Ham radio enthusiasts vs. High-frequency traders: A battle for the airwaves
wsj.com
wsj.com
https://twitter.com/AlexanderGerko/status/168782830155593318...
...but it isn't, that's why it's an entire category of jokes.
Why not just make trading using radio below 30MHz illegal? It completely solves the problem with no tangible downside. If nobody else can do it, nobody has any reason to start doing it. Enforcement would be trivial.
Yes, you can get sporadic skywave as high as 50MHz sometimes... but it's really random and unreliable. They call it the "magic band" for a reason.
And through much of the year you do get a window of sporadic-E pretty much every day.
To some extent we can debate what "consistently" means... if like these guys, you have ~10KW of power with beam antennas the size of trucks on both ends, you can probably approach the reliability of a submarine cable (albeit at incomprehensibly narrower bandwidth). Low VHF propagation will have significant periods of unavailability in comparison, no matter how much power you use.
Neither does most of the stock market, for many definitions of “need”. But on the flip side, nobody has ever really demonstrated strong negative effects from HFT and many studies show positive effects, so bans seem very kneejerk to me.
Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA).
This is true, but the term is overloaded: if I say "the exchange slid the price one tick to comply with Reg. NMS" then I'm using it in the sense you mean; if I say "the model recomputes on each tick" then I'm using it in the sense of the GP.
Increasing market friction is not a good idea.
As for price discovery, a lot of information can happen in one second. Quantizing just adds risk, which adds cost, which harms everyone.
> Individuals and corporations aren't making tradable decisions at subsecond intervals.
No, but they're benefitting significantly from the fact that the cost of trading is now minuscule compared to what it used to be.
No, it adds risk at the scale of the quantum, adding cost for those trading at the scale of the quantum, harming a very small subset of traders who would normally benefit from trading at or below the scale of the quantum, like HFT firms and short-term market makers. Should such institutions cease to exist because the cost of trading at such scales becomes prohibitively expensive, I highly doubt that society will suffer.
The spread represents the amount of uncertainty and risk associated with a price. Every bip away from the midpoint your bid/ask sits is pure cost to the participant, and that's true for all participants.
Even if I only come to market once a year to splurge my bonus on GME, I'm worse off paying 20c over the midpoint than I am paying 1c.
Would this really hold true linearly across trading frequencies?
As we get to shorter and shorter delays, the technological cost for participating in HFT will just keep going up (e.g. building your own microwave transmission towers et. al. sillyness), decreasing the amount of potential participants.
Won't this at some point start having the opposite effect - limiting participants in the market to those with enough cash to play? Wouldn't there be some theoretical level of trading delay that should be regulated in order to ensure optimal liquidity as well as market participation?
Okay, can you please use this evidence to say how much the interval has to increase for spreads to increase by 1 cent?
That's easy! Come time to match and fill for orders placed at identical prices, there's no reason a random number generator couldn't do the trick. Trading second-by-second need not be reliably profitable in the extremely short term to ensure an orderly and efficient market. The whole point of a static tick rate is to disincentivize such myopic trading in the first place!
I agree, though, that the logical conclusion of all this would be to replace the trading session with a market auction. However, while I appreciate the superior allocative efficiency of a Vickrey-style sealed-bid second-price multi-unit double auction[1] as much as the next guy, I have more faith in iterative improvements coming to pass before revolutionary ones.
> Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA).
Right, I apologize if I confused anyone with overloaded terms, but I think it's appropriate to expect the average Hacker News reader to correctly parse "tick rate" in the context of telecommunications and networking rather than confuse it with the trading concept of "tick size."
> That's easy! Come time to match and fill for orders placed at identical prices, there's no reason a random number generator couldn't do the trick. Trading second-by-second need not be reliably profitable in the extremely short term to ensure an orderly and efficient market. The whole point of a static tick rate is to disincentivize such myopic trading in the first place!
Adding deliberate randomness to the market makes it neither more orderly nor more efficient.
And you're confusing "myopic" trading with market making. Buying now and selling 10 minutes from now brings together two other participants who want to trade but not at the same time. That seller may have needed to have accepted a worse price in order to execute when they needed to.
But if you just look at the market maker, they briefly held onto something they didn't need for 10 minutes. What's the point!
A one microsecond or one millisecond time window would serve all legitimate trading purposes.
Sorry, does a "random number generator" mean some other type of randomness? And what's true for 10 minutes is also true for one second.
> A one microsecond or one millisecond time window would serve all legitimate trading purposes.
The fact that you're throwing around quantizations that are three orders of magnitude different and just saying "this'll do" makes me think you don't actually understand how trading works.
Which then? A millisecond? Why not a microsecond? If a microsecond is fine, why not a nanosecond?
Why are you so keen to put arbitrary restrictions on when people can buy/sell things from each other?
> makes me think you don't actually understand how trading works
whoo-hoo! Getting snooty there, aren't you? I think I understand it as well as you do.
> Why are you so keen to put arbitrary restrictions on when people can buy/sell things from each other?
that's called "market regulation." That's what the SEC's mission is. It's intended to convince unsophisticated investors that they're not being cheated by slick operators.
shrug
You're proposing fundamental changes to the way that markets operate, which would have profound (and mostly negative) effects on the economy, but being entirely casual about the pretty important details across multiple orders of magnitude (a millisecond here, a microsecond there, what's the difference?).
I'm not sure you do understand it.
> that's called "market regulation." That's what the SEC's mission is. It's intended to convince unsophisticated investors that they're not being cheated by slick operators.
