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High-Frequency Traders Use 50-Year-Old Wireless Tech
jfruh writes "In the world of high-frequency stock trading, every millisecond is money. That's why many firms are getting information and sending big orders not through modern fiber-optic networks, but using line-of-site microwave repeaters, a technology that's over 50 years old. Because electromagnetic radiation passes more quickly through air than glass, and takes a more direct route, the older technology is seeing something of a renaissance."
In the world of high-frequency stock trading, every millisecond is money
Always good to be reassured that the market reflects the intrinsic value of the companies instead of behaving as a high-tech casino.
The traders who want to keep their jobs use line-of-SIGHT microwave transmission.
Have no clue what line-of-site is, but sounds like it doesn't transmit beyond the local building.
Assclown submitter and illiterate editor.
Falling on the profits like a tax audit, ...
Falling on the profits like we've just gone broke
Somebody else can take this and run with it; I'm tapped out. Yes, I know I'm being a wet blanket; guess the site will have to plumb new depths ...
When you have hundreds if not thousands of highly educated minds bent on squeezing out the very last drop of speed to facilitate an activity which is right up there with spamming in terms of societal benefit, well it strikes me as a tremendous and tragic waste. And yet this is what pays the bills. So: score it one point for capitalism. Yay.
line of sight
Must be the publiek skool edumakashun.
I think this poor child was left behind.
Excuse me, but please get off my Pennisetum Clandestinum, eh!
Just like Hungry Jacks (Burger King) uses 50 year old tech to heat my burgers.
> These days, the largest microwave link can offer only 150Mbps, though work is being done to develop gigabit microwave technologies.
150Mbps is past. 300 - 600Mbps is common. Gigabit has been reached already.
the market reflects the intrinsic value of the companies instead of behaving as a high-tech casino.
If it needs quick transmission of information, then it does reflect reality. It would be a casino if it depended on random factors, in which case no information transmission would be needed.
Haters gonna hate, but when you have infrastructure you can profit from economy of scale. If you want to profit you must invest, it's the reality of life.
The guy who has a dedicated link to the stock market will profit more than the guy who depends on his home broadband modem, same as the guy who has a thirty-ton eighteen wheeler will profit more from hauling cargo than the guy who depends on his 1.5 ton pick-up truck.
Jeez! due eye half too curect every-one round hear?
Only serves to make shares more volatile. Why is this sh1t allowed again? also why when a group of ordinary private individuals find a way to exploit the HFT algorithm's of the likes of Goldman Sachs do they get sent to jail and not the high-frequency traders themselves? Messed up world we live in.
3D printers use hundred year old tech of gears and rods.
High Frequency Traders are using technology dating from the 2nd century BC during their toilet breaks.
"Without this fantastic ancient technology I would not be able to tweak my trades as my dirty ass would be disturbing my control of the process."
-- Tommy Asswipe (Trader)
More @11:00...
The main reason the traders want microsecond responses is to respond to each other, not to developments in the real world.
Once one trader buys shares, these change in value, which can trigger automated responses from all the other traders. And frankly, the combined algorithm of all these traders is what makes the market behave as it does. And that's so complicated that nobody can test it for every eventuality (also, the algorithms are secret). I can see that some people think that there is an element of randomness in that.
I think it is more like a double pendulum, or the butterfly effect. Science can explain what happened, looking back, but science cannot easily predict what will happen in a few minutes. It does have an element of randomness. It is not completely random, but to a layman it sure seems to be random.
Unfortunately, recent history has shown that the traders understand the market just as well as any layman. And that means this is just a form of gambling.
If your orders have to transit hundreds of km, whether it's at 3e8 or 2e8 m/s, you're already at a disadvantage compared to those that have their servers co-located with or next door to the exchange's servers.
Lazy, lazy, lazy. If they gout out of their dressing gowns and actually went to the office, then they wouldn't need all this fancy stuff to do the trades.
You've got it backwards: HFT reduces volatility and decreases the spread.
I should have patented it back in June ;)
You know what's even faster ? Microwave travelling in long tunnels travelling straight between points on the surface of earth.
I'm sure some of these guys are considering it!
You really think algorithms that feed off of and fight each other on microsecond timescales, placing and then shorting more orders for shares of companies than exist in the entire world, reduce volatility?
Everyone is noticing the spelling, but not the fact he's saying that electromagnetic radiation - not light - travels through fiber optic cables?
