Undiscovered Country of HFT: FPGA JIT Ethernet Packet Assembly

michaelmalak writes "In a technique that reminds me of the just-in-time torpedo engineering of Star Trek VI: The Undiscovered Country, a company called Argon Design has "developed a high performance trading system" that puts an FPGA — and FPGA-based trading algorithms — right in the Ethernet switch. And it isn't just to cut down on switch/computer latency — they actually start assembling and sending out the start of an Ethernet packet simultaneously with receiving and decoding incoming price quotation Ethernet packets, and decide on the fly what to put in the outgoing buy/sell Ethernet packet. They call these techniques 'inline parsing' and 'pre-emption.'"

Comments

Wow,

[Antony T Curtis]

This is the madness of high-speed trading...

Re:Wow,

[Anonymous Coward]

High speed trading is all about stealing as much money as quickly as possible before anybody else has a chance to do it.

It serves no purpose but to move money from the hands of everyone else to the banks -- the same banks that caused the financial mess in the first place.

I blame this squarely on the American concept of capitalism -- the Republicans and Libertarians will tell you this is how it's supposed to work, because they and their benefactors directly profit from this.

The super rich just skim off the top and bypass the entire 'market' for their own purposes.

And this is why there never has been, and never will be a free market and it can't do what it claims -- because someone will always game the system for their own benefit, and there's nothing to keep them in check. And the big players define the market choices, so there is no actual options for people.

I view HFT as wholesale theft, which is pretty much exactly what it is. Nobody earned anything, they just have a direct hook into the system whereby they can bypass everything and make money before it exists to anybody but them.

Burn Wall Street. Eat the rich.

Re:Wow,

[Anonymous Coward]

At least porn is of arguable value. HFT brings absolutely nothing of value to the table. It doesn't help the traded companies, it doesn't help the market, it doesn't help any country economies. In fact, all it does is give the same hedge fund bozos who trashed the US and EU's economies another way to scarf income without adding anything.

Markets need to have some sanity. Either only allow trades each 15 seconds or tack a very small surcharge per transaction which wouldn't affect normal transactions, but penalize HFT enough to not make it worth the bother.

Re:Wow,

[vux984]

I agree with you, but go further.

HFT brings absolutely nothing of value to the table. It doesn't help the traded companies, it doesn't help the market, it doesn't help any country economies. In fact, all it does is give the same hedge fund bozos who trashed the US and EU's economies another way to scarf income without adding anything.

HFT isn't merely neutral adding no value; the income they "scarf" is income the rest of the stake holders lose. (To the extent that one can lose something one never got, at least.)

Either only allow trades each 15 seconds

I propose 10 minutes or even longer, and even that's more than fast enough. A company's fundamental value doesn't change 6 times an hour.

10 minutes lets news hit, lets people think and consider what they value the stock at, and even people not day trading for a living can react and put in a trade order without being 100 million trades "too late".

or tack a very small surcharge per transaction which wouldn't affect normal transactions, but penalize HFT enough to not make it worth the bother.

Not just every transaction -- every ORDER. HFT spams millions of orders to probe, guide, bait, etc, most of them never close and are cancelled; within milliseconds of being placed.

Those need to be 'taxed' as well.

Finally eliminate "dark pools". All trades MUST go through regulated markets. There should be no dark pools of unregulated trade.

Re:Wow,

[WheezyJoe]

Burn Wall Street. Eat the rich.

No, tax Wall Street, Tax the rich.

Why? To punish the rich for being rich? To punish Wall Street for making so much money?
No. To control the market, to put a disincentive to trading for trade's sake and locking up capital in the hands of a few until they come to control the market itself.
After the last Great Depression, people realized that Wall Street will always go out of control, eventually. We've forgotten those lessons, and removed the regulations that kept Wall Street boring (it sure wasn't sexy to be a banker in the 70's) and kept capital where it belongs: industry.

Under those old rules, Wall Street made money by performing financial services, and thus sharing in the success of industry, but otherwise sat on the sidelines.

Trading for trading's sake, however, is simply buying low and selling high. No matter how complex the instrument, it all boils down to buy low, sell high. And therein lies the rub; somebody has to lose.

Yep, there has to be a loser. One of the parties in the trade is going to get something that's worth less than they think it is, and the other's going to profit from it. Arbitrage, for example, is where some poor fool is offering more money to buy something than some other poor fool is selling it for. Wall Street swoops in, buys from the one and sells to the other, banks the difference. Free money! Too bad the two fools couldn't have found each other on their own... both paid/received the wrong price.

