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Barbarians At the Gateways

Posted by Soulskill on from the our-stock-economy-is-stupid dept.

CowboyRobot writes "Former high-frequency trader Jacob Loveless gives an in-depth description of the math and technology involved in HFT. From the article: 'The first step in HFT is to place the systems where the exchanges are. Light passing through fiber takes 49 microseconds to travel 10,000 meters, and that's all the time available in many cases. In New York, there are at least six data centers you need to collocate in to be competitive in equities. In other assets (foreign exchange, for example), you need only one or two in New York, but you also need one in London and probably one in Chicago. The problem of collocation seems straightforward: 1. Contact data center. 2. Negotiate contract. 3. Profit. The details, however, are where the first systems problem arises. The real estate is extremely expensive, and the cost of power is an ever-crushing force on the bottom line. A 17.3-kilowatt cabinet will run $14,000 per month. Assuming a modest HFT draw of 750 watts per server, 17 kilowatts can be taken by 23 servers. It's also important to ensure you get the right collocation. In many markets, the length of the cable within the same building is a competitive advantage. Some facilities such as the Mahwah, New Jersey, NYSE (New York Stock Exchange) data center have rolls of fiber so that every cage has exactly the same length of fiber running to the exchange cages.'"

6 of 321 comments (clear)

  1. Liquidity by Anonymous Coward · · Score: 5, Insightful

    Please, I just pray nobody justifies this obvious non-productive activity by explaining it lends necessary liquidity to the markets. The markets were liquid enough for me back when telegraphs were used to send messages to human traders.

    1. Re:Liquidity by Copid · · Score: 4, Insightful

      This is the point I always make. There have always been useless lumps who happen to be close to the action who make money off of the spreads. There are just more of them now, and they're fighting really fast over micropennies. If we're going to complain, I'd like to see evidence that the total profit these guys are making is going up relative to the size of the market. Sure, if they're giving the average trader a huge haircut, that's not a good thing, but market efficiencies being what they are, I suspect that the total amount of skim hasn't changed all that much since the early days.

      The only real problem I can think of is that we've replaced that useless lump who has no real skills with mathetmaticians and engineers who could be doing something more useful elsewhere. It's probably not a great use of those resources, but it's pretty small scale.

      --
      An interesting anagram of "BANACH TARSKI" is "BANACH TARSKI BANACH TARSKI"
  2. What purpose does HFT serve? by Opportunist · · Score: 5, Insightful

    Please enlighten me, dear wizards of the wall street. Please teach me what purpose HFT serves to our economy.

    Somehow, to me this just looks like it is the most blatant proof that the whole stock trade has become a self serving gambling place without any connection to reality and economy anymore. It used to serve the purpose of accumulating money for projects larger than what any single person or even government could finance. Today, it is just a self serving leech on our economy.

    --
    We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
    1. Re:What purpose does HFT serve? by mythosaz · · Score: 5, Insightful

      I'm obviously a rube with regards to how the magic happens beyond "Strike first, strike fast, strike often!" but it's pretty fucking clear to everyone that Average Joe doesn't benefit one bit from this unless he's bought stock in SuperHFT TradeCo.

      Nobody benefits from this except 1/100th of 1%'ers trying to move into the 1/1000th of 1%'ers at the sake of making sure that you or I can't possibly play, because the playing field is so un-level it's a miracle we don't slide right off it... ...after leaving our wallets.

  3. Easy solution for all their technical problems. by Anonymous Coward · · Score: 5, Insightful

    Make all offers valid for at minimum one second and poof 99% of high frequency "trading" vanishes.

  4. Comment removed by account_deleted · · Score: 4, Insightful

    Comment removed based on user account deletion