I was involved in establishing one of the first major Electronic Markets in Germany. The country was quite decentralised with regional financial centres so we made sure that everyone communicated with the exchange (situated in Frankfurt) at the same speed. We even had line simulators to ensure that users in Frankfurt saw similar response times to users in Hamburg.
Now exchanges are more or less forced to join the race for the bottom by offering co-lo services (rackspace in the Exchange) where you are just a LAN switch away from theeExchange infrastructure. If you don't support that, the alleged "liquidity" moves to another exchange. Inside the machines, the algorithms are now run on the graphics cards (cheap multiprocessing) so they can run evven faster. Others use custom signal processing hardware.
Users actually issuing buy or sell orders to hold are never that close, the decision making happens within the institution not in the Exchange building. The "algo" machines just act as a man in the mmiddle driving prices to their advantage. Also, the algo traders are imposing a massive load on the order book and matching code within the exchange's systems. generally speaking the systems were chosen for reliability rather than pure speed.
See my journal, I write things there
I have long argued that stockmarkets should have a 10 second order freeze. That would mean that if you place an order to buy a stock at a given price then you can't remove that order for a whole 10 seconds, you have to stand by your order for that amount of time.
Thousands of orders are placed and pulled every second, even every millisecond. There is a steady flow of orders being placed and pulled.
Consider this: Is an order to buy or sell a stock which is pulled within a millisecond a real order, or is it just market manipulation?
9/11: Never forget it was a false-flag operation
Time to train flocks of pigeons to fly in the path of the microwave links? That's sure to disrupt their latency when they have to retransmit due to packet loss... One could call this Flock Of Pigeons Denial Of Service.
Because it's a *fabulous* way to launder money and hide the insider trading inherent in the modern stock companies. By pre-skewing the algorithms in favor of companies built into their "sophisticated models", which are generated by systems too complex to directly analyze, they can bury *billions* in insider trading profits and launder similar billions from "investors" who lose enough to help balance the books and keep the SEC from thinking their profits are outrageous. And they get to skim off the top the whole time in transaction costs.
It is allowed, because those who do it can make a lot of profit. And profit made counts as GDP. GDP is the measure for the wealth of you country. While it is totally bogous today, it is still used as the main measure. And the measure indicates that reducing the opportunity to make profits on finance markets will reduce the GDP which will reduce the wealth of y country. No politician wants that. Furthermore, a lot of people previously working for the finance industry are now in government positions in the USA, in Germany, in the UK, in France, in Italy (at least at the moment), in Spain and in the EU. They all are not interested in stopping the game, they played before. That would be something between telling an Junky not to fix and the Pope to become a muslim. Therefore, this will not change any time soon. It even survied the last crash.
You really think algorithms that feed off of and fight each other on microsecond timescales, placing and then shorting more orders for shares of companies than exist in the entire world, reduce volatility?
I know for a fact that HFT's reduce the spread between BID and ASK because numerous studies have been done showing empirically that this is the case. This means that all the people that cry that they are "siphoning money off the market" and other such crap are full of shit. You are getting better BID's and ASK's because the HFT's are in the market, therefore their percentage of the transaction is just a few for a worthwhile service.
Here is one citation and if you want the PDF, try here.
The New York Stock Exchange automated quote dissemination in 2003, and we use this change in market structure that increases AT as an exogenous instrument to measure the causal effect of AT on liquidity. For large stocks in particular, AT narrows spreads, reduces adverse selection, and reduces trade-related price discovery. The findings indicate that AT improves liquidity and enhances the informativeness of quotes.
Data and facts trumps FUD every day of the week in my book.
"His name was James Damore."
If we can get wall street CEOs to read Ender's Game or watch Star Trek, we could have ansibles or subspace communication in no time.
The whole field of transmitting the high-frequency trading information seems to be going away in favor of FPGA's sitting right on the fiber leaving Wall Str.
ftp://ftp.bittware.com/documents/data_sheets/ds-hft.pdf
By putting these sorts of devices directly on leased connections from the stock market, adjacent to the stock market, they eliminate the need for the extremely expensive and often quite unreliable remote high speed connections. I was recently privileged to hear a presentation on the risks of data loss on those lines: they're apparently using multicast for high speed synchronoous transmission, But by the time you've checksummed and re-assembled your data and re-collected the lost packets, it can actually be _slower_ than normal TCP, and the the data verification technologies are often poorly tested.
