Intruder at the top of the 20 meter amateur band?

Once your order hits the exchange 1 of 2 things can happen, your order can trade (that is it immediately clears) and all participants get an update which shows the new state of the exchange (the previous state minus whichever order(s) your order matched against). Or your order doesn’t trade, it “rests” because your price doesn’t match what anyone else is offering. At that point your order is at the back of the queue at that price and all other participants get an update showing the new state of the market with your order added to the state.

So why is latency important? The most important reason is not adding orders, which is only important if no one is already quoting your price, it’s for cancelling orders. If you get some information that makes you think your orders are incorrectly priced you want to cancel them before anyone can take advantage of that and then get new orders in at the new price you think is correct. This information is either off exchange (e.g. the fed job report) or is on the current exchange or another similar one (e.g. some big hedge fund is selling a ton of Swiss Francs in European exchanges).

On the map in the article exist 2 exchanges, the CME and the ICE which trade different but highly correlated symbols (CME WTI oil and ICE Brent oil). If I see a price change on the CME for those correlated symbols I can bet with high confidence the price will change for the ICE symbols as well, so I’ll race to cancel my orders that don’t reflect that new anticipated price.

For market makers providing liquidity order management is as important if not more so than inventory management and that’s where speed reduces risk, allowing them to provide cheaper liquidity.

A market maker wants to end the day flat on inventory with well positioned orders. Holding a big portfolio of inventory is the worst case scenario.

Re-pricing s&p500 futures offers in Chicago based on faster stock offer information from nyc is fine. It’s improving a market making strategy or taking offers that look like they will now be profitable.

> And when people quite rightly observe that having a speed advantage over other traders obviously allows extractive behavior like frontrunning

HFTs do not front run for fucks sake. It’s illegal and this meme needs to die. Front running is literally putting your order in front of a client’s order.

Being the fastest to realize the bottom is falling out of the s&p500 and selling the futures contracts on open bids is not front running.

You mention that HFT firms are willing to invest to beat other HFT firms gives the game away. We are both in agreement here but come to different conclusions. The arbitrage "algorithm" is simple in most cases. Futures contracts being sold in Chicago are at odds with equity prices in NYC. The first one to correct them wins. Speed is the only thing that matters. How exactly is people competing in the race "give the game away"?

[0] - https://www.finra.org/investors/insights/getting-speed-high-... [1] - https://www.sec.gov/news/press-release/2012-2012-189htm

Agreed. Modern economics encourages waste, such as multi-level marketing, payday loans, advertising, etc.

Hell, I'm sure most people's jobs here, indeed, most jobs would fall under David Graeber's "Bullshit Jobs".

> You might not remember that in the Middle-Ages a large portion of intellectuals were spending most of their time debating religion such as is God really omnipotent and what a specific verse in Bible meant. > > Now sure you can argue that they were doing only what the society and themselves considered valuable. But one can only wonder if those smart people had been putting their best effort into other things, say developing agriculture or better industrial processes.

... I cannot agree. A few years ago I picked up Anthony Kenny's "A Brief History of Western Philosophy", and "A New History of Western Philosophy". What these "useless" debates about knowledge got us were considerable changes in morality, metaphysics, and helped us create things that were useful in the long run. Indeed, the only reason formal 'science' is around is because of those changes in thought and reasoning.

Bertrand Russell has another sort of argument in the same direction, that I quite like. You can find it here: https://books.google.no/books?id=CnlbMP_vBmgC&pg=PA16&dq=use...

> I myself did a little day-trading at one period in my life and while I made money, I thought it was the most useless thing I could spend my life in.

Agreed.

Right. And through all that thinking about silly stuff, people eventually came to the idea that a LOT of this religion stuff is silly and not worth wasting time on, so smart people could skip worrying about it for the rest of human existence if they chose to. (Whereas beforehand, it was considered a super-important thing to think about).

You seem to imply all this effort was a waste but ultimately it led to the Reformation, various Renaissance periods and, most importantly, Douglas Adams.

I suspect that the same thing will happen with HFT. Either people will stop bothering with it eventually, or they will discover some fantastic new quantum effects that pay dividends for humanity forever more. :)

And that lead to establishing a whole new field of social sciences that is philosophy. Yes, i am aware that middle-age debates and musings like that were not solely responsible for philosophy as a field of study, we gotta remember eastern philosophers and others too, but they were still monumental to making philosophy what it is today.

Regardless of how much their musings on god contributed to creating philosophy as we know it today in comparison to efforts of others working in that field (e.g., eastern philosophers in old China or middle eastern philosophers of about the same time period), their efforts accomplished a lot in terms of generating actual value for the society through philosophy as a field of study. Unless you are dismissing the entire field of philosophy as it stands today as "useless", then the value of those discussions is pretty obvious.

Not even mentioning second-order effects, like those debates making people question prior assumptions and embarking on important scientific endeavors, like trying to prove that Earth might be indeed revolving around the sun and not the other way around.

Most systems are pretty inefficient and the problem is at the time we do not know which pursuits will yield the most valuable results.

Top-down, authoritarian direction of intellectual pursuit tends to yield worse outcomes than just letting people do as they wish. It's dangerous to suggest that any single perspective can accurately decide value.

Taking it from less skilled traders, actually.

HFT is automated day-trading in a way, so 1 meta level more intellectually interesting I suppose.

Iterative optimization resulted in smaller and smaller (and more frequent) corrections.

However we also risk a self-fulfilling prophecy if we commodify those externalities and reduce them to lines on a balance sheet. I know that this is not quite what’s being argued for, but I am equally certain that is how it would land in practice.

I’m not convinced re-framing/codifying our social, environmental, and human capitals as financial instruments is any kind of progress towards salvation, rather it’s a doomed attempt to take everything that never fit inside the tidy box of capitalism and cram it inside of the box anyway. A try at making the world comprehensible to a mind accustomed to that manner of framing.

This problem needs novel thinking, more novel than finding a direct way to account for it within the existing framework. I regrettably don’t have a better idea.