

Bots playing the market make some bizarre patterns - freejoe76
http://www.theatlantic.com/technology/archive/2010/08/market-data-firm-spots-the-tracks-of-bizarre-robot-traders/60829/

======
smanek
Some people I work with (at a HFT firm), joke that it's someone warming up
their JVM by placing clearly unfillable IOCs ;-).

My personal pet theory (for some of the graphs) is that someone is just
loading up the book at many price levels with unlikely-to-be-filled limit
orders to gain priority (for the rare occasions the market makes big swings).
It's a perfectly legit tactic, that would help the market by providing
liquidity and support against other players' big orders.

Some other graphs have perfectly innocuous explanations - for example someone
probing the depth of the book or filling a big order piece-by-piece.

FWIW, you can't really pull a serious DoS against most exchanges. Most decent
ones have pretty strict rolling-window rate limits. And no other firm is going
to have much trouble processing the maximum number of orders one firm is
allowed to place within their limit.

Even if you could get away with a DoS once (and I suspect you could), who's
going to risk it? The exchange knows who you are and will punish you when you
do.

~~~
noname123
> My personal pet theory (for some of the graphs) is that someone is just
> loading up the book at many price levels with unlikely-to-be-filled limit
> orders to gain priority (for the rare occasions the market makes big
> swings).

Only works if big swings deviate from intrinsic value of the stock. Let's say
a biotech stock fails its FDA panel and drops like a rock, its fair-value
suddenly drops from $8 to $2; your 100 limit buy orders at $6 suddenly gets
hit and you'll have to sell them at $2/share.

> Some other graphs have perfectly innocuous explanations - for example
> someone probing the depth of the book or filling a big order piece-by-piece.

You probe the depth of the book by building the book not by submitting out of
the money orders. You sell block order periodically over a day or days via
VWAP by not revealing your true order size. Submitting a bunch of limit buy
orders at once even if they are out of money, especially under the same MPID
will reveal your hand and the size of the buy/sell interest.

> FWIW, you can't really pull a serious DoS against most exchanges. Most
> decent ones have pretty strict rolling-window rate limits.

The point is not DoS against exchange but to make your competitors process
messages slower than you do. They can still process messages 15ms at a time,
but you could do it at 10ms. In this game where everyone's colo'd to the
exchange and have the same arbitrage algo, having a 5ft. cable to the exchange
trading server vs. a 7ft. cable is a competitive advantage. The same case is
with slowing your opponents' message processing rate down by 5ms.

~~~
jrockway
_having a 5ft. cable to the exchange trading server vs. a 7ft. cable is a
competitive advantage_

Incidentally, light travels this far in one clock cycle for a 2GHz processor.
I have a feeling that the interrupt handling machinery and the network card
and the Layer 2 and Layer 3 inefficiencies add more latency than two feet of
Ethernet cable, though. (But I guess a pair of scissors is cheaper than a
processor fab.)

The HFT world reminds me a lot of the audiophile world. Sure, two feet of
Cat-5 cable introduces measurable latency. Sure, using 1% tolerance resistors
instead of 0.001% tolerance resistors affects the performance of your
amplifier.

Whether or not this makes any difference in the real world, though... nobody
ever has the answer to that question.

------
noname123
It's basically DoS attacks for other market participants.

Basically all algo trading systems need to cancel/modify their limit orders to
keep things relative to the last traded price and the whole quote book. The
way they maintain their own quote book is through some data feed's API. e.g.,

Processing messages via onBidChange(double price, int bidSize); suppose you
send a million buy orders at $2.00 when the stock price is trading at $6.00;
your orders won't get executed, but your competitor who's processing these
messages will be busy processing these message. You ignore the bottom of the
book because you know your own garbage orders while you focus on processing
messages at the top of the book in case of a inter-market/equity-options-
futures arbitrage opportunity arises for 200ms. Your competitor was busy
processing your garbage orders for 200ms; he/she either can't arb the trade as
fast as you can, or they are the mutual fund algo and they can't cancel/modify
their VWAP limit orders fast enough, while you trade in and out 2000 shares
for $0.01/share profit plus liquidity rebates in that 200ms.

~~~
yummyfajitas
For most of the graphs shown in this article, the message bursts are occurring
at the top of the book (for that particular route). Those orders have a fairly
good chance of being filled if the price moves unfavorably.

If you want to suggest they are hacking someone, I'd propose an alternative
target: the exchange. Say the current NBBO is on INET, but the pattern is on
BATS. Once the price on INET drops below the pattern level on BATS, INET needs
to devote effort to communicating with BATS to determine whether to fill
orders or route them. That adds latency.

------
d_c
Yet more:

\- [http://www.zerohedge.com/article/algorithmic-crop-circles-
re...](http://www.zerohedge.com/article/algorithmic-crop-circles-redux-rise-
stock-market-machines-part-2)

\- [http://www.zerohedge.com/article/its-not-market-its-hft-
crop...](http://www.zerohedge.com/article/its-not-market-its-hft-crop-circle-
crime-scene-further-evidence-quote-stuffing-manipulation-)

\- [http://www.zerohedge.com/article/todays-dose-crop-circle-
quo...](http://www.zerohedge.com/article/todays-dose-crop-circle-quote-
stuffing-algos-focuses-v-dug-and-trn)

------
drdaeman
I could image those seemingly-pointless patterns to be some sort of anonymous
(since noone knows who the receiver is) steganographically-protected
messaging. Well, I'm not serious.

