
High-Frequency Trading Is Nearing the Ultimate Speed Limit - jonbaer
https://www.technologyreview.com/s/602135/high-frequency-trading-is-nearing-the-ultimate-speed-limit/
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rando2195
Their "is hft good or is it bad? it's opinion! <but look at all these scary
things they are "responsible" for>" bit is really disappointing. I see it in
articles all over the place and it's really lazy research and reporting. Isn't
this article about the tech? Why are we suddenly having an extremely off-the-
cuff discussion on whether HFT is "good or bad"?

Also, I have trouble reading the tone of the article. I hope the "making
trades in the past" and "until someone manages to break the laws of physics"
are completely in jest. I know it's probably a joke, but it's a poor enough
excuse for one that it just leaves me wondering if they might actually be
somewhat serious.

~~~
Practicality
"Isn't this article about the tech? Why are we suddenly having an extremely
off-the-cuff discussion on whether HFT is "good or bad"?"

Since when is tech automatically amoral? I mean sure, the technology itself
doesn't care, but that doesn't mean we shouldn't. You can discuss both
simultaneously.

Regarding the "laws of physics." Quantum mechanics does open up several
possibilities for violating the speed of causality.[1] There is nothing that
says any of the laws are fundamental truths, they are simply the way things
always work, so far as we know. It's quite likely we will find exceptions.

1:
[http://www.bmeacham.com/whatswhat/Quantum.html#2.3.Causal%20...](http://www.bmeacham.com/whatswhat/Quantum.html#2.3.Causal%20Discontinuity%7Coutline)

~~~
drauh
QM does not open up any avenues for violating causality. bmeacham.com is
crackpot based on my reading the first 2 paragraphs.

Usually, misunderstandings about causality come from a naive reading of the
terms "advanced" and "retarded" solutions to wave equations, which also show
up in classical electromagnetic theory.

[https://en.wikipedia.org/wiki/Green's_function_(many-
body_th...](https://en.wikipedia.org/wiki/Green's_function_\(many-
body_theory\))

~~~
Practicality
Ok. Here is a better source for you:
[https://arxiv.org/abs/1401.0167](https://arxiv.org/abs/1401.0167)

bmeacham was just the first search result that was trying to explain the
general concept I was referring to, so I don't have to write an article in the
comments :)

~~~
jessriedel
That paper is discussing nonlinear quantum mechanics, models of which are
almost always internally inconsistent. More importantly, it's just
speculation; the kind of quantum mechanics that has been confirmed in the lab
is linear.

It's well known that quantum mechanics does not violate causality (when
defined appropriately in terms of actual observations).

~~~
Practicality
But my whole point was speculating that it's possible, not that it's proven to
be true. So of course I am citing speculative sources, this is speculation...
:\

~~~
jessriedel
Although it may sound like it, I don't believe it's splitting hairs to draw an
important distinction between (a) speculation that might be observable in our
lifetime, or might have relevance to stock trading, and (b) speculation that
has fundamental inconsistencies with deep principles on which the entire known
body of physics knowledge is based, and which would revolutionize our
understanding of the universe and the nature of reality if true. Here's
another way to say it: time travel is _strictly less crazy_ than acausality.

Sorry, not trying to be a buzzkill :)

~~~
Practicality
Not a problem. I prefer learning to being right :)

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kelvin0
The perspective I have on HFT is the following: it's a dubious endeavor which
in itself does not seem to bring any real value into the world (quite a
subjective opinion, I am open to hear yours). However, the pursuit of this
endeavor can bear some interesting ' technological' fruits which might some
day help humanity in a more concrete ways. I would be glad to review my
perspective given a constructive conversation with an insider.

~~~
witty_username
Like low frequency trading, HFT makes the market more efficient, at least
theoretically. The same logic that makes low frequency trading beneficial
makes HFT beneficial, although HFT may not be as beneficial as low frequency
trading.

~~~
repsilat
Right. Arbitrage is generally a matchmaking problem. You identify people who
want to trade with each other but can't find each other directly, and you
facilitate a trade between them for a small fee, taking on some risk.

The result is that if you want to sell, you're less likely to sell below much
below the going rate if there are decent arbrigateurs around. If you want to
buy, you probably won't have to pay too much of a premium over the market
price.

Another point: assuming prices move "smoothly," as arbers get faster they make
less and less money. Their profits go in proportion to the "crossing of the
spread," so they make more money when the guy who wants to buy is willing to
pay a lot more than the guy selling is asking. But if the buyer slowly puts
his bid price up and up, the Nash equilibrium strategy for competing arbers is
not to wait for a fat payout, because someone else will get it ahead of you --
you snatch up the deal as soon as it appears, when the spread has only just
crossed enough for you to make a tiny profit. In the limit of arbitrarily fast
arbitrage being detected and acted on, with no cost of executing orders, the
arbers make no money at all, and the value traders buy and sell at the same
price (paying nothing for the matchmaking service.)

Edit: market making is a different beast, and needs different supporting
arguments. Providing a better price than the next guy seems like a worthy
public service, though.

And of course this shouldn't whitewash abuses like front-running, which really
do make markets worse.

