
HFT in my backyard – II - liotier
http://sniperinmahwah.wordpress.com/2014/09/25/hft-in-my-backyard-ii/
======
MrBuddyCasino
HFT profits have fallen, and will probably continue to do so. If at one point
some of the hardware becomes superfluous because it is too expensive to
maintain, what is a good use of a low-latency 100MBit link? Tele-medicine?

People are lamenting the ill-directed use of capital to build all this stuff,
but maybe that becomes one day a valuable by-product.

~~~
jzwinck
The towers have been repurposed once and the same can be done again. Use them
for BASE jumping as one in the article already is.

But think of the network equipment--how many advancements in the Ethernet,
TCP, and UDP that we all know and love have been partially funded or prompted
by people willing to pay to ride the bleeding edge? Several years ago, UDP
multicast in Linux suffered a very serious performance regression. Who pushed
to get it fixed? An HFT firm. Now everyone has well-performing UDP multicast
in Linux.

Or how about Arista Networks? Back when they were called Arastra they got
their start largely by selling US $25K switches to HFT folks. Now they're
selling for "the cloud," and lots of people can benefit from higher
performance networking.

~~~
gretful
it's almost as if capitalism works...

------
mattmanser
Does anyone know why it makes sense to make the base of the tower diminish to
a point?

Seems like an odd thing to do unless there was a good reason for doing it!

~~~
tfgg
I'm not an engineer, but it seems like having a single pivot at the bottom of
a large mast would be favourable -- it'd allow the mast to freely flex in
winds while being constrained by the support cables without causing damage,
whereas a small base might just crumple if flexed too far.

A rigid base would have to be extremely strong to supply the promised
rigidity, small base means big force to supply the turning moment. You can
think in terms of it being a Dirichlet (fixed but flexible) vs. Cauchy (fixed
and unflexible) boundary condition. Not to mention it being unnecessary; the
only advantage I can think of is that it might exclude some undesirable
oscillation modes, which is probably easier to achieve by attaching support
cables at various points along its length.

~~~
toong
Are you sure you didn't study structural engineering while sleepwalking ? :-)

~~~
tfgg
Just playing lots of Pontifex [1] ;)

(ok, and a physics degree, but that's less relevant)

[1]
[http://www.chroniclogic.com/pontifex.htm](http://www.chroniclogic.com/pontifex.htm)

------
h0ba
I wonder if they take the extra time and latency to encrypt their traffic.

Is it possible to intercept a message by flying a drone in the path of the
microwaves?

~~~
perlgeek
I would be pretty simple. You use a high-latency channel with "proper"
encryption and authentication to stream a one-time pad key; then encryption
and decryption would be a simple XOR, plus a bit of synchronization (to know
where in the key stream you are). Doesn't sound like it would introduce much
latency.

~~~
scott_karana
One-time pads are only useful if they're not re-used.

Or are you suggesting that the high-latency link is higher throughput, and
provides constant gigabytes of pad material? (Eg, stream cipher)

~~~
cpwright
A microwave link is much lower bandwidth than the optical fiber that already
exists to connect the two points (you can't rely solely on microwave, you need
fiber to back it up when it rains or is cloudy, etc.).

Also, depending on the market, you're only trading 8 or so hours a day. You
can just send the pad during the 16 hours of the day while the link is
otherwise unused.

------
neuralk
Fantastic article, even better than the first. This is exactly what I enjoy
discovering on HN.

I hope he suffers no repercussions with respect to his trespassing, although
it seems the worker who left the tower open and unattended might have some
explaining to do. You think since another tower had been attacked earlier this
year they might have installed security cameras. I wonder why these towers
seem to lack security given their importance to their owners.

------
shubhamjain
I know, HFT is insanely competitive in developed markets and there is no way
an amateur can enter this segment but what about emerging markets like that of
India. Is it possible to exploit HFT without expensive infrastructure, or
million dollar code?

~~~
lmm
If you're not competing with anyone then sure. The algorithms can be found in
economics textbooks, the implementation isn't hard if you don't need insanely
low latency. The trouble is that if you get your bids in slower than everyone
else (with penny spreads there is no way to compete on price) then no-one's
going to trade with you.

~~~
yummyfajitas
In India the tick sizes tend to be 1-5 paise << 1 US penny. Over there it's
actually a price competition game rather than a speed game.

[http://asiaetrading.com/resource/securities-tick-
sizes/](http://asiaetrading.com/resource/securities-tick-sizes/)

Incidentally, for anyone who wants to stop HFT, all you need to do is copy the
Indian tick size.

[http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html](http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html)

~~~
minimax
I think you are oversimplifying. In the US you can compete on price at a
subpenny level by posting at an exchange with inverted (taker/maker) pricing.
Shares posted at BYX are really $0.004/share cheaper than BZX, and most smart
order routers will take at the inverted exchanges first. Also, changing the
tick size won't eliminate the race to 0 (or c) because there are other
advantages to low latency execution beyond just getting good queue priority at
the inside price. One obvious example is quickly canceling or modifying your
orders when the price of a related instrument moves.

~~~
yummyfajitas
I am oversimplifying. You are right that speed still matters for cancels.

It's true that you can post hidden midpoint orders. That's a far cry from
posting a public bid at $42.2837 in order to jump the queue ahead of someone
posting $42.2836.