Sure, but you have not in any way made any case about how quantizing the market stops unsophisticated investors from "being cheated by slick operators.". What does "slick" mean? What does "cheating" mean? If I buy a computer and colo it with my local exchange to get better latency, is that being "slick"? How about if I hire an army of PhDs to do extensive market analysis, am I "cheating" the unsophisticated investor then?
shrug. you do you. If not agreeing with you is "not understanding," then you're right. I think you're the one who doesn't understand the US securities market.
Nitpicking the precise meaning of every word is a good working definition of "slick."
We're done here.
Surely you must realize that regulating the markets is not as simplistic as you make it out to be. There are certainly always improvements to be had but they have to be carefully thought out because every rule and truly cause new imbalances.
Agree, but to both sides of the above discussion. The other guys literally just says "you don't understand". And I have to say, I don't understand either. If there's someone here who actually understands HFT and has done it, it would be nice to hear your thoughts on the matter.
What do YOU think would happen if we placed and arbitrary minimum tick rate at say 1 second? 1 microsecond? 1 nanoescond? 1 femtosecond?
Why would the US securitieis market collapse? Would it collapse? Why do we need extreme liquidity at the nanosecond level? Where can I get a loan for a nanosecond?
As mentioned elsewhere, lets say you quantize. How do you decide which of two orders that arrive within the same interval at the same volume and price gets filled? Unless your proposal to quantize the market also acknowledges that there's now significant, basic questions to be answered about how a matching engine would even work, then it's not a serious proposal. It betrays the fact that the proposer hasn't fully thought through the impact of what they're suggesting.
But, to answer your question: Quantizing the market will aggregate and dilute market information into the size of your interval. The enforced delay between your order and execution will fundamentally add some uncertainty and risk into every trade, which will increase spreads and the cost of trading. This will obviously happen less at smaller intervals, but I find it hard to see any offsetting benefit whatsoever.
What'll actually happen is that no-one will place orders until just before the interval boundary, so you either have an open order book (and still have an arms race so that you can see the book, process it and submit an order before the deadline), or you have a closed book, in which case you're now running a dark pool. (People tried dark pools, and discovered liquidity fell through the floor, and the thing that market customers really want to be able to do is trade. So they invited a bunch of HFTs to come along and participate in the dark pools, and everyone's now wondering what the point was).
Finally, unless you form a World Government, you'll discover that different markets will end up operating on different quantizing intervals and rules, which will lead to enormous structural arbitrage opportunities across different venues.
> Why would the US securitieis market collapse? Would it collapse?
Of course not. We used to have high latencies and high costs in the olden days. I think it was worse then.
> Why do we need extreme liquidity at the nanosecond level
Because I want to come to market and buy right now based on the available information in the universe right now. I don't want the risk that something will change in the next 500ms (or whatever) factored into my price.
The way they operate right now. There used to be plenty of seconds of delay.
Submit a limit order at a price you find fair and wait your turn or just take whatever's available on the other side of the order book. Markets have long functioned productively and efficiently on slower, human-speed timescales without the need for day traders or intrahour market makers.
For these sort of things were you know there will be an end with a minimum achievable delay, it just makes way more sense to arbitrarily decide it's X and call it a day and let humanity use its resources on better things, than let this waste of resources continue.
Not quite, because the next step is being physically closer to the exchange, and there's only so much real estate to go around.
I think the SEC decreeing "random" for trades within some time window (is the window of millisecond size? microsecond size? not sure) would be totally legit, and it would redirect financial resources to better trades, not faster ones.
If interested, this is a paper published in January 2023 called "Does high-frequency trading actually improve market liquidity? A comparative study for selected models and measures" [0].
And the abstract notes: "By comparing a variety of regression models that associate various measures of market liquidity with measures of high-frequency activity on the same dataset, we find that for some models the increase in high-frequency activity improves market liquidity, but for others, we get the opposite effect. We indicate that this ambiguity does not depend only on the stock market or the data period, but also on the used HFT measure: the increase of high-frequency orders leads to lower market liquidity whereas the increase in high-frequency trades improves liquidity. We hypothesize that the observed decrease in market liquidity associated with an increasing level of high-frequency orders is caused by a rise in quote volatility." [0]
[0]: https://www.sciencedirect.com/science/article/pii/S027553192...
Studies of high-frequency trading have yet to show benefits to these processes above and beyond those provided by a slower static tick rate, and in fact, more recent studies seem to suggest that HFT may even exist only to the detriment of these processes, all while wasting undue resources, both physical and intellectual, on an endless arms race over ever decreasing trading latency[1].
Only if P=NP.[1]
Besides
Efficiency: the ratio of the useful work performed by a machine or in a process to the total energy expended or heat taken in.
And it doesn't look like the answer to that is "the betterment of humanity", but to push the bell curve of wealth as far to the left as possible with the longest tail possible, externalities be damned.
The stock market isn't a usefull tool for society like kickstarter, but a wealth extraction mechanism for the wealthiest.
So I'd argue that HFT isn't any more immoral than T.
And then you merely link a proof that the efficiency is not 100%. That's effectively meaningless.
- You can't beat the market
- You can't beat the market without insider information
- You can't beat the market using only information about historical prices.
(Insert "approximately" and "by enough to be worth it" as appropriate)
1 is certainly false, 3 is probably true, 2 is controversial.
The paper is basically proving 3 can't always be true for actors with unlimited computational power, and without any "approximately" or "by enough to be worth it". It's a cute math trick, not something useful.
The statement of P vs NP is different from what most non-mathematicians and non-computer-scientists think:
- It is possible that P=NP, but the the asymptotically fastest algorithm is provable, say, O(n^(2^64)).
- It is possible that P≠NP, but there exists an algorithm of O(n^(log log log log log log log log n)) where the constant in O(...) is small.
