Are you trying to get hired by the financial industry, or is there some other reason for doing this?
As you may well be aware, HFT is a scourge on the world's economy, and it's a game only the biggest and best-connected players benefit from.
As you may well be aware, HFT is a scourge on the world's economy, and it's a game only the biggest and best-connected players benefit from.
I just don't agree that HFT is a scourge. It's an ecological shift (neither good or evil) and longer-horizon investors need to evolve.
This makes this a very worthwhile project: whether or not anything comes of it (I considered writing technical analysis trading software for the exact same reason).
Some documentation about the patterns and techniques you used would likely benefit the community a tiny bit more. Not everyone understands Haskell (or, forbid, has the time to peruse large codebases).
Best of luck to you!
Do you really think any Joe Schmoe off the street could just grab your open source HFT and start making money with it? If not, how does your project benefit anyone?
Are you working in the industry, but not in HFT? Maybe this is project is just practise for getting a job in HFT? I imagine that's where programmers get the fattest paychecks in the world. Only a fraction of what the sociopaths running the show get, of course, but good money nevertheless.
> I just don't agree that HFT is a scourge.
Good thing you're not at all biased.
I am biased in thinking that monitoring the market and trading at low latency isn't fundamentally a bad thing, and shouldn't be taxed because others are too lazy to do the same thing. I certainly think that hft has been used by evil people to front-run unknowing third-parties, often in collaboration with middle men and women who turn a blind eye to the morality of their business models.
Yes, but for US equities this is purely economical: _anyone_ can buy colocated rackspace, direct market data feeds, and direct connectivity. The average Joe does not want to do this any more than he wants to build his own tennis-shoe factory.
> As you may well be aware, HFT is a scourge on the world's economy, and it's a game only the biggest and best-connected players benefit from.
Good thing you're not stating opinion as fact.
What HFT does is segment the market. It's probably best described as a form of arbitrage. Arbitrage is necessary, but in a good market hopefully it is pushed to some form of equilibrium.
HFT has an impact on the trading market. However, that doesn't automatically extend to investment.
Long term investing isn't affected by HFT, except in providing more liquidity at the point you want to exit any position. If you're planning on holding for 5+ years you're competing against relatively few people and can do good research. Any shorter timeframe and you're competing against millions, against computers and against unknowables that will distort the price in the short term.
Why would short term investing be bad, and how long do you think HFT algorithms hold their "investments"?
I hope you're not just trying to blow smoke up my ass here.
Short term investing is "bad" because you're not investing in the future success of the company you're trading on the basis of what you think the market is going to do. To the extent to which that is ever knowable it is unlikely you have the skill, experience and data to be able to beat the large number of professionals doing it.
> The HFT trader
You say it like it's a person making trades.
> I've benefited because I can buy/sell at a price close to the quoted exchange price, which didn't use to be the case.
What's a "quoted exchange price" if it's not the price you actually pay?
> Short term investing is "bad" because you're not investing in the future success of the company you're trading on the basis of what you think the market is going to do.
Isn't this what HFT is all about?
Trading on insider information is bad, of course. But if you're on a level playing field, I don't see anything wrong with profiting from something you correctly predicted short-term.
The quoted exchange price is an average of the buy/sell offers available, there is no guarantee if you try and trade that you will pay that amount. Especially if you are shifting large blocks of stock.
There is nothing wrong with "short term predicting" but it isn't investing. It is often a very easy way to lose money, "bad" doesn't just mean morally so. It comes down to time horizons, how much you want to make, and how many people are also trying to predict that event. You can correctly predict that event and still not make money as it is already priced in.
The actual price you have to pay is based on how much you want to buy and how much other people are willing to sell at what price.
People who want to buy give a "bid" price and people who want to sell give an "ask" price. Whenever there is an ask price that is lower than a bid price, a sale takes place. This results in the lowest ask price always being higher than the highest bid price. The quoted exchange price will be somewhere in between the two prices.
If you want to sell right away, the most you can get is the highest bid price on the books. If you want to buy right away, the cheapest you can get it is the lowest bid price on the books. This means that you have to pay more than the quoted exchange price to buy and receive less than the quoted exchange price to sell.
The mean of the bid and the ask, generally. For a daily close price it can be a fifteen-or-so minute average thereof.
And managers turn over long-term investor portfolios quickly. The average holding period for an SP500 company shareholder is 100 days.
And every time a trade happens you run the risk of getting clipped by the faster guys who see you coming.
I think it is natural, but fallacious, to apply line-of-sight properties to trading. If you plan to trade, then there are two ways that another participant can "see you coming": 1. If you don't have direct market access, your order gets routed through a broker. The broker sees your order before it hits the market, and if he jumps in line ahead of you then that is front-running, and a Bad Thing. Your broker can get in a lot of trouble for this sort of thing. 2. If you are trying to move a large position by sending multiple orders to the market (one after another), then all market participants have the chance to react to the first order. It's really a game to try to move a lot of inventory at once, without tipping your hand to anyone else in the room. Thems the breaks. Nobody else gets to see anyone's order before the matching engine has already processed it, so there's no way to jump "ahead" of it.
