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Barbarians At the Gateways
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.'"
But writing an article on a topic this boring and tricking me into reading it by sneaking in the word "barbarians" should be a crime.
Very informative, enjoyed it a lot.
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.
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.
Make all offers valid for at minimum one second and poof 99% of high frequency "trading" vanishes.
I find the technology behind HFT pretty fascinating, the level of optimization is impressive and right out there on the bleeding edge. IIRC there are switches being developed with trading algorithms right in the silicon. I just wished they had something to show for all that work. I'm perfectly ok with the levels of profit and gain but show me a widget or something of value that was produced from the labor. The usual answer you get from this question is liquidity and allocation of capital but if the inventors would be honest with themselves they would realize that's not the case. Trades happening at minute resolution by a human would provide the same level of capital allocation and liquidity as trades happening at the microsecond resolution by machines.
I came to the datacenter drunk with a fake ID, don't you want to be just like me?
Forget "income" - change toa gross receipts tax. It only requires a couple percent (well, maybe up to 4) to have a sustainable tax base. You pay your real estate agent 6% to sell your house, you pay most brokers 2-4%, you should probably kick in a couple percent for the government defending that investment with nuclear weapons.
No deductions, no exclusions. Whatever you receive, you pay 3% to the feds. My town happens to have a GRT for business and it's quite difficult to dodge. It makes HFT and short term, high volume trades a losing proposition. It effectively punishes any entity - person or corporation - which does not add value to a transaction. And that, imho, would be a good thing.
Is it just my observation, or are there way too many stupid people in the world?
Comment removed based on user account deletion
If a general contractor takes in 100K to build a house, but the vast majority of that is actually in materials cost, why should the town get a percentage of the cost of the supplies? And how do you prevent double-dipping, where they get a cut of the cost of the supplies from the general contractor, and the building company, and the lumber yard, and the wholesaler...
Just because *you* don't see a useful purpose does not exist.
Then demonstrate that a useful purpose exists with actual data. Yeah yeah, "market liquidity". Why do markets need to be liquid on the microsecond scale? Prove that there is a benefit to this.
And, just because a useful purpose may not exist, does not mean it should be outlawed.
It should be outlawed because it steals money from people who are investing in companies that do serve a useful purpose. Any money that ends up in the hands of arbitrageurs is money that would otherwise have ended up in the pockets of actual investors. Since no useful service is being performed, that might as well be fraud.
How about we outlaw your watching American Idol and facebooking as well, since it does not serve a useful purpose?
Because I'm not taking anything from anyone when I do that.
Give me Classic Slashdot or give me death!