I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running and worse prices for customers?
Michael Lewis covered this beautifully in Flashboys
I would agree that the price discovery works best when liquidity is lit up on a single CLOB, but claims about HFT leading to front-running or worse prices for customers (I assume you mean retail investors?) need justification.
What do you mean when you say "front-running"? It has a fairly specific definition, but it is often used inaccurately in discussions around HFT.
If by front-running you mean "HFT firms accept instructions as agent and then deal as principle prior to executing their client's instructions so as to benefit from the price move their client's order may induce" then you would be using the term correctly, and the SEC would be very interested, but this isn't what HFT firms do.
The best argument is that HFT serves no legitimate purpose, and is just a pointless arms race. Money should flow to better trades, not faster ones.
Because these strategies are actively racing other participants for a fill, some people (inaccurately) call this “front-running”, presumably because they are “running in front” of other participants, but this isn’t what is usually meant by front-running.
As another commented has pointed out, front-running (in the sense I described it in my previous comment) is explicitly prohibited by regulation in the US, so to misuse the term in this way is to accuse someone of acting illegally without actually understanding what the terms mean.
>I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running
How does creation of dark pools lead to front running? Isn't that explicitly banned by the SEC?
>and worse prices for customers?
How so? Regulation NMS forces brokers to provide equal or better prices than the national best bid offer.
That was actually quite a bad book
If I own shares in a company for 20 years, that means someone else who sold them to me doesn’t own those shares and doesn’t earn those returns.
Like many service providers, to a lot of people the service provided is worth more than the cost.
Does the average trader whose orders these HFT firms fill actually have a choice in the matter?
Certainly big institutions do with desk trading, but to my knowledge the vast majority of us do not have any choice in who fills an order or whether to wait a little longer not to participate in market making.
Nice stock you have there, it'd be a shame if ya couldn't sell it...
Take your pick. Start your own.
This is like saying you have the free choice not to have a phone number or email address. Yeah, technically you do, but effectively you have to use the system. And for the most part you get that from private entities too.
What you refer to sound more like brokers that offer online trading services, it's "instantaneous" but not fast enough to enable the latency scam used in HFT.
Maybe 10 years ago, but these days (outside of very specific markets) most of the big “HFT”s are really doing quantitative trades or market making.
> that is not available to general public
Collocating with a venue is expensive and clearing membership of an exchange has capital requirements, but it’s not some old-boys club; anyone with sufficient funds can take part.
It’s not available to the general public to exactly the same extent that exchange membership isn’t available to the general public.
Why on earth do you care who fills your order?
If you place a GTC/Day limit order, it will fill at the price you deem fair, or better.
If you enter a transaction to deal a quantity of a security at the price you deem fair, what difference does the nature of the counterparty make?
I disagree, I think I could have skipped the "or better" without making a substantive change to my point.
Is your argument that the presence of HFT participants (or really electronic market makers) leads to reduced price improvement for other participants?
HFT is just one form of algorithmic trading, they're not the same thing.
That's silly. The whole point is they're a zero-sum game with semiconductor-thin margins. Any meaningful taxation will make them evaporate.
That doesn't mean they shouldn't be taxed! But it would be a pigovian tax, the kind that serves as a soft interdiction and not as government income.
An analogy would be operating Hacker News by publishing all the opinions once a day like a print newspaper. The back and forth arguments would take weeks... you post, some responds the next day, you respond the third day. Not good.
Is it really not good?.. Now just thinking about what you said reminded me good old FidoNET days. You’d get mail once a day (typically), read/respond and that’s it, done for the day, on to do some work. Procrastination problem solved :)
If the auction is sealed bid, then price discovery is terrible.
For programmers obsessed with speed and never ending optimization to get the extra edge, HFT is the ultimate sport.
Secondly, basketball has all kinds of rules to even the competition, e.g. zone defenses, shot clocks, etc.
Baseball has umpires checking pitchers' hands for sticky substances. Rules are a part of fair competition.
HFT is only for the best and fastest of programmers backed by the best resources. Elites.
Anymore than having Spider Tack on your hand is "skill" for a baseball pitcher.
Unlike basketball, the stock market happens to be a game with extraordinarily significant consequences, not just for players but for society at large, and it just so happens that society has a lot more to gain from a stock market where traders spend less time competing on speed of execution and more time competing on quality of information. Similarly, there exist many valuable alternative use cases for the real estate, electromagnetic spectrum, and other fixed-supply resources consumed by HFT that would likely contribute more to overall human welfare.
No matter how you spin it, better rules make for a better game.
Technically speaking no job needs to exist. I'm not sure why that matters though? Just because it would be better for society doesn't mean the job shouldn't exist. I'm sure there is a job where you could be more productive as well.
I repeat: high-frequency trading doesn't need to exist.
Like all things in life there are more shades of gray than just black and white. You think it is as easy as setting a law. Your law would not only have unknown consequences. It would also most likely have negative consequences as the market would quickly adapt.
The SEC can quite legitimately rule that:
1) Traders competing to make better trades: serves a purpose.
2) Traders competing to make the same trades, but a microsecond faster: serves no purpose at all.
You just said they were the same.
So if time of quote has zero value, then how should the market decide which two orders at same volume and price gets executed?
I find these threads are the opposite of Bitcoin threads. It brings out the wild opinions about financial markets.
"Time" in a computer is not a real number in the mathematical sense. It's quantized. So simply set the quantum unit appropriately and call all trades within that unit "the same time."
Then the choice is between N identical trades that come in at the same time. Random seems as good a method as any.
