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Comment by em500 | Hacker News Reader

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy.

Pretty much everything at sub-second resolution is pointless.

I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficiently functioning economy, yet the largest markets in the world are closed 2/3rd of the day.

The fact that most markets are closed on all weekends plus over 10 holidays per year suggests that even an update once per day wouldn't make much of a difference.

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This. A million times this. All possible arguments for price discovery are totally invalidated by regular market closures.

Conversely, if sub-second resolution is somehow "a good", then by extension sub-millisecond price discovery is "even better". There are some insane people that state this kind of gibberish with a straight face.

If millisecond are good, then surely microseconds are even better! Next... nanosecond resolution price discovery for the uuuuuultimate liquidity.

They’ll only stop when they get to Planck time resolution price discovery

If they achieved Plank Time Resolution I don't think they would need to be in the finance industry to make money :P

>Conversely, if sub-second resolution is somehow "a good", then by extension sub-millisecond price discovery is "even better". There are some insane people that state this kind of gibberish with a straight face.

if sub-second Internet latency is somehow "a good", then by extension sub-millisecond Internet latency is "even better". There are some insane people that state this kind of gibberish with a straight face.

If millisecond are good, then surely microseconds are even better! Next... nanosecond resolution Internet latency for the uuuuuultimate speed of information.

Surely this is crazy talk!

Would you be happy if regulators mandated that airplane control systems can only sample their input at most every second?

HFT systems look a lot like feedback driven control loops. Mandating a minimum resolution would be ridiculous.

If what you're sampling and responding to is noise, then yes, it's pointless.

If what you're sampling and responding to is noise, and the responses themselves generate self-perpetuating expanding feedbacks, it's worse than useless: it's actively harmful.

> This. A million times this. All possible arguments for price discovery are totally invalidated by regular market closures.

As has been pointed out elsewhere, the really big markets are OTC.

> If millisecond are good, then surely microseconds are even better! Next... nanosecond resolution price discovery for the uuuuuultimate liquidity.

If I go to market to get a price, I'd quite like that price "now", not at some arbitrary point in the future. Increasing the resolution reduces the amount of time I have to wait.

> Pretty much everything at sub-second resolution is pointless.

Should your credit card network only allow transactions once a minute? Price data comes from transactions (trades) as they occur. There’s more utility derived from a market where people can transact on demand.

> yet the largest markets in the world are closed 2/3rd of the day

Not correct. Equity markets are far from the largest in the world, yet it’s possible to trade 24 hours a day, 5 days a week (actually thanks to HFT). Currency markets operate around the clock. Rates markets operate ~22-23 hours a day, 5 days a week.

> The fact that most markets are closed on all weekends plus over 10 holidays per year

Markets exist for their participants. Corporations looking to hedge commodities exposure, trade currencies, manage interest rate risk, or buy/sell stock have employees who work during business hours. That doesn’t diminish the need for real-time pricing. And most holidays are domestic, so major markets still operate internationally.

I wouldn't mind if my credit card only allowed transactions once a minute. I don't think I ever had to do two transactions in a minute.

> I don’t think I ever had to do two transactions in a minute.

If the network only clears once a minute, you need to wait at least a minute for each person ahead of you in line at the store. Alternatively, you need to be willing to pay more to cut them in line.

Oh I see what you mean. That wouldn't be too terrible either I suppose, but I see your point now.

Wait, isn't the correct analogy for the stock market that there is an (almost) infinite amount of registers, but each of them can only clear a customer at the first second of each minute?

This is where the analogy certainly gets stretched. The network and the registers are really both the exchange here.

Equity trading only happens at a small number of venues (inclusive of OTC, dark pools, and internalizers probably not more than in the hundreds, potentially low thousands). These would be the registers. In order to buy a stock, either you choose to ‘cut the line’ by paying the price someone tells you they are willing to sell at, or you wait for someone to sell at the price you announce you’re willing to pay. These transactions are processed serially (albeit quickly) at the exchange.

Allowing trades only once a minute (or some other period) is akin to allowing the credit card network to clear once a minute. Trades cannot occur more frequently, so the ability to enter and exit positions on demand is diminished. Obviously someone who wants to trade immediately for one reason or another is harmed by having to wait. Additionally, everyone (even those not trading) is harmed by not having up to date valuations for the positions they hold.

Sorry, conflating frequency of price discovery for efficient investment allocation with payments (as you here) or with internet speed or aircraft control systems (as someone else above) is really disingenuous.

Being closed on weekends is just fine for the market (unlike credit cards, the internet, or aircraft control systems).

> I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives

I won't touch equities, but surely it's obvious why derivatives have to be priced quickly? When the underlying moves, you have to re-price the derivative, otherwise you're giving away money!

Well, anything that limits the complexity of derivatives is probably a good thing!

Obligatory caveat: I know derivatives aren’t evil, and are very useful to the world, but we all know what happens when they get so complex that almost nobody knows what they are.

Artificially stale derivative prices are unquestionably more complex than up to date ones.

Pretty much everything at sub-second resolution is pointless.

Some people think so, but the truth is you will simply shift the competition from “as fast as possible” to “within as few picoseconds after exactly one second” or whatever the limit is.

Unless you add random delays to each trade.

That uncertainty will only increase the spread and retail investors - ordinary folks like you or I - will pay for it.

Ad long as you can model the latency statistically people will still try to play the game. It will be much riskier of course, and I'm not sure why that would be a better outcome.

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