The key to using the FPGA's is to tune and simplify the models that are stored and processed locally, in place of the expensive remote data centers. And updating those devices doesn't require the low latency and high speed: the analysis of stored data and updates of models can be done remotely and much more slowly.
I think this is where some of the money went that isn't paying the bills.
Clearly some people can't be trusted with our money.
I suggest we quit letting them play with it.
They feared that it could be used to suppress protest or support unpopular rule.
I am really confused here... why this is being talked about like it is ancient tech that's been forgotten?
I used to be the admin of an outdoor recreational center and I've personally used microwave bridges a lot for these sorts of applications. It's very common in rural areas to do use microwave or open spectrum in areas where you can't just dig and put down fiber or cable. It doesn't surprise me in the least that it's being used in applications like this.
Geithner & Bernanke didn't used to work for T-Mobile...
call me cynical but I suspect the reaction might be a little different if you DOS'd goldman's insid..., um, "high frequency" trading than if you affected _a_ vector to _a_ cell tower...
Because of certain taxes that East Asian governments impose on financial transactions, high-frequency trading hasn't made such inroads there.
As long as our government continue to codify crimes into the financial system, the system will continue to act criminally. If we restored the former definition of the word "crime"* this problem (and many, many, many others) would simply not exist.
* novel concept- forbid crime.
They feared that it could be used to suppress protest or support unpopular rule.
Great article .
Have a nice one http://youtu.be/ov8FeODxyXU
The reason why they're saying it's line of sight is because the transmission occurs from tower to tower to span vast distances. Line of sight is used (obviously) because of spectrum congestion. The companies transmitting such data must get approval and the bandwidths are very large. In general this technology is used to transmit data between New York and Chicago. There are numerous fiber connections dedicated to this task currently, but the information travels at only ~0.7c; thus, wireless transmission can shave off a couple microseconds during the transmission. The technology to transmit the information wirelessly is not 50 year old technology; it is very cutting edge. The key part is keeping the latency low for during encoding and decoding at each tower such that the total latency is less than transmitting the information over fiber.
In any case, the using FPGAs at the stock market does not resolve the need to transmit the information to other markets. That is addressing a different problem.
"Because electromagnetic radiation passes more quickly through air than glass"
The only time I see glass moving through air is when I drop a beer glass (not yet to see a car crash with unstrapped passengers) - I wonder how they compared radiation/glass speed through air?
WiFi is Microwave.
OMFG! Head asplode.
The system should be modified to be round based rather than real-time. 10 seconds per round is long enough that all traders can have equal access regardless of how far they are from the stock exchange, and it is short enough that it won't be a hindrance to long-term investors. A round could spend a couple of seconds executing the trades, then publish the results, add another couple of seconds for communication, and traders will still have six seconds for calculations before the deadline for the next trading round.
This! Best idea I have seen so far - is it yours or has it been researched in more detail and been published somewhere?
I love me dentist, he's so hipster. He still uses 115yr old xrays !
I was raised around Bangor, Maine, and among other distinctions Bangor was the smallest media market in the U.S. with all four major networks, which at the time were ABC, CBS, NBC, and 'public broadcasting'. By far the smallest. Many mid sized cities in the pre-cable era had two of the four and counted themselves lucky. Our ABC affiliate was sometimes percieved as substandard in many ways, though they worked very very hard, but that;s another story.
Anyways, it's 1976, bicentennial US celebrations and all, and for the Fourth of July our NBC affilate booked Willard Scott, NBC Today Show weatherman and bon vivant, to appear locally, which they did as part promotion and part scthick.
This is a major faux pas, and Willard should be somewhere else on the 200th July 4th celebration... ANYWHERE ELSE. Like D.C., or Rockerfeller Center, ANYWHERE ELSE.
And NBC thought they had an out. The Bangor affiliate, WLBZ, used a terrestrial microwave link to connect network programming from the Portand affiliate, WCSH, and send local progamming back down. And this worked very well, with very rare outages due to exceptionally heavy precipitation. Quality was good, hardware was very reliable, and it saved on a satellite dish and the associated costs. But NBC didn't trust it, and tied to back out of the appearance claiming it was not up to standard, blahblahblah.
WLBZ nailed it. They proved reliability, they proved signal quality, and they had a cameraman that was just an exceptionally talented and superbly competent. With no easy out short of annoying an affiliate and paying money, they got Willard up there, and it was a perfect spot.