You are making blanket statements without any substance. I was simply pointing out that it is silly to make blanket statements that people should not be focusing their efforts on financial markets. It is a complex benefit and problem and it demonstrates the lack of education by saying timing is not an important aspect of price discovery. I agree there are probably negative aspects but I think it’s a complicated problem to unravel.
That doesn't deserve any more of an "elevated" answer.
All I am saying is it’s a lot more complex then just saying it’s bad and serves no purpose. I think there is probably a middle ground too but I would not even know how to get there. IEX still serves very little volume so I would say the market is not concerned about the current setup. Would love to know why you think it’s so bad.
What would be the negative consequences from a more equal playing field?
A little more specifically, I find that when governments create knee jerk legislation there are always loop holes and new routes around it. Sure not always but it happens.
I am also trying to say I don’t know the full degree of benefits and disadvantages of markets today. What I can see is over the past 40 decades, spreads have tightened, and liquidity has increased. I am sure there are negatives that come from the current setup with market makers but from the retail side I dont feel the pain. What unequal playing field do you feel? Are HFT harming you?
The first class is constantly rent seeking. They want to be in charge and want something for nothing. They do not care if the person they are contracting with looses on the deal, in fact they prefer it that way. This class is mostly MBAs and welfare recipients. High frequency traders fall into this category.
The second class is people who want to work and only ask for a fair deal. They strive to increase the size of the pie for everyone.
Our situation today is very similar to Germany's Weimar republic, where an elite class that knew how to manipulate the workers could take advantage of a predictable economic collapse and predictable hyper-inflation to gain power.
I hope our correction does not follow the NAZI German example.
We could go that way. Many of the working class realize that if someone plays negative-sum-games at work, society is better off putting them in a labor cap and teaching them to do manual labor.
I suggest that US federal law should require that workers compensation be linked to how much they increase the well-being of the human race. Leave a loophole that says you are exempt if you work for yourself. The rent seekers will be so busy squabbling over pennies and clauses in contracts that they will have little time left to screw the rest of us.
I wasn't aware it was novelized, though. Only saw the film.
Mostly became a vegan anarchist after reading it. It directly criticize revolutions and totalitarianism but the parallel with any regimes is logical. The roots of injustice is in power and control, which happens in any regime even the most democratic and liberal ones.
Not saying we should abandon laws and governments, but let’s not defend them in the sake of justice and fairness.
Stalin would be proud. Send them all to the salt mines.
Hahaha. Pretty awesome to read this on HN, the juxtaposition is quite funny.
I mean the kind of people that were offended when I offered them each a cheap flashlight during a power outage. (We were all standing outside.) One of them said he would take what he wanted. He demanded the very best flashlights that money could buy. I declined, and I guess he thought I was tougher than him, so he eventually left after some more posturing. I never got his name.
I mean the kind of people who fake injury claims and collect disability for the rest of their lives, under 8 different identities. Their names were Tony and Theon.
do you consider what the parent pointed out, intentionally hiring below poverty wages, and the externalizing basic business costs onto local, often small town, police to be “welfare leeching?”
what about the companies who go out of their way to hire armies of accountants and lawyers to play games in order not to pay taxes?
what about the companies who engage in wage theft? there has been a number of reputable studies which show that wage theft may absolutely dwarf other forms of theft such as shoplifting.
if you consider these things leeching, then i think your point probably stands. but if one of those groups is not a leech, yet the other is, i don’t think your point stands at all.
if you do consider the instances i brought up to be leeches, which do you think “leeches” more? companies across the board who go out of their way to avoid taxes, wage theft, and externalizing costs? or poor people on welfare?
This is such a bizarre encounter that it's hard to take it as representative of anything other than one weirdo.
This group ranges from Congress to homeless drug addicts.
Personally, when I see someone who needs help, be it neighbor with a flat tire or a homeless person asking for a couple bucks as I walk by, I try to provide it. I often talk to people with some Venn Diagram intersection with your world view (as I know it thus far) and usually they’d literally give the wheel off their car to help the first subject in that hypothetical, and sometimes even go out of their way to give a sandwich to the second… but when it comes to policy they are so much more cruel. That’s my word for it, others call it pragmatic, or the free market.
I’m not saying that because I think I am one of the group who contributes, or one of the better, or what have you. Honestly, the sum total of my life has been going to war as a combatant, working for a defense contractor making missiles, working for a couple startups and large companies that you could sun up as selling advertising in novel ways, selling makeup, and getting people to pay slightly less for college if it’s online. Recently I’ve made a couple of new people that I hope to raise to be better contributors than I. But that’s it, I have no illusions that I’m some saint.
So, long preamble, but my point is that many of us don’t contribute to society, and don’t contribute in far more pernicious ways than a homeless drug addict. In comparison with a homeless drug addict my contribution to society has probably been markedly more detrimental, considering I used automation to deploy it on a mass scale.
In closing, look in the mirror, and unless you’ve been curing cancer, maybe cut the drug addict a break.
Ah yes, I can’t wait for our future Bureau of Labor Assessment that will magically and accurately measure every profession’s impact on human well-being, and then also magically enforce some kind of earnings grab from the baddies. Sounds like a great plan!
You realize you can’t hand wave this stuff, right? Doesn’t work.
There needs to be some kind of fix for the amount of energy wasted on zero-sum and negative-sum games.
Capitalism was never a values system and it doesn't reward nice guys.
Define “well-being” in a way that would satisfy the putative crowds of proletarians clamouring to send the unproductive to labour camps. I’m a musician who makes nothing tangible; would your requirement send me to the Gulag, or is art still a positive contribution to society?