HFT only facilitates one bank making the deal (getting at the sucker) quicker than another. And the higher the speed, the less thinking the other party has to consider whether the deal is any good or not. Assuming that the first party can think that fast, which they probably can't. But they can't appear to be trading with yesterday's tech, can they? Otherwise, people will consider them out-dated, and target them for a sucker.

Buy low, sell high. I know this stack of Mortgage Backed Securities is worthless, but you haven't heard the news and I'll tell you it's great and you have 15 seconds to make the trade or it's going to someone else. That's right, little fish, take the bait.

Re:Wow,

[Anonymous Coward]

HFT provides liquidity, and liquidity is of the utmost importance to traders.

Liquidity? And efficiency?You actually believe that bullshit? It's not about liquidity, efficiency, market making etc. It's all about transferring money from other people to them.

And that's of utmost importance: http://www.zerohedge.com/news/2013-05-08/jp-morgan-has-zero-trading-losses-first-quarter
When you can do it with zero trading losses day after day it's almost like a tax you impose on everyone else (guess where their money comes from).

If the market is becomes more efficient as you claim why'd would these parasites be raking in big bucks? They'd be raking in smaller and smaller bucks instead. Think about that.

And they get bailouts and transaction rollbacks, trading pauses whenever they screw up big time.

When Joe Sixpack trader screws up, nobody bails him out or rolls back his transactions. And if he outsmarts an algo he risks getting a prison sentence: http://www.computerworlduk.com/news/security/3244186/norwegian-traders-convicted-for-outsmarting-us-stock-broker-algorithm/

Reality is it's about the rich and powerful continuing to transfer wealth from the less rich and less powerful.

Re:Wow,

[Anonymous Coward]

The owners of the exchanges see value in it or else they wouldn't bother supporting it.

Of course they see value in it and support it -- they're doing HFT trading too.

All you've identified is that the rich assholes and corporations who run this are all in agreement.

HFT brings no value to the table other than the large financial entities which are profiting from it. It's pulling money out of the market at the expense of everyone else, and for the benefit of the financial institutions. Of course they're fucking well in favor of it, it makes them huge amounts of money they skim off the top.

Dictators see value in dictatorship, because they benefit from it. That doesn't make it better.

Re: Wow,

[Anonymous Coward]

High Frequency Traders (HFTs) are not investors, they are market makers. They find a willing buyer and a willing seller, arrange the transaction, and execute the trade.

No, a market maker is an entity willing to buy or sell an issue when others won't. That entity makes or creates a market where one would otherwise not exist.

An entity that matches buyers with sellers is usually called an Exchange. Exchanges usually make their income from a commission paid by the buyer and the seller. The distinction between taking their profit from a commission and from simply keeping the 'spread' is important: if the agreed price is the same for the actual buyer and actual seller, then it probably represents a fair estimate of the actual price, and the participants know how much the exchange costs. If the seller sells for less than the buyer buys, then the fair price remains unknown and both buyer and seller have paid an unknowable fee for the privilege of exchange.

Re: Wow,

[Anonymous Coward]

Just make the tax rate on trades inversely proportional to how you've held the item you're trading.

As time approaches zero, rate approaches 100%.

Re:Wow,

[vux984]

No, your methods all assume things that would not be true.

There would be no placing and cancelling orders in milliseconds. The market resolution is 10 minutes. There would be a fee for placing an order, and once placed it would not be cancel-able until after the next interval because THAT is the market resolution.

The orders go into the black box at the exchange, and every 10 minutes they get matched.

The order depth on bid/ask etc would just be what's still in the queue that didn't execute 10 minutes ago. And that's still going to give you a very good idea what the price is. Like a thinly traded OTC for example... where bid and ask are usually within a nickle until someone comes in and either buys at the ask or sells at the bid.)

Think of it as the "clock" only ticks every 10 minutes; there is no "real-time" game taking place between the 10 minutes. *Nobody* gets information faster than once every 10 minutes. There is nothing to 'game' in the interval because there's NOTHING to see in the interval; nothing happens. You are between ticks of the clock.

What a waste

[stewsters]

These people could be used to develop more efficient hardware for everyone to use, or fix medical conditions, rather than make rich traders even richer at the expense of another economic collapse. It seems wrong that our economy prioritizes high frequency trading so much.

