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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.
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.
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
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.
I'd suggest every minute and 30 seconds respectively so human beings can also participate.
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!!
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.
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.
Femtoseconds are so last microsecond. This just in: Trading geeks have started to talk about attoseconds!
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.
You guys are too slow. I've re-implemented my trading platform in terms of planck time.
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.
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.
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.
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.
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.
"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
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
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).