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quinndupont
Does anyone know if the author's book was ever translated? [http://www.lekti-
ecriture.com/editeurs/Cinq-Six.html](http://www.lekti-
ecriture.com/editeurs/Cinq-Six.html)

Its odd title---"5+6"\---makes Googling for it very difficult. In fact, does
anyone know the author's name?

~~~
shabble
I believe it's [http://www.amazon.co.uk/6-5-Alexandre-
Laumonier/dp/293060110...](http://www.amazon.co.uk/6-5-Alexandre-
Laumonier/dp/2930601108/ref=dp_ob_title_bk) (although that's still the french
version)

And the author is
[https://twitter.com/SniperInMahwah](https://twitter.com/SniperInMahwah)

I do hope there is an english version around, it's definitely something I'd
like to read.

------
lun4r
New post:
[https://news.ycombinator.com/item?id=8374613](https://news.ycombinator.com/item?id=8374613)

------
sauere
As someone who has little to no experience in trading the technical side is
very interesting to me, but the overall concept of all this is just insane and
frightening.

~~~
callesgg
Would the problem that if causes be easily solveble by doing somthing like 50%
of your trades bluffs.

~~~
namecast
There is evidence that this sort of thing is already happening. Google 'quote
stuffing'. There are those who say quote stuffing in HFT is a bug; my personal
opinion is that it is done by design....

~~~
yummyfajitas
Can you explain the design concretely (i.e., the mechanics), or is this just a
gut feeling?

~~~
namecast
For now I'm going to offer gut feeling. Take this or leave it - I wrote two
paragraphs here that essentially came down to an argument to an authority re:
my personal experience and the opinions people who know who trade. That's
shitty logic, so let's go with gut feeling for now...

I don't believe that the same specific bug has manifested itself across many
many different HFT algorithms run by many different actors over a long period
of time, in a way that loses money consistently for everyone involved whenever
the bug is triggered, without ever being addressed by anyone.

To argue otherwise is contrary to my current understanding of software
engineering best practices - imagine another industry where every service
provider has the same bug manifest in the same way, across all their different
software stacks - some running Java, some Python, some even with their own
proprietary languages - and no one ever catches it even though it's losing
money and it's occurence is easily identifiable on a time-series graph (so
very easy to be matched up with all available logging data)? No one has the
resources to throw a team of devs at this for 6 months to identify the bug, or
they do and they're just willing to lose money and not make every last nickel
they can? Not a single person is trying to reach for that lost money with a
bug fix or a novel tweak to their own existing algo? For years?

I believe it's more likely that either the actors who are quote stuffing
believe they are benefiting by tipping their hand early with false
information, or they actually are benefiting.

It's hard to imagine how these actors could be benefiting; perhaps they
believe that someone is watching their quotes in transit or has visibility
into their quotes before trades are executed, and the quote-stuffers are
trying to fake these malicious actors out?

The alternative scenario where quote-stuffers are not benefiting from their
actions - or rather, that they aren't even operating under the irrational
assumption that they are benefiting (because the quote stuffers could be
stuffing intentionally but incorrectly) - seems much more implausible.

It seems to involve a whole lot more things going wrong in a very specific
very atypical way,from a software development standpoint, with no one every
interested in picking up the money they're dropping on the floor due to this
bug when things go wrong, over the course of years, even though all the data
to pinpoint the source of the bug is public, charted, and discussed openly.

The first scenario just requires a quote stuffer to hold a possibly incorrect
belief about the other actors in the market. The second requires multiple
specific distinct software development failures to line up like dominoes and
stay lined up without anyone ever addressing their root causes.

But who knows :) <shrug> Trading is chaos, after all.

~~~
yummyfajitas
The thing is, the bugs manifest in many different ways. Sometimes you get
ramp&drop, sometimes you get on-off flicker, there are a wide variety of
things that can happen. Take a look at the graphs from Nanex - lots of
different things are happening. I realize that to an outsider they may all
look like "graphs going wonky", but similarly all computer bugs look like
"omfg I just want my email" to a marketer.

It's not a programming language issue - it's a math issue that would happen in
any programming language. Whether you use Python or Haskell, you'll run into
problems if you call SOLVE(A,x) on an ill conditioned matrix A. So you cook up
a special routine that works well for most of the inputs you expect to see and
it screws up for the tiny fraction of cases where you get a bad matrix.

Throwing money and a team of devs won't get around this. Similarly, you can't
put together a team of crack devs (each earning $500k/year) and ask them to
solve the CAP Theorem in 6 months. All you can do is choose your tradeoffs and
hope that most of the time your network puts you on the good side of those
tradeoffs.

~~~
namecast
Chris: you need to identify yourself if you're going to push your viewpoint
here. You're the only author of a controversial blog post that's pushing what
I'll gently describe as an interesting theory - not a casual HN observer just
bringing up some talking points. If I hadn't caught your CAP theorem quote
("solve the CAP theorem", wha?) and the Nanex reference, I would have missed
this and not drilled down to your user details.

Next time, feel free to add a </disclaimer> of some sort.

I'm not an outsider unless you've got one intense No True Scotsmen definition
of the word, and I'll leave it at that. Let's just agree to disagree, and I'll
say that you are certainly entitled to your opinion. Thank God, it's a free
country and a free market :) Good luck.

~~~
nanexllc
Really, are you that naive to how the markets work? Intenalizers - Citadel for
example, give retail traders prices based off the SIP and buy/sell on direct.
Whenever there's a pricing difference, it's instant risk-less profits. You can
induce that pricing difference by quote stuffing.

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thix0tr0pic
I wish I had something more relevant to add but, hello from a former Mahwah
resident

