' normally doesn't protect a market from automated trading if that was the intention. At most they make it trickier and costlier to trade them which tend to favor larger established shops resulting in fewer market participants which in general is a bad thing.
Most studies done lately seem to concur that HFT has a net positive impact. Recommend you google Deutsche Bank Research High-frequency trading for example.
...something moving at the speed of light barely covers 0.3 mm
http://www.wolframalpha.com/input/?i=speed+of+light+*+1+picosecond
You guys who are posting how they are all parasites, how they contribute nothing, are just flat wrong. You don't know what you are talking about. Let me give you one example: the spread. In times before high speed trading, the spread between the bid and offer might be quite large. One effect of HFT has been to reduce this spread to almost nothing. Why does that matter? Well, if you buy a stock, and then decide to sell it, you will pay the spread. It's like buying a car. You drive it off the lot, the price goes down by 20%. HFT has created a situation where you can turn around and sell that car for 99.999% of what you bought it for. This helps ALL investors. Wide spreads also give brokers more of an opportunity to mess around. They can put orders on both the bid and offer, wait for them to get hit, and get paid the spread for doing nothing. The truth is technology has totally opened up the trading world to a wider group of people than ever before. For a few hundred dollars a month, you too could have a server colocated with the exchanges. You just have to have the balls to try. In the old days, such access was only for the select few. Stop bitching about progress, especially technological progress. I thought this was slashdot?
Time for the exchanges to actually introduce a randomized, multi-minute time delay for all trades. This would do wonders for stability, and shift the balance of relevant for stock markets from automated trading systems run by traders back towards actual investors. The press still has it wrong when they talk of "investors" - individual human investors have no relevance in current stock markets. A much more accurate phrase would be "traders" causing shifts in markets, or even "automatic trading programs" causing shifts in markets.
Light travels 29.97 cm/nanosecond or .02297cm/picosecond. That means the signal couldn't make it from one side of the chip to another.
If you want to buy some shares at 1.45, then put that limit in your order. There is no way HFTs can make you pay more than that. If you want $1.45 and enter $1.50 then you should be prepared to pay $1.50.
... to seconds or maybe even minutes, so that the speculative adventures at NYSE, FTSE, Nikkei, etc. will diminish to faint white noise superposed on the stable, slowly & steadily increasing baseline known as "the real economy."
The purpose of a financial sector is to facilitate the efficiency of the real economy, full stop. Under current U.S. law, the financial sector is so corrupt and governed so incompetently that its activities, exchanging certificates of things of real value, that between intervals of relatively steady growth, there are frequent major events that significantly retard the real economy for significant intervals, but shorter intervals than the intervals of growth. So, averaged over very long times, or compressed so that many of these cycles occur much more rapidly, they should in fact average out to stable growth and fluctuations that look like soft white noise, which is the most that we would ever have heard from Wall Street if those crooks and idiots had ever known how to do any real work.
So, Wall Street IT guys, if you believe you can absolutely guarantee that the result of this will be a more stable financial sector which will no longer interfere with the real economy EVER, then feel free to run it past Elizabeth Warren, Joseph Stiglitz, Paul Krugman, Nouriel Roubini and Nicholas Nasim Taleb to validate your AMATEUR analysis. But if you cannot ABSOLUTELY GUARANTEE that this will reduce, not increase the risk to the rest of us from Wall Street, then don't even think about it. Not even for a picosecond.
"I can't imagine how things could get any worse!" (some guy) "That could just be failure of imaginatioÂn on your p
I actually work for one of the fastest HFT companies, and worked for a different one prior.
They don't use inside information. Indeed it's impossible. Neither company are brokers - so they only have access to public information. These companies also frequently come under scrutiny, because the order and trade volumes can be high, so if any illicit activity were taking place, the SEC etc. would take action. Indeed, I've seen a fine handed out for a minor order marking mistake - so it's clear they take their regulations seriously.