Microwave is underrated. Well-built equipment is very reliable, data transmission is well understood, and I get this use of it by the quants and HFT gang immediately. It seems old-fashioned and out of date at first glance, but no, it probably will work for a long time. thinking about some of the DS wireless hauls I installed, I wish we had S-band microwave instead. I wish I was working with microwave again, great stuff.
deleting the extra space after periods so i can stay relevant, yeah.
the market reflects the intrinsic value of the companies instead of behaving as a high-tech casino.
If it needs quick transmission of information, then it does reflect reality. It would be a casino if it depended on random factors, in which case no information transmission would be needed.
If the reality of a company's business (sales, asset value, employee productivity etc.) actually changed in a meaningful way by the millisecond, you might have a point.
On the other hand, observing millisecond-to-millisecond variations in a number sounds an awful lot like a random number function to me.
I was just wondering, if it's OK for a buyer to place and cancel orders at this frequency, shouldn't it also be just fine for the seller to change their terms and conditions at a similar rate?
When you're optimizing for nanoseconds, something is usually wrong with the system.
From the story:
If transmission speed from Chicago to NYC is an issue, why not move the servers closer to NYC? Can a microwave link to Chicago really be quicker than a fiber link from Secaucus?
Ken
The whole concept of high frequency trading and trying to out-do competition using algorithmic trading beating competition by microseconds just sounds like a future disaster guaranteed to happen. The cock-up earlier in the year by Knight Capital should be viewed as only an overture of things to come.
Now, I understand the concepts behind how algorithmic trading works in principle and what potential it has for fuck ups and to me it seems like the best way to attempt to avert such things would be to enforce an artificial rate cap on trading speed. For example, electronic trades could be enforced to only be allowed to occur (for everyone) at 10ms intervals. This would kill dead all the potential for crazy algorithmic loops at massive speed (well, still what I'd think of as high speed I suppose!) but not affect normal trading. Can someone with a proper knowledge of the way the stock markets work explain (briefly) why this would or wouldn't work?
This is bullshit. This is not what trading is about and I can't see any benefits to it. Something needs to change.
"Behind every great fortune there is a crime." --Honore de Balzac
Casteism
It's funny how Slashdot, which is so against computer-automated HFT, is equally in favor of the self-driving car. Consider what would happen if, due to some unrecognized design flaw, all the self-driving cars of the world were to crash at once. The resulting mash-up would put stock market flash crashes to shame... Anything can be automated and scaled up, including disasters. At least with HFTs, it's just someone's retirement savings that is getting crushed.
I know for a fact that HFT's reduce the spread between BID and ASK because numerous studies have been done showing empirically that this is the case.
Of course it does. Nominally. The whole scheme of HFT is to continuously bid a fractional penny above the current bid; likewise the ask; then cancel both if either fails to execute instantly. HFT is the asshole at an auction bidding $1000 and one penny. It doesn't add any information to the market beyond that there is a difference between bid and ask. It doesn't meaningfully improve the price received by either of the actual market participants, because the whole point is for the HFT to capture the bid-ask spread.
admittedly, i only read half that paper, but enough to realize that the reason *why* it decreases spread would also be solved by the concept of rounds discussed in an earlier post in on this page. because of how often they place orders and cancel them, it basically forces the NYSE to update the stock price more often and thereby giving a more 'real-time' cost of the stock. if you follow the round approach, you'd get that same effect and you remove the inefficiencies introduced by the HFT (ie: middle man... whether you say it offers advantages or not is irrelevant, it is a market inefficiency if a middle-man is present). Plus your argument against "siphoning money off the market" is invalid. They still are siphoning money off the market, mainly because the HFT is the only one that benefits from the decreased spread. Originally, when the spread was increased, only the buyer or seller benefited. Here, the HFT buys from someone at a given price only because they know someone will buy it at a slightly higher price (plus, that person is obviously willing to buy it at the price its originally going for, but the HFT obviously wouldn't want to assist in that trade because they don't benefit). So, really, they are siphoning money off the market because the market never benefits off the money the HFT makes. In fact, the market barely responds to it because the market never had a chance to respond. HFTs are just really efficient eBay users.
I suppose that they have algo datacenters co-located with exchange in both locations for immediate trading - but they want to perform some kind cross-market arbitrage accross locations. And when arbitrage opportunity comes, you probably have just these 1-2ms of headstart to execute it.
