High-Frequency Traders Push Closer to Light Speed with Cutting-Edge Cables
wsj.com
wsj.com
Second - I'm not sure high frequency trading adds much to the world itself. But, have the algorithms or technology they develop been taken and used elsewhere? Maybe without them, this kind of cable development would not have happened as quickly? Maybe it creates an increase demand for higher-level STEM degrees given the draw of earnings potential (and not all would make it, meaning some STEMs go on to work on actually valuable things for society?). It's interesting to think about.
>Lumenisity, the startup backed by Jump, is betting that hollow-core fiber will find uses beyond trading, for instance in telecommunications and 5G networks. “We see HFT as an early adopter for the use of hollow-core,” Lumenisity Executive Chairman David Parker said in an interview. He declined to comment on his firm’s relationship with Jump.
>Supporters say hollow-core fiber could be used for high-bandwidth links in places like northern New Jersey where the NYSE and Nasdaq have their data centers, or even under the Atlantic, connecting London and New York, if the technology gets good enough.
I also think that getting rid of large arbitration opportunities as soon as possible is good for markets, as they behave “nearer” the ideal no-arbitration model.
But that is just my opinion.
AIUI, you think that HFT has driven various numbers far down, the rest of us benefit from them being driven down, but don't benefit significantly from them being driven as far down as HFT actually has done. Right? I can agree with that.
The hidden assumption is that if HFT hadn't done that, then something else would have come along to drive those numbers down, but not as far. If so, then the benefit to the rest of us would have been much the same as it actually is.
You may be right, but I don't see what that "something else" could be. It would have to be something where some actor benefits from quick reaction and low spread, right? AFAICT, that must be either HFT or something indistinguishable from HFT. Something with the same traits, blamed by the same people for the same reasons.
That is, have a market where orders accummulate in the order book and every, say, 15 seconds, the order book is crossed and trades are made.
On the other hand, I think a kind of relation between prize of an operation and its energetic cost would be beneficial (like ---as an example--- forcing an operation to compute a hash of proportional difficulty, or whatever). But this is a different problem.
I’m not largely a free market is the only solution person but this is a very bad example of ‘natural’ monopolies.
Even in the old consolidated system you had differentiation between the exchanges in the form of exchange rules which led to Nasdaq specializing in different listings than NYSE.
If you look at the commodities exchanges they were even more specialized and splintered until legal interventions made those specializations less valuable.
It was governmental intervention that made liquidity the only factor in exchange choice.
I remember first hearing about these ideas in the mid-noughties (around 2004..2007), but then again, I was in a technical university with an economics department. The FCA link refers to a paper from 2013, so by that time the topic should have been pretty well researched.
0: https://www.fca.org.uk/publications/research/periodic-auctio...
Those same inefficiencies in the market would be seen at 59 minutes, at 30 minutes, at 10 minutes, but get less and less impactful each time. HFTs basically provide a service that gives you almost instant liquidity and market making, which is valuable to anyone who's looking to act quickly buying or selling.
This is largely everyone. If you need to rebalance your portfolio into more cash, say because you are paying for college, the lower the spread the lower your transaction cost.
Quite a number of them went under. So even such clearest cut front-running is not a fool proof strategy with "money out of thin air."
Seeing somebody saying "give me money, and I will multiply them with some magic mumbo jumbo" they themselves don't seem to understand, if the most usual investment industry hot air.
If being a market maker is profitable, then this profit derives from executing trades. Because the exchange directs trade to the best offer, the profit goes to whoever offers the best price, which is whoever adjusts its offer prices quickest. That's the recipe for HFT.
This is computer now, but back in 1890 (picking a date where there were stock markets, but obviously no computers) there were people who worked on the floor of the various stock exchanges called market makers. They own a bunch off shares of one company, and agree to buy or sell to anyone. When some broker (ie agent for a trader who may not live in the same city) walks on the floor wanting to buy stock they don't have to wait for someone else walking on willing to sell, instead they go to this person who is always willing to sell stock. Latter when broker (again agent for a trader) wants sell stock the market maker will buy their shares. This is much quicker than the two traders needing to find each other and agree to a price.