OTOH, maybe your long-term investor is trying to time the market: wait for a signal intraday, and pick that moment to send an order. In that case, if it is a good intraday signal then it is likely that someone else will compete. It is unlikely for a long-term trader to have spent as much on infrastructure as a HF trader, so the juicy signals will result in missed executions that _look_ like front-running.
1. VWAP based trading of large positions, which creates assymetric momentum effects in volume and price (and which is then somewhat forecastable)
2. Not then recognizing that you are forecastable (as a result of playing the VWAP game). The extra information that someone who looks at intraday price relationships has over someone who doesn't. If you wade into the middle of a market that is short-run forecastable (eg it's trending downwards to a new level and the market maker/HFT guys are battling their battles), and you don't check as to whether it's short-run forecastable, then you're probably the patzy at the poker table.
I'd point out that a lot of the things that are going on in HFT, are rehashes of old trading scams, and either are or would be illegal if there was any adult supervision. I was tempted to say something about the SEC being left behind the technology, and doesn't understand it. But for that to be true, and have this crap go on for so long, they either need to be complete fools, or they benefit from the status quo.
>and it's a game only the biggest and best-connected players benefit from.
That's definitely true in the case of latency arbitrage. But here again. It's the exchanges themselves that have decided that some players get an advantage over others. As an example, latency arbitrage, and a whole host of other problems could be sorted out by putting traders on exchange-hosted virtual machines. http://www.dailyfinance.com/2010/06/05/rigged-market-latency...
If not virtual machines, there are other ways to fix these problems, but first you need to get the players to acknowledge that there is a problem.
http://www.zerohedge.com/article/do-it-yourself-latency-arbi...
Nanex has done a lot of good analysis of HFT, some of which is published here:
nanex.net/FlashCrash/OngoingResearch.html
- They only use consolidated feeds for US equities, never direct market-data feeds. The consolidated feed necessarily contains less information that direct feeds (to satisfy more stringent bandwidth requirements), which masks some "interesting" effects of how the exchanges publish their data.
- They disregard that the CME feed publishes a fixed depth-of-book, and whenever they look at total liquidity in the book it can appear to flicker when deep levels fall "out" of the back of the book, even if liquidity is actually improving with the presence of a new inside level.
- They make a big deal about wholesaler matching only occurring when the consolidated book is not locked. Their rationale is that subpenny prices are always wholesalers, and (erronously) therefore a lack of subpenny-priced trades must mean a lack of wholesale matching.
These mistakes sound believable, but they do not hold up to any of scrutiny. Use their site to find interesting events, but be very careful about taking their conclusions at face value.
Edit: bullet-list formatting
I for one think latency arb is one of the bigger net wins for hft. As a market participant, each venue I have to maintain a presence at is a cost to me. I'm willing to pay the latency arb shops their cut to provide me price consistency because for my models it is much cheaper to do so than to continually reevaluate and redeploy to every possible venue. It frees me to shop for venues that provide the best features and fees.
As for quote stuffing, you are absolutely right it is awful. That's why almost every venue out there has taken or is taking steps to curtail it. They did so because their customers agree with you.
Think of HFT's as of part of the financial network infrastructure. Where exchanges play role of nodes and HFT companies role of links/queues/buffers.
That is a loaded term. "Latency arb" as you described it is HFT keeping all protected exchanges synchronized, and it is a good thing. It means that everyone else can ignore the 13 exchanges, and send their orders to the market with the most competitive pricing for connectivity. "Latency" arb" as described in most literature critical of HFT is the specific practice of submitting and canceling non-bona-fide quotes to an exchange with the intent of slowing down the matching engine. If you can slow down the matching engine that most other participants are using, you can effectively delay the public response your actions on the other 12 exchanges. A trading strategy that operates on the basis of a DoS attack on one exchange is definitely problematic.
Yes. Sometimes it is referred to as latency arbitrage. Hence why people _nominally_ talking about that subject may, in fact, be talking about different things.
> Nearly every venue has either enacted or is enacting policies and procedures to either prevent it or severely penalize it, because that is what all of their customers want.
Regarding penalties to prevent or penalize it, I disagree. NASDAQ's policy uses a ratio weighted by distance from the top-of-book. There is no penalty for excessive order submit-cancel loops at the top-of-book. Their matching engine also operates in a fashion which specifically encourages cancel/resubmit loops at the top-of-book, in that they accept and subsequently display limit orders at a different price than submitted. If they were serious about preventing quote-stuffing, they could fix this simply by rejecting those orders. Presumably they either don't care (because their system doesn't get bogged down), or there is pressure from some big customers to keep the status quo here.
So I guess if you were a shop that didn't mind playing with fire quoting top of book, and you never actually wanted to market make on NASDAQ, you could still quote stuff them.
I stand by my statement that venues continue to enact penalties to discourage quote stuffing and is such is not nearly the problem people make it out to be.
As a market participant, if the NASDAQ is not providing you with an execution platform to your liking (whether due to laggy matching or anything else) you are free to choose another venue and thanks to latency arb shops you are probably not going to pay much of a price premium to do it.
The biggest problem in all discussions of HFT/algo trading especially when related to internet forums and expose reporting is people using incorrect terms. We don't let people get away with it in other technical settings because it leads to unnecessary strife. I think the same thing applies to electronic trading.