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."

Comments

Worthless

[Anonymous Coward]

These people are parasites. They provide nothing of value to the world; they just take. This crap should be illegal.

Re:Worthless

[Kenja]

The money they take out of the system is real, it has an effect and their actions have consequences. What's more, the changes in the market that they are betting on and influencing have nothing to do with the real world. It amounts to influenceable gambling where the act of betting effects the outcome of the bet.

Re:Worthless

[copponex]

Goldman Sachs has colocated at the NYSE, and is front running the stock market to the tune of 13.4 billion dollars in profit every year, simply because of their location. And they also sell self destructing financial instruments to their own clients while betting against them. Here, it's been in the news. But I doubt you watch the news.

So, they're fucking cheating shits who do nothing but game algorithms and lie to people to steal their money, and you're a stupid cunt for having such blind faith in an opaque market.

Re:Worthless

[Antisyzygy]

You are simply wrong. Its just a more advanced form of a "merchant class". You may as well get pissed at your local grocer or furniture store. After all, you can go buy produce from a farmer, and hire someone to build you a couch.

Re:Worthless

[Nursie]

The people who put up the initial capital, and who sold when the company had achieved real value?

Sure.

The parasites that suck money out of the system by interposing themselves between other trades at the millisecond scale?

Not so much.

Re:Worthless

[kaizokuace]

yo dawg I heard you like gambling, so we put a bet on your bet so you can bet while you bet.

Re:Worthless

[phantomfive]

And that's not even the worst of it. I don't mind so much if Goldman Sachs rips off other banks and their rich customers who should be able to make choices on their own. I don't mind so much if they make money on dangerous (or even stupid) trades. I also don't care if they go broke, or their customers go broke doing stupid trades.

But then when they lose all their money, and ask me, through the federal government to bail them out, that's when I really get steamed. I want a lot of people to go to jail, both politicians and bankers. Or at a very minimum, rewrite banking law so they never get my money like that again. Is that too much to ask?

This should be the law (and I am quoting Paul Volcker on this, so it isn't economically unreasonable):
ANYTHING THAT IS TOO BIG TO FAIL, IS ALSO TOO BIG TO EXIST. Break them up and sell off the pieces. And sorry for the yelling. This gets me really upset.

Re:Worthless

[Alex Belits]

And not a single fuck will be given that day by anyone who is not a disgusting parasite.

Re:Worthless

[TheLink]

Uh the problems are:
1) When stuff goes fine they pocket all the profits, but when stuff goes bad, they keep their profits and everyone else pays for it.
2) When they win the bet they keep the money, when they have bugs in their fancy programs and lose money, they rollback the transactions and/or even sue/jail the people who benefited from their bugs (yes this has happened). Note: I'm not talking about bugs in the "casino"'s software but bugs in the software the "gamblers" use to decide on what to bet on.
3) The well connected ones also get to "cheat" - they get to see and do stuff 30 milliseconds before everyone else does. This is a big advantage. Google for that if you don't believe me. This is unfair.

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.

They can talk about liquidity and creating markets but it is all bullshit - just look at what has actually happened.

All that they've created are systems where gamblers can play fancy millisecond[1] games to gamble with OTHER people's money and collect big fees, salaries and bonuses for doing so. When they win big they keep the big profits. When they lose big, they keep their "normal profits" and we have to pay for the losses.

If I didn't have a conscience I'd be happy to do that too - it's free money.

[1] In fact to make the trading fair, transactions should be valid for a second or more otherwise the speed of light makes location matter. Currently they can issue transactions and cancel them within milliseconds before the other traders can act on them.

Re:Worthless

[Anonymous Coward]

It's too bad the parent post isn't irrationally and rabidly angry like the rest of the crowd here, then it might get modded up.
 
Seriously, who on earth do you really know that is making a trade that is influenced by this? Oh, other day traders, arbitrageurs, speculators? Waah, too bad there's a faster computer better at it.
 
Those of us that are actual investor/savers wouldn't dream of timing the market. If I'm going to sell at $35 and don't do a limit order, I'm willing to have it sold at $35.10 or $34.90 as well, and I should be if I'm selling for any reason other than short-term speculation. Indeed, on some of the best opportunities, you can't even control much more than the day your purchase/sale happens a week in advance. Why would I tolerate that? Because I can beat the crap out of a lot of other possibilities with my dividends reinvested for free, and my free monthly small purchases working the dollar cost averaging, and the like. No, no, I don't get rich quick, but then again, I seem to be really failing at getting any poorer.