The market maker makes money be the spread. When the two traders above buy or sell with the trader they don't get the same price. Instead if the stock is listed for $10/share the person buying is really paying an extra price, $11/share (for example it is almost always pennies), and the person selling actually is getting $9/share (again an absurd example). The market marker is thus making $1/share for every share of stock traded.
The spread thus clearly is taking money from the traders. This is above the money you have to pay your broker to make the trade for you.
For comparison, before the "internet", here were minimum $50 and $100 commissions on stock buys. 2%-3% buy-sell spreads were common. HFT is critical to allow each paper to be traded in multiple competing venues. etc etc
HFT who play market-maker for a microsecond do not create liqidity and have no value for society. Well, strictly speaking they create liquidity for the first 100-share lot of trades that a real-money market participant needs to do, and act as costly parasites for the other hundred or thousands lots that they need to do.
Anyone whose a market maker is playing in the HFT space, otherwise you can't cancel fast enough when the market moves otherwise.
Other uses of HFT are interlisted arb that keeps companies that trade in multiple countries at the appropriate non arbitrage price.
Or even inter market arb that keeps prices on each exchange in the US at a non arbitrage price.
I mean the entire currency market is kept in sync due to HFT.
They also do ETF arb that keeps ETF prices at, you guess it, their non arbitrage price.
These are all things that were done very poorly before HFT, and well computerization in general of the market.
The one thing I find when making these comments is people keep moving the goal posts.
Remember:
At one point HFT was being able to trade multiple times a minute with a computer. That was HFT at a time in the 80s.
Then being able to trade a a second level to keep exchange prices in sync, that was at one time HFT level speed. That was HFT in the 90s.
People now take that HFT behaviour for granted and try to move the goal posts to micro second timing forgetting that the above are all hft activities, its just that many more people can do them now.
HFT has undeniably shrunk spreads and decreased what the average person pays to buy the market.
Because HFT would naturally operate over already high-liquidity papers. There's no point in HFTing low-volume stocks.
Also not all HFT needs to rely on having the fastest transaction speeds. So, yeah, sure, having another buyer/seller does increase liquidity, but TSLA is liquid enough without it.
So the better these HFT firms are, the less it costs you to get in and out of the positions you want.
A HFT typically has a given stock of Siemens and offers to buy and sell. Suppose one has 100 shares and offers to buy and sell two, you want to buy forty. You'll get two, and the HFT will put two more on the market, at slightly higher prices, and wait to see whether you buy.
How much higher/lower? Obviously they'd like to raise the price quickly to the highest price you'll pay, without raising it so high that you buy from someone else, and equally obviously you don't tell them what price that is. Will the HFT firm's software have better heuristics than your broker's?
You can think of HFTs as market makers, liquidity providers, and automated price discovery. For their services, they end up being able to slice a penny off the top of a lot of orders.
>You also lose all the money that's driving technological advancements (like that fiber cable).
Isn't this circular? If they weren't capturing wealth created by other actors, they tautologically wouldn't have it to invest in the first place. That said, it's true that the money might not then be invested in this sort of technology.
With the bid-ask spread being wider, that adds a transaction cost to every trade, as you can't sell for the price you just bought. This means that trades are more expensive and riskier. HFT provides liquidity that reduces those risks.
HFT seems to me to be one of those words that means two different things and people select the version of HFT that fits their arguments. "Evil" HFT is a rent seeker that just can get in front of the trades you make without adding value, you're just paying an extra penny or something for transaction. "Good" HFT is a market maker with tons of info who just gets there first every time because they're FAST.
You can see how the amount of info HFT turns it "good" or "bad", and that's a tightly held trade secret for most of the trading firms, so it's a grey area.
Importantly, those don't exist.
I bet videogaming companies will go for this fibre, though it wasn't those bank companies doing the research of course.
Imagine, pay $10 a month, and get half the ping than anybody else in Q3.
Has a similar effect to using an aimbot (which are dis-allowed).
>“When you’re sending light into a solid fiber, it’s like you’re sending it through a window 50 miles thick,” said Dave Gustafson, a former head of wireless engineering at Jump. “With hollow-core, you’re sending it through 50 miles of air.”
“The first to break c gets infinite profit! Ready, set go!”
Since we are talking about science fiction here you cannot ignore the above loop holes. If we were talking about the real universe as we know it, then of course you are right.