
A detailed exposé on how the market is rigged from a data-centric approach - isivaxa
http://www.nanex.net/aqck2/4661.html
======
axanoeychron
You cannot defend frontrunning of a market.

If I ask for X at Y. Someone else shouldn't have the facility to buy it based
on my own trade signal and try sell it back to me.

It is mindblowingly simple theft. The arguments for liquidity do not hold.
There is some fascinating cognitive dissonance when it comes to the HFT
industry.

~~~
hft_throwaway
That's not what's happening here. Traders are arbitraging and reacting to
public trades and orders on multiple markets.

If you walk through a physical market where 8 apple carts are lined up, all
selling apples for $1, buy every apple at cart #1, then buy every apple at
cart #2, and so on, would you be surprised to find the price moving up or
sellers stepping away as you approached carts #7 and #8?

The same thing happens when trading. Securities trade on multiple markets and
multiple exchanges cannot match cross-market trades atomically. It's absurd to
suggest that one side of the trade should be expected to close his eyes to
what's happening in the world around him and sit tight while a huge trader
runs his quote over. Why is one party more deserving of a good price than the
other?

If you route to one exchange only there is no way for anyone to see or react
to your marketable order before it executes, ever. If you route your orders
intelligently, it can be very difficult or impossible for anyone to pull away
before you get your fills. That's the executing broker's job. Instead of
getting better at his job, this broker would rather complain to a very vocal
conspiracy theorist who has been proven wrong many times in the past by people
with actual experience and data: [http://zacharydavid.com/bad-research/the-
hunsader-follies/](http://zacharydavid.com/bad-research/the-hunsader-follies/)

~~~
prof_hobart
If you stood in front of all of those carts simultaneously and said "I'll take
all of your stock at the advertised price", I'm guessing you'd be a bit peeves
if someone else pushed in front of you and started buying some of the stock
(the equivalent of the 1,570 shared bought by some random buyer at the exact
point this order was put in).

~~~
Lazare
You would be peeved. Doubly so, because in the context of finance, that's
actually illegal.

But the key word in your example is "simultaneously", and it's the thing that
did _not_ happen in this example. This is more like "I bought all the apples
at the first cart, and by the time I got to the second card, half the carts
had raised their prices, and most of the apples at the remaining parts had
been bought by enterprising traders who decided there must be something
special about apples all of a sudden".

It's hard to see the problem. Or the solution.

~~~
nhaehnle
There are two possible solutions.

The first solution is to forbid multiple marketplaces for a single virtual
asset. Honestly, the service provided by these marketplaces is very simple,
and could be provided by a non-profit organization that is bound by law to
ensure low barriers to entry. This would be a win for everybody, really.

The second solution is to enforce that markets operate on a synchronized
heartbeat with sealed bid changes. It would work somewhat like this:

T=0: Bids from the last heartbeat are published; market starts accepting bids
for the next heartbeat, but those bids remain sealed T=1: Market stops
accepting bids T=2: Trading engine matches bids, executes orders, and
publishes all bids; market starts accepting bids for the next heartbeat, but
those bids remain sealed (that is, the market is now in the same state as it
was at T=0)

Have one time unit be something like a minute, and force markets trading the
same asset to be sufficiently synchronized.

~~~
Lazare
Well, yes, those are potential solutions. But are they solutions to the
problem we actually have? Indeed, what problem _do_ we have?

Do we, in point of fact, even have a problem that needs solving? The core
complaint is some unnamed institutional trader really wanted to buy a very
large number of shares in one go at a very low price, while other
institutional traders wanted to sell the shares at a higher price. Why are we
meant to care who wins that fight?

~~~
TheOtherHobbes
Yes. We have the problem that the 'financial industry' is running some kind of
insane MMORPG which excludes and abuses most of the population to make a fast
buck.

What markets should do to be efficient is invest in clever, talented people
doing clever, talented things.

Every step back from that is economically inefficient, because it makes it
harder to create a population with deep reserves of wealth and opportunity.

Games like this one are the equivalent of having someone cut in front of you
on the freeway in a semi.

It's not efficient, it's just banal abuse of a system that is supposed to
reward good ideas and filter out bad ones.

------
cbr
Say there are three exchanges, A, B, C, each with 1k shares of Ford on offer
at $20. They are all random numbers of ms away from me, and for simplicity say
A is closest and C is farthest. I send out my order for 3k shares at $20, and
it hits A then B then C. People who are watching A see my request, and try to
make adversarial changes on B and C. They have a low chance of success on B
because it's almost as close to me as A is, but they have a higher chance on C
because it's pretty far from me.

One way to fix this is to delay your orders carefully so that A, B, and C will
all get your order at almost the same time. Now there's not time for someone
who sees your order on A to react and send a message to C that will beat your
message to C.