Still, I'm suprised that with so many repeaters (they have to put one each 100-300km?) they have less than 0.5ms overhead compared to speed of light.
Anyway, these mountain-top signal repeaters will come handy when New York will have to call Rohan for help.
A round could spend a couple of seconds executing the trades, then publish the results, add another couple of seconds for communication, and traders will still have six seconds for calculations before the deadline for the next trading round.
Do you know how your system would work? The big traders would hold their trades until the last microsecond of the time block. This would happen no matter which deadline you use.
Keep the quotes secret, you say? Well, I have some bad news for you. The big investment banks have information about the trades that go through them. They know the way the wind is blowing. You don't know that.
The longer the latency is, the worse it is for the small trader. Information ALWAYS helps.
High frequency trading helps the big guys without harming the small ones. I ought to know, I'm a private investor. I watch the prices and see big trades going through. There are times when my own trades are "big", When I buy $50000 of a small share the price may go up $0.07 as a result. I can "manipulate" the market just like the big guys do.
It's just a matter of economy of scale. If I had more capital, I could invest more, but for the capital I have it doesn't pay to squeeze 0.001% more. My broker has a wide range of tools, I pay for those that fit my portfolio, it's as simple as that.
Let the people who work the market and understand it create the rules, don't try messing with what you don't understand. Amateurs are likely to fuck up things.
gee, I was less charitable with the person mentioned and was thinking more of Nuremberg.
You really think algorithms that feed off of and fight each other on microsecond timescales, placing and then shorting more orders for shares of companies than exist in the entire world, reduce volatility?
I know for a fact that HFT's reduce the spread between BID and ASK because numerous studies have been done showing empirically that this is the case. This means that all the people that cry that they are "siphoning money off the market" and other such crap are full of shit. You are getting better BID's and ASK's because the HFT's are in the market, therefore their percentage of the transaction is just a few for a worthwhile service.
Here is one citation and if you want the PDF, try here.
The New York Stock Exchange automated quote dissemination in 2003, and we use this change in market structure that increases AT as an exogenous instrument to measure the causal effect of AT on liquidity. For large stocks in particular, AT narrows spreads, reduces adverse selection, and reduces trade-related price discovery. The findings indicate that AT improves liquidity and enhances the informativeness of quotes.
Data and facts trumps FUD every day of the week in my book.
Unfortunately, attempt to change the groupthink of any group such as /. readership, is often futile.
The fact is, most /. readership, for all the self-proclaimed intellectual prowess, are clueless when it comes to anything not directly computer or programming related, and that include finance, economics and physics (at least). Just witness how many posters think that price of a product should be based on cost will show you how clueless they are about basic economics. Look at the abundance of lame jokes and nothing else in any news about science discoveries will show you how interested, but clueless, the posters are. And look at the abundance of mis-informed posts about stock markets here.
Got anything more recent that ~10 years ago?
You claim to know what every "HFT" out there does, but fail to actually explain why all of them reduce the spread between bid and ask.
How stupid do you think people are really? I couldn't care less about the spread, however I do care about market manipulations.
The point is to engage in arbitrage between the exchanges in NY/NJ and Chicago. Those servers are usually placed right between the two exchanges in order to minimize latency.
On a second note... how do you sleep at night knowing that EXACTLY what you're doing... HFT... is literally stealing money from people who are making long term investments and actually investing in companies?
You are literally a thief, stealing from others.
Good god, if I were in your shoes, I'd have probably commited suicide by now. But I guess if you don't see the consequences of your actions, your conscience is clean. So someone else investing in something for longer than you doesn't make enough money, and they starve to death. No skin off your back, you only took a few thousanths of a cent with each of your trades. No problem, you didn't cause any problems, that's like... nothing. It's like taking a penny out of the 'take a penny, leave a penny' tray, only even less. No point thinking that thousands upon thousands of others are all doing this thousands upon thousands of times a second... you don't control them, not your problem. You got your 1/1000th of a cent from tons of places a few billion times... not enough to hurt.
Sleep well (as I'm sure you will... years of HFT and being wealthier than most of humanity because of it will have given you a very good blind eye towards such petty things like people dying because of those like you). You've earned it.
On a side note, if I ever met you, and found you lying dying in a back alley... I'd kick your cellphone out of your hands, step on it, and walk away. I hope you die miserable and in pain, loved by nobody.