~~~
jandrese
> Right. Arbitrage is generally a matchmaking problem. You identify people who
> want to trade with each other but can't find each other directly, and you
> facilitate a trade between them for a small fee, taking on some risk.

But how can they not find each other? They're in the same market. Too often it
seems like it's "I'd like to buy X for $10", but "X is being sold for $9.99
from Y, so I'll buy that up and mark it up a penny as a service instead of
having the other guy just buy it directly for that price."

Basically it's making money off of the information asymmetry from having
faster machines than the guy who is buying for real. There is almost no risk,
the only way to be left holding the bag is if the seller cancels in the 50ish
nanoseconds it takes you to buy up the original stock and relist it at the new
price". At the end of the day your outstanding risk is 0 unless you've screwed
up real bad.

And of course once you have the system in place to do this, it's easy to see a
trade for X at $10 and buy up all of the X to relist at $10.00. Here there is
slightly more risk since the original buyer may not re-bid at $10.01, but even
then as long as you stick to stocks that are moving regularly the risk is
small.

~~~
slededit
> They're in the same market

No they aren't in the same market. There are a large number of different pools
and small exchanges where trading happens. The limitations of physics mean
each forum will have different prices at different times. Different forums
also have different rules on who may trade and in what way.

HFT Helps arbitrage away these differences. Lowering the spread between
differing markets. HFT can also play a part in ensuring correlation of related
assets like futures.

~~~
jandrese
Isn't that moot though? Every trading house is going to have all of the
markets baked into their systems. There aren't going to be any companies that
only trade on only one particular exchange unless they have some advantage on
that exchange that they can't get on other exchanges. Even then I expect them
to cross reference the other exchanges to make sure their preferred market
isn't out of whack.

~~~
slededit
This gets very complicated mostly because its physically impossible to
guarantee the best price in all exchanges at the exact point the order was
entered. You simply cannot transmit the order fast enough.

Brokers are required to fill at the National Best Bid and Offer price which is
specifically defined as the best bid on the national quotation system. However
the NQS can only update so fast. Your broker may well know it can get a better
price on a specific exchange.

Fidelity will actually keep track of when it gets you a better price and
inform you with their "Price Improvement" statistics. Other brokerages will
sell your orderflow and let a third party take the difference instead.

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ryporter
The article omits the key component of transmitting information between
venues. For lines between continents, the improvements are orders of magnitude
greater than the ones discussed in this article.

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cloudjacker
Wait till you try trading on an exchange without liquidity robots.

It kind of sucks

~~~
jerkstate
Why? because the bid/ask spread is bigger?

~~~
SEJeff
Yup, how it was in the "good old days" of open outcry floor traders. Say you
want to move your pension funds around a bit? It might take a week for you to
get to your final position, and the market has moved against you in the
meantime. I perfectly efficient market, however it is achieved, is good for
everyone, including the trading firms.

~~~
jerkstate
Your statement rests on the assumption that taking a week to make trades where
there is a non-market-maker buyer is worse because the market "might" move
down. The market "might" also move up (and if it's true that the market moves
up over time, that's more likely). I don't think you've made a strong
argument. What you're calling efficiency is actually expedience, because more
work must be expended to achieve the same result, but the work happens in a
shorter time-frame.

~~~
slededit
You make trades based upon the information available at the time. If your
information says market X will move down and Y will move up - you want your
trade completed before that happens. Any changes between the time the decision
is made and when the trades are executed are referred to as slip. Assuming
you're original trade decision was correct this slip will be against you.

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no_hams_fly
Hopefully something falls out of this akin to the military driving our
technology. While the planet dies from an overdose of gluttony, but at least
we get some cool technology.

~~~
eumoria
The situation is highly artificial but I guess you can't predict the long term
benefits of new technology. Ultimately it's just a faster responding switch :/
Bet that company is going to make quite a bit for themselves at 20k a unit.

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simoncarucci
It's MetamAko, not *o.