Not sure it was "predictable" or "an elite class"; the Nazi party were to a great extent outsider-populists, and they won the middle class by pitching themselves as the less drastic change than the Bolsheviks. Certain markers of the old elite got banned under Nazism. "Mensur" fencing. Especially insanely: banning the old German font https://en.wikipedia.org/wiki/Fraktur
The hyper-inflation was merely an incredibly stupid response to a forex crisis caused by the reparations. The country was legally obliged to hand over gold marks; it attempted to print Reichsmarks in unlimited quantities to buy goldmarks, which of course caused a forex collapse.
There is, of course, no US forex crisis or inflation crisis, just a rather nasty transient bump caused by the war disrupting global natural gas prices. The US is doing rather well. It's Europe where we need to watch out for far-right parties who think they can solve the problems with mass murder (usually of refugees).
On the other hand, due to advancements in trading tech, I've seen commissions drop to zero. I've see better price discovery available to professional and retail traders and there has been a lot of people introduced to stock markets because it was accessible via their phone.
This is not a perfect world. HFT and Fintech are not godly, but its not without merit.
Source: GME in Januari 2021 when the buy button was turned off for household investors only, while the rest of the market (shorts) where allowed to keep trading. That and the fact that the stock moved the way it did with the trade volume it had tells me all I need to know about price discovery: there is none.
That's a very low bar.
> better price discovery
I expect that price discovery would be perfectly fine with a 1 second or 1 minute tick.
Trading tech isn't going to regress. Low commissions are about automation more than anything else.
As long as you have markets, you are going to have market makers and takers trying to get edge. It happens on Wall Street and also every other market place you can think of. I agree that there is rent seeking in this setup, but the overall value of free and open markets greatly overshadows that cost.
Ok, but how much of that is due to HFT specifically? Or more relevantly to the article, ultra-low latency HFT? A bit of the price discovery, maybe, but retail commissions hit zero because Schwab decided to finish turning into a bank and their competitors had no choice but to follow.
Enabling more people to move to the rent-seeking class is not really a net benefit to humanity. I would argue it’s quite the opposite.
Price discovery tends to be awkward for some institutions, because we're not great at pricing future value and resiliency. I've always blamed the "price discovery" mentality for the breakdown of the conglomerate model in the US markets-- people don't want a GE or a Honeywell (or a Samsung), they want to buy the one unit that makes money TODAY, neglecting that the other units may be providing buffering for different economic conditions, or allow the bankroll of moonshot R&D that won't fit nicely on a single quarter's balance sheet. So now we've driven GE's stock price to near zero (note: this is why I should not have taken stock advice from my Mom) and finally split the company into a bunch of shards that can be independently price-discovered.
Infinite liquidity seems to create a market with a significant amount of noise, and I'm not sure the noise has value here. The practical price may be $5, but you'll end up with a million back and forth trades chasing when it hits $4.99 or $5.01. The long term consensus got the price to $5, but HFT/infinite liquidity adds the noise. Maybe they got it to $5 faster, but I'm not sure even there. These are not actually investing in the business as a business, expecting the shares to go to $1 or $10, they're investing in it as a horserace, a psuedo-random event that lasts a couple of minutes they can handicap and hopefully pull a return from reliability. Dothey make meaningful contributions to corporate governance, when they hold the shares for less time than it would take to load the proxy voting website?
Even tech isn’t immune to this, Amazon would be way more valuable if it split into separate retail and cloud businesses.
Since AWS prints money, Amazon-Retail could afford to experiment with stuff. For example, I'd argue that Prime Video hit the market a few years ahead of viability, when we were still in the "I have Netflix and it has All The Things" era of the market. Now they've got a ready-to-go platform and content while other players scramble.
Though I guess you could group orders by price & amount, which would negate some of this. Per trade fees could also help mitigate it.
There is this widespread perception that HFT traders are rent seekers, and bad for markets, and in particular for retail traders. Anyone well informed knows this is completely wrong:
- HFT is not rent seeking, it is providing a valuable service (liquidity provision) that people are willing to pay for. Over the years, there are been multiple attempts to set up trading venues that exclude HFT traders and they all end up inviting them in because without them there's no liquidity and very little trading.
- There are multiple studies that show that regulatory interventions aimed at reducing HFT, such as financial transaction taxes, increase volatility and spreads and raise effective trading costs for retail traders.
As for having regulation steer what "brilliant minds" go into, you have to have a lot of faith in the foresight of regulators to argue for that. Could say a lot of similar things about different industries, such as the usual quip about the best minds of our generation working on maximizing ad click through rates.
* HTF provide liquidity.
* HTF beeing invited into markets formerly excluding them.
* Regulation attempts on HFT hit retail traiders too.
* You disagree, that HTF is rent seeking?
Imho, all those statements are weak. Providing liquidity in markets is essential but markets worked long before HFT was a thing.
FTH is just another way of going "meta" (for VC?) simply beeing faster. Until they are the market. The big question, as you too said is.
> It is still possible that changing market structure or regulation [...] could be somehow beneficial for markets or society as a whole, but this is far from obvious.
To me, it is rent seeking. What would you reply to the scenario ofa strong FTH monopoly, which the tech sector is in hot pursuit of.
> Imho, all those statements are weak.
> Providing liquidity in markets is essential but markets worked long before HFT was a thing.
Correct, but the previous incarnation of liquid providers (mostly humans on stock exchange floors) was far more expensive and less efficient than HFT. This is why HFT was able to compete on price of liquidity provision (i.e., the spreads came down) and win.
These legacy firms did lose out from HFT (and are actually behind some of the anti HFT rhetoric out there) but I assume people in HFT see technological disruption as a good thing, even if bad for some incumbents.