In fact, the SEC is much more interested in protecting the investor, and the market place as a whole. Many of the regulation relate to customer handling, and market manipulation. Any activity that looks like manipulation is investigated.
An additional per trade tax idea was floated around, but experts convinced congress that it would lead to a reduction in liquidity, and a widening of bid ask spreads - which translates to a higher cost to investors.
The experts are right. Highly traded stocks now have a penny spread, but before electronic trading they were at 25c.
Add a 10c tax and you'd be talking about an effective 45c spread and a horriby sluggish market.
The rest of the world would be much more attractive to all traders, and the US would be hit pretty hard.
Secret does not imply illicit.
I won't say making trading discrete can't work, but there's a lot of issues that would make it difficult. There's a certain elegance to first-come-first-served as the current markets are, and it's hard to improve on this baseline. Let me list a few issues with discretized trading:
--How are orders published? I presume you mean orders will be hidden and queued until a "tick" happens; otherwise, there would be a "HFT battle" happening as orders are placed and canceled right before a "tick". So basically, when you place an order, you have no idea whether it will be filled or not!
--How will orders be fairly executed? If there is an offer at $10.00 for 100 shares, and four people placed orders for 100 shares at $10.00, how would you fairly execute? Would one lucky person get the shares and the others wouldn't? Would you split the shares evenly? Would it be first-come-first-served? None is ideal.
--Large orders may become really hard to push through the system quickly but cheaply. Say someone wants to sell a million shares and it's a significant percentage of average daily volume. In the current market, that order can be broken up into 100 shares at a time so that each individual trade doesn't move the market too much, and the trader (a computer presumably) can adjust the timing and pricing of the orders to what the market will bear. With discrete trading, it may become a lot harder to tell what the market will bear because the order book is presumably invisible. If the stock only trades 100 shares/second on average, you have hardly any data at all on how you should be pricing your huge order.
--With an invisible book and no certainty of whether an order will be filled, it will be the natural inclination of market markers to increase the bid-ask spread on stock as the market-makers have more risk. That means execution costs go up for investors, and liquidity goes down. Volatility may also go up as liquidity and volatility tend to have a negative relationship.
A solution I would suggest that has a lot fewer problems than discretization would be that any order must stay active for some nominal period of time. However, I would also say that that rule is solving a problem that doesn't exist.
The fact of the matter is, the more trading there is, the better it is for everyone. More trading means more liquidity and tighter bid-ask spreads. More trading means more information is being communicated through the market: every trade is a piece of information about the equilibrium price of the stock. The advent of computers has made equity trading unbelievably cheap to investors: you can trade at only a penny away from the mid price for most major stocks, which is historically unprecedented. If HFT was actually bad for the market, you would think that fund managers would be complaining about it, since they're the ones who make the biggest orders and would be hit hardest by it. They're not. The only complaints I have seen from the financial industry have been from humans who are still trying to compete against computers.
Benefit #1: fairness - those who are closest to the exchange or have stupidly fast hardware can't get in front of the rest.
They're not "in front". They're in the middle. It's important to understand this, as it relates to why markets work in the first place. No one can ever place an order that would give you a worse price, they can only place orders that would give you a better price! We should be thankful for HFT because they are able to use their fast connection and smart algorithms to offer the best possible price. The only reason to be angry at the colocated traders is that it's hard to compete against them!
Benefit #2: slower responses. If the clock can only "tick" 60 times a minute, there is a chance for human intervention before disasters happen.
Computers can intervene faster than a human! The "flash crash" was a result of HFT turning off, not being on! One of the sug
I'm stunned to see this posted, much less modded up. Do you have a source for that? Because my understanding was the exact opposite: The trades were canceled to protect the RETAIL investors, as it was the computer-trading guys who bought the shares for $.01.