This is one of the most useless, wasteful, resource consuming examples of mis-use of the market system known to man! It needs not only regulation, but to be prevented entirely. Unlike other ploys in the market, eg naked -v- covered shorts, HFT brings nothing but the ever greater possibility that the market will implode due to computer error, though it took 45 minutes for the 600M loss earlier this year.
All market instructions should have a MANDATORY, short, say 5 second validity. This would take the profit of the HFT war, mean that non-institutional entities couls trade and, contrary to the nonsense that will be posted in reply, harm not at all liquidity or pricing accuracy. What they would do is clip singularities, which would also mitigate rash technical trading.
We all stand to loose from this and only hedge funds and investment banks will be constrained. Any hold time, even 1 second will de-motivate this wasteful competition.
MFG, omb
This article seems to disagree with you:
http://www.ft.com/cms/s/0/d5fa0660-7b95-11de-9772-00144feabdc0.html#axzz2ElVkh9ow
"Beyond rebates, another key concern is the practice of flashing prices, which helps market makers or investors discover where others want to buy or sell stocks. This practice is widely used by high frequency traders and is allowed by BATS, Direct Edge and Nasdaq OMX, while NYSE Euronext has been a vocal critic against the practice."
This was an older article, but still... What do you say about this?
Plant a forest of goddamn trees in their fresnel zone.
Just be careful if they hear about the speed of royalty.
Rational and moral; not so much. Gotta keep that Golden Parachute consultancy gig viable!
Not the point. You still don't get it. Going to roundfile your citation anyway because It's drivel written from inside the wallstreet clusterfuck. Meaningless blather.
The threat that the HFTs provide can be described in much more simple, general purpose ideas. The worry is the deluge of HFT transactions are impossible to properly document, track, or even watch. We're being told "Oh, don't worry your pretty head. You can trust the HFT black box mechanisims. We don't need to be held accountable! Look! You make money, we make (lots and lots) of money. Everyone's happy"
We're worried that HFT traders aren't "efficient" but that they exploit the system to manipulate and distort information. It's not about what's "fair" it's about cheating.
We're worried that HFTs are technically legal, but in reality are abusing the system in manners that just aren't yet illegal (but should be).
We're worried because wall street's SOP is "Fuck everyone but the privileged rich insiders", and it has been for decades.
Forcing transactions to resolve on a schedule eliminates the risk of abuse, and opens up a better avenue where computing work can make money. Say trades executed ever 10 seconds, and only every ten seconds. Whoever could compute and execute the best trade strategy in that 10 second window would come out ahead.
Seems to block wifi from my tests around the office. New buildings and new windows are often low-e these days it seems. I haven't seen any articles about it, but as for anecdotal experience, I am 100% sure it does muffle wifi to varying degrees..
As a potential lottery winner, I totally support tax cuts for the wealthy
You really think algorithms that feed off of and fight each other on microsecond timescales, placing and then shorting more orders for shares of companies than exist in the entire world, reduce volatility?
Yes, yes they do. The worst volatility happens when there are no trades at all! Commodities markets occasionally have "limit down days" or "limit up days" where the price moves too far form the previous evening, so the market shuts down without anyone gettng to trade (well, technically one trade happens). That sort of thing really sucks, because you can't exit a position that you really need to exit.
Volatity is how much the price moves - this is orthagonal to how many trades happen along the way. Intense competition between market makers benefits real buyers and sellers!
Socialism: a lie told by totalitarians and believed by fools.
Instead of using microwaves, if they had line of sight they could use lasers. Its much more secure (less prone to eavesdropping), and doesn't eat spectrum. You can have 50 lasers side by side all on the same frequency (same color of light, even if they are invisible to the human eye), and they don't interfere with each other.
They are "siphoning money off the market"; that is a fact. If they were not profitable, no one would be running them. You drew the wrong conclusion from your data and facts.
Whether their service is worthwhile or not cannot be deduced from knowing that they reduce spread.
When long term investors are trading with each others, there will be some volatility due to the spread. Sometimes you'll be on the good side of this randomness, other times you'll have the worst of it. As long as it happens between long-term investors, the money stays in the market. What HFT's do is that they make sure to always end up on the right side of this volatility. They can achieve that due to their lower latency and certain abuses. This money is then out of the system, and thus long term investors end up with less money overall, and the market suffers. The only way this could be false is if the higher liquidity encouraged more investment, which is not the case, except due to a short term Ponzi effect, as lower expected profits for long-term investors cannot encourage more long-term investments.