The idea that retail traders or institutional investors are the ones that lost out from HFT lacks any evidence, AFAIK.
> FTH is just another way of going "meta" (for VC?) simply beeing faster. Until they are the market.
Your wording is a bit unclear, but if you are hinting that HFTs are operating at a loss until they capture sufficient market share, this is demonstrably false. HFTs make a lot of money (you can look up Virtu's financial statements for proof since it is a public company).
> The big question, as you too said is.
> > It is still possible that changing market structure or regulation [...] could be somehow beneficial for markets or society as a whole, but this is far from obvious.
> To me, it is rent seeking.
It would be if it was true. I admit it's a theoretical possibility, but I am yet to see a convincing argument of it.
As i see it, you already provided all aspects to label HFT as such. Except one: the physical foundation of running such a business.
They provide faster and more cost efficient liquidity, thus "bringing down the spread" which will push out maybe not all but certainly the lesser privileged conventional traders. This is foremost negative for the effected traders and not per se for the public but as the pessimist that i am, i cannot help it but see it as just another way of market consolidation, of monopolization in the worst case.
The only way to seriously compete with such HFTs, is to do it as they do, which requires the same physical accesses to the markets. Previously, the access to valuable (insider) information was a privilege for slow traders and a way to get an edge. Speed and algorithms are imo just a new privilege, enabled by technology.
The simple reason why insider trading is illegal, because it puts other marketeers at a disadvantage, they have no means to compensate. The same is true for HFT. You cannot rent the rack next to the markets machines when its already occupied.
What would you reply to such a statement: HFT is just front running but from the client side.
But to be fair, i have to see convincing evidence for my pessimistic worst cases too.
They are only "pushing out" other liquidity providers. If you are a medium/long term investor you are not competing with HFTs. Yes, if you want to be day trader HFTs might make your life harder, but I think from society's point of view that's fine.
> The only way to seriously compete with such HFTs, is to do it as they do, which requires the same physical accesses to the markets. Previously, the access to valuable (insider) information was a privilege for slow traders and a way to get an edge. Speed and algorithms are imo just a new privilege, enabled by technology.
> The simple reason why insider trading is illegal, because it puts other marketeers at a disadvantage, they have no means to compensate. The same is true for HFT. You cannot rent the rack next to the markets machines when its already occupied.
There is no principle that all market participants must been on equal footing. That would be impossible to enforce, and counterproductive to boot. If you are a slow (non HFT) trader at a big fund or bank you also have a lot of advantages over a guy doing it from home: better financing rates, more market access, a whole infrastructure to provide you with information and analysis, etc. Should that be made illegal as well?
What about if you are just a better trader? Should you be somehow given a handicap so others can compete with you?
As I said in another reply, in every field of human activity, professionals are advantaged over hobbyists, and that's fine.
If it was _only_ human ability / trade craft, that makes good traders (hft or conventional), imo those traders would have earned their cut. Honoring such a market making service and economic foresight with profits is reasonable for the public.
Unfortunately, the difference between a good trader and a successfull one is not ability alone but privilege! Be it insider information or better latency, its the same thing here!
> There is no principle that all market participants must been on equal footing.
This statement is objectively false, when you take "equal footing" as "equal access".
> in every field of human activity, professionals are advantaged over hobbyists, and that's fine.
The gap between professionals and hobbyists is the same between professionals and customers, its the main reason of trustee obligations / market regulations. So something about this issue is not fine.
My point is, privileged market access leads to growing power asymmetries, which a newcomer can never compensate with genius abilities alone. This kind of market capture is similar to institutionalized corruption btw.
Once a vital service provider gets too dominant or the power gap gets too wide, regulators must step in. See health care (medical complexity), legal systems (cost of equal representation) or basically all infrastructure (obligation of contracting).
...
I replied to your stronghold statements, didnt i?
Now, is HFT just a client side approach of front running? Which is an insider privilege and illegal.
> The gap between professionals and hobbyists is the same between professionals and customers, its the main reason of trustee obligations / market regulations. So something about this issue is not fine.
> My point is, privileged market access leads to growing power asymmetries, which a newcomer can never compensate with genius abilities alone. This kind of market capture is similar to institutionalized corruption btw.
And my point is that you are holding trading to a different standard. Is it a problem that Apple has so many resources that a hobbyist has no chance of competing with at making smartphones? Or Google and search engines, Chipotle and burritos, etc?
Of course not. Those companies have earned their market shares by investing in the right places, innovating, good strategy, etc. Same is true for HFT firms.
There would be a problem if either Apple or Citadel had a monopoly or was breaking the law. If there's proof that's the case, we have courts and regulators to step in.
> I replied to your stronghold statements, didnt i?
> Now, is HFT just a client side approach of front running? Which is an insider privilege and illegal.
According to the legal definition, front running is when you have orders you are executing for clients and you trade ahead of them on your own account. HFTs do not have client orders, ergo they cannot possibly front run anything.
If you use some expanded definition of front running, then it depends on the details of the definition. For some sufficiently broad definitions, probably yes. But then it's of course not illegal and possibly not even bad.
Unless regulations apply or no monopoly emerges.
I guess i dont trust institutions or companie as you do.
To end it on a different upside. To some degre, your company and eg amazon are realizing cybernetic socialism . With enough trust, we could regulatorily capture the whole thing ;)
I agreed to your point.
> "pushing out" other liquidity providers. [… is fine ] from society's point of view.
Thank you for the conversation.
Likewise. It's disappointingly rare to be able to have a civil discussion with someone you have very different opinions from.