Re:Worthless

[Tom]

Nothing that crazy is needed just add a 10c per trade tax, the only problem is all the major trading countries would need to do it simultaneously or else the market would just move.

Everyone says that, but is it true? Look at who is saying it. Mostly the people we know for being in bed with the stock market exploiters. The same people who bailed out the big banks with our tax money, while before and after telling us that they need to cut this and cut that because they don't have enough money.

It's a strawman.

Here's a much more likely scenario:

Imagine one large country or region (the US, or the EU) starts to introduce a trade tax. Say, 0.01% - irrelevant to any real trades, destructive to margin trading. So real trade won't move, because moving would be more expensive. Some high-volume and all margin traders would move. Say the EU starts the tax. So they move to the US, to Asia, etc.

But now the US and Asia and everyone else are in an interesting position. Instead of elaborating on it, let's play it through: The US also introduces a trade tax, but at 0.005% - half of the EU, mostly same effect. Real traders couldn't care less and stay put. Some high-volume traders stay, most margin traders go out of business or move to Asia.

Now Asia's in the same position. A bit of quick thinking reveals that they can make billions in taxes by introducing a 0.001% trade tax. So they do. Real trades stay put, as before. High-volume trades move to Asia, though some move back to the US and EU since operating costs and other factors start being more important than the tax difference. Margin trading stops being profitable unless the margin is considerable enough to be worth it.

Saying that you can't be the first because everyone else doesn't do it ignores the fact that "everyone else" is not a static entity. There are many, many cases throughout history where "everyone else" was just waiting for someone to make the first move.

It's a strawman. Don't fall for it. Anyone saying "we would love to, but we can't, it needs to be introduced simultaneously world-wide." really means "I don't want to".

Re:Worthless

[BoberFett]

So the only options are 1 picosecond from now or next Thursday? There's no middle ground?

Let's be honest, the only reason picosecond trading is needed is so that as many manufactured trades can happen as possible between two legitimate trades in order to skim money off the only real transaction. Would you tolerate a line of 50 people standing at the grocery store checkout lane whose only function was to hand your loaf of bread along, taking a penny as a fee? It wouldn't bother you that you could have bought the loaf of bread for $0.50 less without them?

Re:Worthless

[nhaehnle]

Market makers and providing liquidity is important. However, high-frequency trading simply isn't necessary for that. To be more precise, the problem with your line of reasoning is that if you can change your prices only once per minute, then there will be no volatility during that minute, and hence there is no need to change the prices. So your argument regarding spreads is invalid.

The whole millisecond trading thing is just a way to raise the barrier of entry to the market: The people who are big enough that they can afford close proximity and fast connections to the trading system benefit, everybody else is left out. So competition is reduced, which makes the market less efficient.

What should happen is that all those trading systems operate on a heartbeat with a fixed frequency of e.g. one minute. Basically, everybody gets to make their offers, and once per minute all those offers are matched against each other and the outcome, i.e. the transactions that take place as a result, are computed using one of the standard auction mechanisms. After receiving the outcome, traders then have time until the next heartbeat to adjust their offers. This way, the insane barriers of entry are removed, and the functionality of the system remains essentially the same.

light travels .3mm in a picosecond

[PJ6]

So unless they've found a way to break the light barrier, this is a load of bull.

Re:light travels .3mm in a picosecond

[pz]

I have a few friends in high finance. They're well-educated folk. So when they use certain terminology within the realm of finance, it makes them cringe because they know it's wrong, but the rest of the knuckle-draggers dont know the difference between a made-up Greek letter ("vega" ... no I'm being serious, look it up; it has to do with the volatility of options pricing) and a real one. When milliseconds are too slow, nanoseconds aren't a big enough improvement, they need to go one step beyond! No one with a brain is going to seriously consider speeding up by six orders of magnitude to the ludicrous level of picoseconds, but abuse of terminology is rife within the financial field.

Wonderful

[ArchieBunker]

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

Real solution

[Anonymous Coward]

BAN short-term micro trading. It causes problems and offers no real benefit.

Not good for the market: need synchronous clocking

[Richard_J_N]

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.

Re:Not good for the market: need synchronous clock

[Nazlfrag]

I'd suggest every minute and 30 seconds respectively so human beings can also participate.

Trading latency

[woboyle]

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.

One thing MUST change

[Anonymous Coward]

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.

The Federal Reserve was set up by banks

[Colin Smith]

"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.