I believe this is what IEX does:
[http://en.wikipedia.org/wiki/IEX](http://en.wikipedia.org/wiki/IEX)

~~~
harryh
That's not what IEX does. IEX is, to fit within your example merely exchange
A. It can't control whether you delay your order to B or C or not.

What A does do is delay the output. When it receives an order it doesn't
immediately broadcast that information back out, it waits some small (but
relevant) period of time.

------
erpellan
A solution: Discrete double auctions. Instead of continuous trading, the
exchange can divide up the day into a series of small windows (say 100ms).
When you come to trade in the market, you have to wait for the next window to
open. You submit your order and you find out what happened at the end of the
window. This way nobody has any timing advantage and the delay is barely
noticeable to 'normal' traders (waiting 1/5 of a second is hardly an
inconvenience). It also stops all the order-book shenanigans that HFT players
get up to (where they stuff the book with orders and cancel/resubmit them at
high frequency).

So why don't exchanges do this? They make a ton of money in fees, it simply
isn't in their interest to prevent HFT at the moment. Change their incentives
(ie. regulate differently) and they might actually do something about it.

~~~
kasey_junk
Actually there are lots of discrete auctions in the electronic trading world.
For instance the S&P futures contracts trade this way before the open and
depending on your perspective they have more "shenanigans" being played by HFT
players. Not less.

There are 2 major issues that no one brings up when they say "simply add
discrete auctions". A) what happens when there are more participants on 1 side
of a price than on the other, what is the tie breaker after price? B) How does
this solve the distributed systems problem of multiple exchanges trading at
the same time?

------
josephlord
If you offer something for sale at a certain price and someone says "I'll buy
it!" you have a contract at that moment.

I don't fully understand the conditions under which you can cancel an order
but it seems all the cancellations happened on exchanges where no orders had
yet been fulfilled so I assume this means that the order had not yet arrived.
This seems ethically just about OK to me but a sign that there is not one
single stockmarket and that the system could be far better designed.

There is the single front-running trade which is suspicious but it seems
plausible (unless it happens every time) that it was just a small random trade
that happened to coincide with the timing of the big trade. It should be
monitored though.

My conclusions:

1\. There is not one single market with a number of available shares but a
number of linked markets. Send your trade to a single exchange (first at
least) with enough offered shares that it should execute before offers can be
cancelled. Wait, repeat.

2\. Much of the liquidity supposedly offered by HFT is illusory and disappears
if you try to use it.

I think that the market could probably be improved if cancellation weren't
free or at least weren't instant. If cancellations took a second (maybe 100ms
or 10ms would be enough) to process and the offers could still be accepted in
that period the offers made would be more serious and although the spread
might be slightly larger it would more honestly reflect reality.

~~~
bmelton
Plucking from throwaway's example. You have 20,000 copies of a book you just
wrote. You put half of them on Amazon, and the other half on eBay, so Amazon
has 10,000 and ebay has 10,000 of them.

You see an order come in for 5,000 of them on Amazon. You think "Hot dog,
these books are popular. I must be selling them too cheaply!" You immediately
raise the price of all the books by 25 cents to capitalize on this.

The books you sold on Amazon are sold, so they're gone. The remaining books on
Amazon are slightly more expensive.

The guy who bought the books on Amazon also bought the same number of books on
eBay, but the order hadn't arrived there yet, so between when he hit the buy
button and the time the order arrived, the price had changed, so those orders
aren't filled.

~~~
josephlord
Using the analogy of the books you are raising the price in the milliseconds
between the customer clicking buy and packets of that request reaching ebay's
servers and all after the user has seen your price and stock availability a
second ago. I don't think this acceptable business practice, if you have seen
a price and a stock you should be able to place the order and (unless another
order that isn't front running has arrived first to deplete the stock) the
order should be fulfilled even if you show a different price to the next
visitor to the product page.

I can sort of see that but I don't quite understand why there are different
exchanges. I can't see the benefit except to those for whom it is an arbitrage
opportunity.

I would also expect there to be low cost systems by which you could place
simultaneous orders on all exchanges (at the cost of a slight delay in the
order starting to allow them all to be posted at the same time as the furthest
one.

The HFT still seems to add little real liquidity. The spreads that are shown
may be narrower but the real spread seems much higher.

~~~
bmelton
> Using the analogy of the books you are raising the price in the milliseconds
> between the customer clicking buy and packets of that request reaching
> ebay's servers and all after the user has seen your price and stock
> availability a second ago. I don't think this acceptable business practice

Speed shouldn't be the factor for why this isn't acceptable. The seller
doesn't know that there are orders in the queue for the eBay order, they're
just raising the price. That they're doing it quickly is just a matter of
efficiency.

> I can sort of see that but I don't quite understand why there are different
> exchanges.

Yeah. No idea there.

> I would also expect there to be low cost systems by which you could place
> simultaneous orders on all exchanges

There are.