Skkkkkritttttt
'Liquidity provision' is just 'fast cash for your distressed equities'. Yes, if prices are trending in an unfavorable direction investors/speculators would suffer a greater loss in a market without HFT as orders took minutes rather than seconds to clear. But you are indirectly collecting economic rents by trading so fast that retail investors can't connect with each other, they always end up connecting with the HFT. So in that sense you are collecting rent on the expensive high speed trading infrastructure by getting to the front of every queue. A brilliant/knowledgeable retail trader is unable to monetize their comparative advantage because they can't compete with the HFT operator on execution speeds.
The whole thing is built on FOMO, and creates the illusion of value by endlessly accelerating transaction speeds. This is like arguing that people who drive way above the speed limit are creating value by arriving at their destination sooner (leaving more road space available) and encouraging others to drive fast (making the road transport system more efficient). Accidents that occur int he vicinity of speeding drivers' trajectory can be blamed on inferior driving standards.
regulatory interventions aimed at reducing HFT [...] increase volatility and spreads and raise effective trading costs for retail traders
Good. Volatility is opportunity for the smart and risk-tolerant, and trading costs are a good proxy for risk. This is how financial markets are supposed to work, offering the opportunity of a good payday for clever traders and discouraging the mediocre with excessively low or high risk tolerance before they can drag or blow up too much. Trading is meant to be a human activity that serves human needs. The more it is automated and accelerated, the more it tends toward monopolistic concentration of capital in corporate entities and increases overall fragility of the system.
Liquidity provision is more than that. Without market makers/liquidity providers prices fluctuate a lot more because the balance of natural buyers/sellers varies over time. Liquidity provision is a shock absorber to those imbalances.
> But you are indirectly collecting economic rents by trading so fast that retail investors can't connect with each other, they always end up connecting with the HFT.
You are right that retail traders trade against HFTs most of the time. This is actually true for institutional investors as well, simply because HFTs provide almost all of the liquidity in stock market. I.e., it's not because HFT as are reacting to incoming orders faster (it is impossible to react to a marketable order before it trades by design), but because HFTs are the ones posting at the bid or ask.
For retail traders there's the extra step that most (all?) retail brokers have agreements with HFTs where they send them their retail orders before they hit the markets. The HFTs can opt to trade against the retail trader but only if they give them a better price than they could have gotten at the exchanges.
There is some unfounded misperception that this practice must be nefarious, based on the idea that the HFTs can only be doing this if they are pulling one over the retail traders. This is wrong, the reason HFTs like to trade against retail is that it is unlikely that a retail order is part of a large multi-million share meta-order that is going to push the price against the liquidity provider. This means that they can give retail traders lower spreads and still make money, both parties win. The party who loses in this are the institutional traders - since HFTs manage to segregate part of the retail flow, they end up using higher spreads for the rest of the flow.
> So in that sense you are collecting rent on the expensive high speed trading infrastructure by getting to the front of every queue.
This is stretching the definition of rent. If I own a well-run restaurant, am I collecting rent on expensive food preparation infrastructure that lets me prepare good food at a lower cost that my competitors?
> A brilliant/knowledgeable retail trader is unable to monetize their comparative advantage because they can't compete with the HFT operator on execution speeds.
They also have a hard time competing against traders working at big banks or hedge funds even if they don't use HFT infrastructure. In every field of human activity, professionals have big advantages over hobbyists, and that's fine.
Also note that if you are a retail trader buying stocks with a long/medium term outlook HFT is good for you (lower trading costs!). If you want to be day trader, HFT might make your life harder, but it's not clear to me that's a bad thing.
> The whole thing is built on FOMO, and creates the illusion of value by endlessly accelerating transaction speeds.
Transaction speeds are not endlessly accelerated. There's a misapprehension that HFTs are trading in and out of positions in a millisecond time scale. That's absurd, you'd never make money that way. They care about their latency down to the microsecond or hundreds of nano-seconds because that lets them cancel orders quickly when it looks like the market is going to move against them and avoid adverse selection, the bane of the liquidity provider.
> This is like arguing that people who drive way above the speed limit are creating value by arriving at their destination sooner (leaving more road space available) and encouraging others to drive fast (making the road transport system more efficient). Accidents that occur int he vicinity of speeding drivers' trajectory can be blamed on inferior driving standards.
For the faster drivers, there is clear downside: the increased accidents. For HFT, what is that?
> [...] The more it is automated and accelerated, the more it tends toward monopolistic concentration of capital in corporate entities and increases overall fragility of the system.
HFT firms require very little capital compared to things like big banks or large hedge funds. I don't have the numbers but I am sure their combined capital is tiny fraction of the rest of players in financial markets.
They don't hold large books ever, so if they go under, there is no fire sale that drives asset prices down and cause a crisis. They don't present a big systemic risk.
https://drive.google.com/file/d/13edfo0uhuG5JAaP6i2VTOJho1lP...
https://www.fcc.gov/ecfs/search/search-filings/results?q=(pr...)
Edit: looks like hn escapes the parentheses in the docket query. Here’s a short link — http://bit.ly/45nSowI
I hope they don’t plan to use the ham bands. They are jammed with traffic while the much bigger commercial shortwave bands next door are empty!
If they do allocate spectrum for fixed commercial use, I hope they allocate equally spaced bands (like hams use) so that you can send digital signals and not have to filter out the harmonics.
I even travel with my radio. It seems to be this way across the United States. If you’d be open to sharing, I’d love to know where it’s so saturated.
That said, I don’t want commercial interests to take the amateur bands either, but I do believe they need to modernized. I think some of the space should be unallocated, and left that way, so people can experiment with minimal restriction.
Digital modes are active, as is 6m (50MHz) in the mornings.