Re:What a waste

[Urza9814]

High frequency trading isn't investment, it's gambling. It's hard to do any "meaningful economic activity" when the amount of money you have to do it with changes every couple milliseconds....

Investments are long-term. Investments are saying 'here's some money, you go build X and give me Y% of your profits'. That's an investment. And you don't need millisecond speed trades and specialized FPGA NICs if you're leaving your money there long enough for R&D, marketing, and sales. Investments last months or years, not minutes or milliseconds.

Re:What a waste

[internerdj]

Well I'm not sure how I would have modded my own post but funny isn't exactly the reaction that I had to the article.

So much innovation for so little value

[hirschma]

Things like high frequency trading make me want to vom. Essentially, all they're doing is shuffling money around, taking advantage of an outdated system, and increasing risk for the entire world.

It'd be great to see this kind of innovation in something that actually is useful and valuable - not for creating an incremental improvement on a corrupt system.

Re:So much innovation for so little value

[KiloByte]

Essentially, all they're doing is shuffling money around.

More exactly: they're shuffling money from our accounts to theirs. If your bank has any securities involved with the stock exchange, it is your money that is getting nicked here. A zero-sum game requires that besides a winner there must be a loser.

Re:So much innovation for so little value

[HornWumpus]

The big loser is the trading clearinghouse/broker. Bid/ask spreads are about 1% of what they used to be.

The other big losers are speculators (as opposed to investors, look up the difference).

I see no problem with this except when the HFtraders are able to say: 'Our bad, back out all those losing trades for us'. That's just fucked.

Re:So much innovation for so little value

[green is the enemy]

I think most non-finance people who read a little about high-frequency trading systems are repulsed by the concept. Can someone point out a useful economic function for them?

One the one hand they dramatically reduce the bid-ask spread for low-volume trades. But is that really all that economically beneficial?

On the other hand, they prey on large trades that mutual funds must place to rebalance their holdings. This probably hurts the average investor quite a lot.

Some claim that they increase liquidity and reduce volatility. Is that really so?

Fuck off and die

[Anonymous Coward]

Fucking parasites (and their toolmakers).

Re: Huh?

[Anonymous Coward]

No, this is arbitrage. Taking advantage of price differences within or between markets.

Re: Huh?

[Minwee]

now I wouldn't have a problem with it if it was accessible to everyone, for example if anyone could buy machine time from vm's that were all given the information at the same time(artificially arranged, wouldn't work otherwise!) at the stock exchange.

Sure you would. You might not think so, but suppose that the exchange set up a perfectly equitable system in which identically configured were made available to every firm and provided with identical market feeds all perfectly synchronized so that no single trading VM has any advantage over any other.

I would give that system about three hours of run time before you discover that:

• - Your competitor has just acquired seventeen different vms through deals with other firms and is using them to dominate the market, pushing out firms using only one or two vms,
• - Your market feed is being saturated with bogus bids and offers which reduce your ability to see real market data, but somehow one of your competitors is able to filter it all out and trade ahead of you,
• - Other VMs on the same host as yours suddenly start running at 100% of their CPU and I/O capacity, causing slowdowns for you, and
• - A mysterious and completely untraceable hardware fault causes all vms except for the first seven to experience periods of unexplained latency at key times during the day.

Just look at the tricks that players in the game are already using, and ask yourself how changing the rules is going to stop them.

Re:Older idea than you might think

[Anonymous Coward]

I have a friend who works in the defense industry but interviewed with HFT firms around 3 years ago. My friend also had this idea, and discussed it with me since I am close to the industry.

If an industry outsider like my friend had this idea within a week or two of merely interviewing for jobs, it is a good bet many others had already conceived it and even gotten it working before that.

Yes, and when I was 8 I had the idea for a nuclear-powered photon drive for a rocket ship. Unfortunately translating the concept from my crayon drawing of a Saturn 5 with light-bulbes instead of exhaust nozzles to a working prototype proved to be impractical.

Ideas are cheap. Implementations are what matters. Particularly for something like this where hardware and software both need to be developed and speed and reliability are paramount. Having a basic idea of the algorithm is a far cry from a devise that works reliably enough and faster enough to be an improvement over established competing systems.

Rewards

[Spazmania]

We need to stop rewarding folks for high-speed trading. It basically steals money from the folks genuinely invested in the companies whose stock is traded and adds no value to the system at all.