Now you might wonder what idiot human would sell a $40 stock for $.01. The answer is a stop-loss order: often people place an order with their broker saying to sell the shares if it falls below a certain price. This is supposed to protect the investor, but as the flash crash showed, it's actually a terrible idea. In the case of the flash crash, some stocks exhasted the order book, falling to the rock-bottom where some market makers (i.e. Wall Street guys) have $.01 bids sitting around. The crash triggered the stop-loss order, which then gets filled at the market price of $.01.
Exchanges have, and have always had, a right to bust trades that are "clearly erroneous". It's always a bit controversial when this happens, as it messes up people's positions, but the intentions are pure.
From where I sit they appear to be an inconsequential tax for all but the day traders.
I know my perspective is colored by a general disdain for speculators. To the extent that electronic traders are just beating day traders at their own game I approve of their behavior.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
The exchange will also need to shuffle the incoming messages (order place/cancel etc.)
Otherwise it is still a speed game: who can respond the fastest to the update (even if it happens only once a second).
This is actually really easy to do, or legislate. They could even do it on the millisecond scale and it would kill this insane quest for "zero" latency.
Suddenly a whole lot of businesses would go kaput (the HFT scene probably is worth billions btw.)
If anything, the transactions should be even faster. Customers who want to have real-time scripts handling trading should be able to run their scripts on the market's computers. The scripts would have to be reviewed to make sure they're not breaking any rules first, but then the scripts would run in a controlled environment. Changes to the scripts would not be able to be made without additional review. The customer might even choose to use pre-fab scripts that perform trading using standard techniques.
The benefit of this is, it would given everyone an equal opportunity to play on a level field. The priority of who's script runs first would be based on a round robin system. It wouldn't favor anyone over another. Of course, a large organization such as a brokerage house could have one script running for each trade they employ, but it would still give the little guy a chance.
The additional benefit to this system is that if a script crashes, the system can temporarily suspend to sort out the problem and avoid massive loses by customers. This should avoid market crashes.
These types of transactions aren't fraudulent, it's just being smart, it gives a trader the opportunity to gamble millions of times per day based on a set of rules as opposed to gambling in lower quantities.
As to dishonesty. Well, I'm pretty convinced any form of gambling is dishonest at some level. The stock market is insanely unethical in the sense that people think they're actually investing in something when they buy shares on the stock market. The average person investing their personal savings doesn't actually understand that once the shares have been purchased when they were first issued, the company doesn't get anything at all from it... well except the cost and headache of trying to make their stock sound good so they can eventually ask for more money the same way. The stock market is not even gambling based on the performance of a company. It's gambling based on the perceived performance of the company. So, you're gambling on how well the guys running the company can convince the guys gambling on the company that they're doing.
If you have a few bucks laying around to waste vindictively, you can wait for an announcement that a company is doing spectacular and then manipulate the shares by dumping as many as you can, as quickly as you can. Within a short period, people would start dumping as well effectively destroying the value of the share.
The stock market is disgusting is so many ways. It scares the hell out of me that the entire world economy is based on international legalized casinos where the odds aren't even defined.
I disagree, 20 years ago, securities pricing was much more stable. Today, 1-2% swings are common in the space of minutes, and 4-5% happens. It's harder to "see" the price of anything because it changes so wildly. To get the same kind of price stability today, you'd need to dollar cost average across maybe 6 or 12 transactions, paying the same or more net commission that you used to "back in the day."
You could argue that it's just volatility, win some lose some, but I typically only do 3 or 4 trades a year, life's not long enough for it to all average out in the end.
Also, I do believe in the "zero sum game" - even if the HF traders aren't causing a net long-term depression of market prices, they are, as a group, making themselves wealthy in the process - buying the same resources, goods and services that I buy with income derived from "real work" like engineering and design services - so they compete with me and inflate the prices of the things that I want to buy. I don't buy "trickle down economics" I don't aspire to be "trickled on" by people who play numbers games for the sole purpose of making themselves and their clients rich(er).
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