

Latency Arbitrage: The Real Power Behind Predatory High Frequency Trading - d_c
http://www.themistrading.com/article_files/0000/0519/THEMIS_TRADING_White_Paper_--_Latency_Arbitrage_--_December_4__2009.pdf

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pheon
HFT is a nice scape goat for the finance industry, where the public at large,
and the current status quo for that matter, are looking to point fingers at
and cry "thats-not-fair", due to the last 18months of joy.

... and as we all know its far easier to attack geeks than other more
politically astute sections of the industry

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damienkatz
It points out the problem, that some firms have faster access to trade data
than others, but proposes no solutions. How to make that not true? I think the
low latency colo data centers with equal length cable for all might be as good
a solution you can hope for.

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wmf
I read that there is a stock exchange (Taiwan? I don't remember) that executes
batches of trades on a fixed schedule, like once per minute. Getting a trade
in a few milliseconds earlier makes no difference if it falls in the same
batch.

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loganfrederick
Oh the the issue there is that puts a limit on the liquidity of the market.

In a case such as the 1987 crash, it's possible the such a delay in trading
would've lowered stock values further as the volume of buyers versus sellers
would've been less clear and selling pressure could've pushed down securities
further before buyers could evaluate proper values.

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tptacek
Isn't this just basic frontrunning? The scheme works because you know about an
order that's going to move the market, and you can exploit it better because
you have an HFT infrastructure, but the unfairness is still based on being
able to predict orders.

I'm genuinely asking, not stating. The problem of being able to front-run
block trades is a really old one.

(Wow, googling "front-running" is all HFT now.)

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wglb
No, frontrunning is when you are trading on your own account and a customer's
account for the same security.

The article, while well-researched and well-written, seems to neglect the fact
that HFT has severely narrowed the spread (now almost always one penny)
whereas before it was large, and the difference went to someone else's pocket.

The other thing that seems to be missing in the thinking of the article is
that there is nothing preventing the institutional traders from colocating
their own box in Mawah, grabbing a piece of that cable, and joining the game.

And everything is HFT now, it seems--just look at dice for c++ jobs in chicago
for one example.

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tptacek
So, I know that first statement not to be true, at least in practice; it may
be that the people I've worked with just use the term for the general practice
of getting extraordinary intelligence about orders and using it to buy and
resell liquidity.

I agree with the rest of your comment, at least in principle; this whole thing
seems less about defending "fairness" than about defending "the way things
have always been done".

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wglb
I am referencing <http://www.investorwords.com/2101/front_running.html> and
[http://www.mondovisione.com/index.cfm?section=glossary&f...](http://www.mondovisione.com/index.cfm?section=glossary&first_letter=F)
and <http://en.wiktionary.org/wiki/front_running> along with others. These all
reference the conflict of interest sense.

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d_c
Gives an interesting overview. Anyone know any other related articles/papers?
Thanks!