I think the danger is that HFT will make HF bands valuable and there will be push to acquire the amateur bands.
However a sharp notch is a real pain to make in analogue domain. Lots of stages, temperature changes the component values, and things get bulky.
Let me be a little bit pedantic here. High power itself does not cause interference, assuming that the unwanted sidebands are sufficiently suppressed. That is an engineering challenge, because modulation of any sort creates sidebands that put power on either side of the carrier. Higher modulation rates lead to more power in the sidebands. Secondly, any non-linearities in the power amplifier chain will also cause unwanted sideband emissions. That said, keeping your unwanted emissions outside of your allocated spectrum down to legal levels is "only" an engineering challenge. So the question to ask here is at the power levels they are asking for, is it practical to construct a transmitter that will keep unwanted sideband power down to acceptable levels?
A second issue is on the receiving side. And this gets challenging to explain easily -- but there is a concept in receiver design called "dynamic range", which is the difference in received signal strength between "minimum detectable signal" and the point where a strong signal causes 3dB of gain compression to set in at the first receive amplifier. A second concept is reciprocal mixing and 3rd-order-intercept, but I won't try to explain -- the bottom line is all receivers have a limit to how much undesired signal they can reject before the receiver front-end becomes non-linear and starts creating undesired mixing products. The undesired signal transmitter may be perfectly clean and legal, but the receiver on the other end just collapses like a gym bro that tried to bench too much. Part of the FCC's mandate is to make sure that users of other spectrum, using reasonably-well engineered receivers, can survive in the RF environment created by transmitters in unrelated spectrum. To put into other words, transmitting a perfectly clean signal that is so strong that it is impractical that, say, a consumer-price-point broadcast radio receiver has no chance of surviving should not be allowed, and certainly the commercial broadcasters are going to object.
As a practical matter, interference complaints from hams are not easily or quickly resolved. Interference from power companies is difficult enough, and they want to know when their equipment is throwing sparks!
They actually want to locate their servers inside the market buildings, to gain those precious nanoseconds.
Going into orbit increases your total transmission distance. If you can afford to put in the infrastructure, you never want to go into orbit.
It’s always going to be faster to go point-to-point than pay the light-speed cost of bouncing all the way out to orbit and back.
They mention it uses the ionosphere, so curious exactly how long it takes the short-wave pulse to arrive.
Satellites such as Starlink operate in low earth orbit at about 350 miles, significantly above the F-layer. Also, they introduce repeater delay when they relay a data packet. To get from Chicago to Frankfurt would require relaying the packet thru multiple satellites. So, greater distance (even if passed by laser between satellites) plus repeater delays.
Also note that satellites in LEO are the only option. Geosynchronous satellites are completely out of the game due to the much greater distances involved.
Radio ham blog post discussing HF propagation:
https://www.pa9x.com/long-path-or-short-path-propagation/Depressing and outrageous.
Also, HFT firms do not intercept any institutional orders. The race for speed is so they can be the first to transact against orders which are publicly announced at an exchange. I have to stress on the word "public". Exchange are marketplaces where many institutions publicly display their prices to buy and sell stocks. No orders get "intercepted" before they hit the marketplace. If anyone did do that, it would be against the law. And please don't confuse market order flow for front running. The rules and regs around order flow are very clear and firms that would violate that would be fined into bankruptcy for violation.
I really can't make heads or tails of your last point, but Market Makers are obligated to provide liquidity at exchanges and their prices are based off of what people want to buy/sell. Its not that complex and if you don't want to transact at their prices, you're welcome not to do so.
They are generally given some price improvement relative to the public BBO, so the argument is that customers filled via PFOF are better off.
However one second-order effect of PFOF which argues against this is that PFOF makes it less attractive for non-PFOF firms to participate on the exchange. Because small customer trades, which are generally low information content, have been filled off exchange, only the larger and riskier trades trade on the exchange. This causes spreads to be wider on the exchange than otherwise.
Some European exchanges have banned PFOF. I think these exchanges are working OK without it.
HFT pays huge sums for lower latencies. This is just the next step in their progression
As an amateur radio enthusiast, I say leave the bands alone and let them figure out something else
https://arstechnica.com/information-technology/2016/11/priva...
https://arstechnica.com/information-technology/2016/11/priva...
Maybe I'm over-extrapolating here, but isn't this the same kind of reasoning that gave us MITM-attacks in clear-text http?
I mean, you can set up point to point communications, but people quite a distance away will be able to make it point to multi-point.
1. Sell them a faster-than-light solution.
2. Hold regular field-days/contests outside their RX antenna farms.
3. Go retro and use Tesla coils for TXs.
You could argue that ham radio is an antiquated niche, but at least there's some social benefit (emergency communications, for example).
When you retire, every time you go to Starbucks, you can rest assured that the savings on your 401k distribution will allow you get an extra shot, once a month. The innovators making this possible of course skim billions, but you get that free shot.
A veritable tragedy! I'm happy to accept the unnecessary risk of economy-breaking flash crashes if it means I can afford an extra shot of espresso once or twice a year.
Okay, not counting compounding interest. But on other hand how much wealth do they extract from the system? Is that more or less than the 2000 per person?
demonstrably false. "Liquidity" was available even before the dawn of networking. It was called "the ticker." Anyone with a ticker could see the last trade in a given stock. You could call your broker and he/she would convert your stock into cash (minus commission). It was just slower.
As in Ticker Tape Parade.
I think the reality is usually more complex and nuanced. Does it help your average retail investor more than it hurts? Maybe.
HF at 3 - 30 MHz happens to be low freq. enough that a fast standard ADC and DAC can work as a direct conversion SDR. Surprised I don't see more projects around that yet.