~~~
sudonim
That's an interesting idea. Who is looking at market data for secret codes?

I love a good conspiracy theory :)

------
narrator
It's a big game of core war(see <http://en.wikipedia.org/wiki/Core_War>) as
far as I'm concerned.

------
charlief
Original report was posted on HN a few months back:
<http://news.ycombinator.com/item?id=1458175>

Original Nanex report:
<http://www.nanex.net/20100506/FlashCrashAnalysis_Intro.html>

------
ShabbyDoo
I know nothing of trading networks. Is there any benefit in analyzing latency
by pushing data out at known intervals and observing when you get it back in
your data feed?

Is there a cost to the HFTs to make bids which will never see the light of
day?

~~~
smanek
A. Absolutely, I can think of a few off the top of my head.

B. There's the off chance that something could get filled that I don't want
filled, and I'll burn some of my rate quota/cpu/bw.

~~~
yummyfajitas
C. If your fill rate drops too low (around 1%, sometimes a bit less), your
broker shuts you down.

------
jamii
I see a lot of weird graphs but no actual data. I can imagine this kind of
stuff going on but I'd like to see some actual evidence attached before people
start railing against HFT again. It reads more like an advert for Nanex than
anything else.

------
alanh
This reminds me of Stross's _Accelerando_ and its Strange Children, the ultra-
fast AIs trading stocks and powering Economics 2.0. Humans were completely
outclassed and excluded from stock exchanges.

------
Simucal
Are there any trading services that a normal person can pay for that provide
it some API to get quotes and do different kinds of trading?

I think putting a little money in an account and then working on writing a
small trading bot would be a fun project.

~~~
yummyfajitas
<http://www.interactivebrokers.com/ibg/main.php>

<http://www.limebrokerage.com/>

I think smarkets is also a possibility if you are located in the EU.

~~~
noname123
Hah! Letting the cat out of the bag. Don't you think letting people onto DMA
brokers with execution speed close to your own prop shop is doing yourself a
disservice?

~~~
yummyfajitas
The cat is already out of the bag - lots of people are starting up HFT shops
every day. All I did is save people half an hour of googling.

------
Volscio
The Daemon is working in the background, preparing for its activation.

<http://www.amazon.com/Daemon-Daniel-Suarez/dp/0451228731/>

------
arnorhs
Why don't they just change the rules by lowering the granularity? An actual
trade could only happen every minute or so. What is the biggest argument
against that?

~~~
dhs
From what I understand, the biggest argument is that higher granularity gets
more information to the market faster, so it will move in the right direction
faster. However, this seems to me to be a fairly low-granularity model itself;
there must be much more subtlety in practice.

------
RiderOfGiraffes
Dup: <http://news.ycombinator.com/item?id=1576024>

~~~
MichaelApproved
If HN would do a dup check on the canonical url instead of just the submitted
one it would avoid these duplicates. Isn't that just what the canonical meta
tag is there for?

~~~
RiderOfGiraffes
Not all sites use it. I suggested a while ago fetching the page and extracting
the "<title>" Then compare the URL up to any "?" or other stuff on the end,
and checking the title. This would catch every duplicate I've seen.

~~~
Encosia
Ignoring the querystring would break for a lot of sites' URLs, like the
default WordPress URLs (Hacker News' too, to be recursive).

~~~
panic
The system doesn't have to be automatic. It could look for a list of possible
duplicates by ignoring the query string, then show them to the user if the
list is shorter than some threshold.

------
ThomPete
They remind me of some of the Cellular Automate examples from Wolframs A new
Kind of Science.

------
akshayubhat
Interesting anyone knows which strategies they use to decide to buy/sell, once
they have determined the expected price?

do they use physics based techniques, like black scholes?

or do they use statical learning based techniques?