In the 90's, it might have been apparent that HFT's were helpful and should be encouraged, because the amount of effort it took to lower the spread was non-trivial and it was a valuable service, at least on the short-term. But that is certainly no longer the case. HFT's are parasites, and encourage malinvestment in a system that is utterly pointless for society. They produce no wealth, and are a destructive force that should be eliminated.
Here is one citation and if you want the PDF, try here. Data and facts trumps FUD every day of the week in my book.
I applaud your attempt to back up your claims with citations. However, the source of that first article is somewhat suspect (authors have a background in the banking industry - not exactly what you would call disinterested parties) and the claim itself is tenuous at best. Does high speed trading increase market liquidty? Yes, I think that is almost self-evident: increased trading activity cannot help but to increase liquidity (it certainly doesn't decrease it). "Informativeness"? I'm not sure what that even means in this context, sounds like a weasel-word, almost like "truthiness".
But the most important question that's not being asked is: do the benefits of high speed trading outweigh the risks? Absoltuely not [citation needed].
It's a pleasure reading a post from someone with an actual clue. Thank you.
Data and facts trumps FUD every day of the week in my book.
Unless you are talking about the speculative value of CDOs or other fraud-based 'mortgage-backed AAA-rated and insured' security on the market.
The findings indicate that AT improves liquidity and enhances the informativeness of quotes.
Unfortunately, the rose-colored glasses that every trader wears in their mission to bring home the bacon completely overlooks the real informativeness of quotes, rendering the speculative value added by HFT irrelevant and bogus. A few favored IBs do one thing, their friends in the SEC twiddle their thumbs, a bunch of fund managers pile on and then everyone else - HFT traders have and will happily fiddle while the house burns down and then the good-guys get bailed out by taxpayers and the bad-guys are put into bankruptcy. There is no fundamental acquisitive impulse to understand "why" when it comes to "I sure am making a lot of money today...hmmmm" because the goal is profoundly to exploit any unregulated trading pattern that proves to be successful.
So this is liquidity at the cost of increased market risk and volatility - which makes HFT traders money on the way up and on the way down, but provides little 'rational basis' for the valuations that so-called 'real' investors should be making in the margins.
We've made fraud and bank robbery a career path. My tinfoil-hatted side thinks the "War on Terror" is a thinly concealed effort to stem the tide of Islam and the threat Sharia poses to the Banking System. I'm not religious or theistic, but I've read those books and see the rules as common-sense guidelines to prevent general mayhem in a society that actually needs to be told not to fuck the goats.
Riba is haraam.
They feared that it could be used to suppress protest or support unpopular rule.
Baboon society benefitted from a plague that eliminated the winners.
Looks almost like scientific evidence supporting Feminists and Anarchists.
-the hoboroadie
Line Of Sight Microwaves well theres something with loads of potential to go wrong. Wifi signals using line of site have been round for a long time now but of course as with microwaves they are at the mercy of weather plus are not secure one little bit.Can't imagine that the High frequency traders are going to blast buy sell orders all over the planet like that despite any speed increase as to them thereis too much downside. I wouldn't want to try placing millions of dollars in orders in microseconds hoping to buy or sell the other way in the knowledge that there is no guarrantee that both sides of the transaction can be guarranteed to take place, nor do i think the high frequency traders will.
The other factor is the hfts keep striving for more and more speed yet still the actual exchanges themselves can only take the orders at their speed. Itdoesn't actually matter how fast it gets on the hfts side as they will slow down regardless on the exchange side anyway which is an aspect thats never reported .Now if the exchanges themselves do upgrade their systems perhaps then it maybe time to worry a bit in the meantime high frequency trading experts like Carl Weiss from sceeto http://www.sceeto.com have turned away from the dark side so to speak and spent years developing software that can track the hfts in real time. This software can be used by anyone so and it's real time so they can get as fast as they like they will leave footprints that software like sceeto can sniff out.This is at least great news for the ordinary investor.
This is news for nerds, and great to see old line-of-sight wireless technology being used.
However are there any redeemable features of this HFT role? Because I struggle to find any description for High-Frequency Trader that is more polite than "parasitic scum that contributes nothing to society". Most jobs at least make some positive contribution to society as a whole in exchange for wages. These guys spend their days finding ways to exploit society.
"Nine times out of ten, starting a fire is not the best way to solve the problem." - my wife