~~~
josephlord
Fair enough speed isn't really the criteria. In the Ebay example Ebay know
what price they showed the customer on the product page when they went to the
checkout and should fulfil it if they can (provided the transaction is
completed in reasonable time - a couple of minutes in the book buying world).
This is maybe an illustration of the problem with the analogy rather than
being a useful insight into the trading system.

~~~
bmelton
I think that the analogy works pretty well, surprisingly. I see no functional
difference between changing the price in near real time as a reaction to
another order on another exchange as I do "Hey, let's wait til midnight",
which might equally screw the guy trying to put his order in at 11:59:59.

That said, I'm not an expert in the field, and I've just pieced this
information from other posts. I have no strong opinion on the matter, but
after throwaway's explanation (and all the subsequent discussion), my
uninformed position agrees with his; that this article is exaggerative, and
not indicative of anything being 'rigged'.

Moving fast, at least in my opinion, isn't cheating.

If they were raising the price on Ebay in response to the same customer's buy
offer on Ebay, I would consider that unseemly, but not even necessarily
unfair, as it only assumes that the buyer is willing to pay the newly raised
price, and has approximately as much risk of losing the sale as making it.

~~~
josephlord
As far as I understand it a contract is made when there is an offer and an
acceptance of that offer. If you are Ebay/Amazon I don't think that you can
show one price and then just happen to change it as the user accepts it. The
price charged should be the one offered. If the product page shows a price and
user puts it in their basket and orders in within a reasonable time (5-10
minutes) the offered price should be honoured even if the price changed in the
5-10 minutes and all customers going to the product page at that point see the
new price.

Note: This is not the behaviour I expect to see of share trading platforms but
it is the way consumer goods sales should behave.

~~~
harryh
With the advent of electronic price labeling in retail stores we will soon
live in a world where the price can change after you've picked up an item of
the shelf and before you check out at the front of the store.

[http://www.marketingmagazine.co.uk/article/1181195/real-
time...](http://www.marketingmagazine.co.uk/article/1181195/real-time-pricing-
coming-store-near)

~~~
josephlord
I don't think that this would be legal in the UK unless on upwards changes the
labels changed a reasonable[0] time before the prices. Unfair Commercial
Practices Directive and probably some other laws would probably cover it.

[0] A small shop could probably do it much quicker than a large supermarket
which might have to allow for people being in there for an hour.

~~~
harryh
Ya, I'm sure there will be tricky regulatory issues here both in the UK and
elsewhere. I'm just pointing it out as I find it interesting.

------
throwaway283719
What is happening here is really quite simple, and doesn't deserve an entire
blog post.

There are two exchanges, A and B, and a market maker Jill is quoting (say)
10,000 shares on each of those two exchanges for $17.

Big institutional trader Jack sees the 20,000 shares and decides that he wants
to buy 15,000 of them, so he sends two orders for 7,500 shares each to A and
B. Because of various effects (network latencies, routing switching delays,
whatever) his order arrives at exchange A first, and is immediately filled at
$17.

Jill, who has her computer co-located at exchange A, sees that she has sold
7,500 shares for $17, and realizes that there is demand for shares. Because of
this demand, she decides to raise her prices. She immediately cancels her
remaining 2500 shares on exchange A and replaces them with 10,000 shares at
$17.05 and sends an instruction to do the same thing at exchange B.

Because Jill has fast computers and low-latency connections, her cancellation
arrives at exchange B before Jack's buy order, so Jack is told that there are
no longer shares available on exchange B at $17.

RESULT: Jack is filled for 7500 shares at $17 (half of what he requested) and
the new market best offer is $17.05. Jack is welcome to submit another order
for $17.05 if he wants to buy at that price. Jill is now short 7500 shares at
$17, and will try to buy them back at a lower price (she may or may not
succeed - until she does, she is exposed to the risk of further price rises).

Jill was able to use her speed advantage to detect that there was additional
demand to buy this stock, and raise the price at which she was willing to sell
it before Jack had finished buying all that he wanted to. This is _exactly_
the way that an efficient market is supposed to work - it reacts to
fluctuating demand (and other information) to set appropriate prices.

I think there are several things that get glossed over while people are
working themselves up about this -

1\. Jack is upset because he couldn't buy 15,000 shares at the price he wanted
to buy them. But Jack has no god-given right to be able to buy shares at the
price he likes best. He is subject to the laws of the market, just like
everyone else.

2\. The _only_ reason that Jill has a speed advantage over Jack is because she
has paid for it! She has paid to co-locate her server at the exchange, and she
has paid to use high-speed connections between exchanges. Are we going to
declare that paying for a competitive advantage is suddenly immoral?

3\. If Jack doesn't like this state of affairs, he has several options. He can
invest in high-speed infrastructure as well. He can use smarter order-routing
logic (e.g. adding delays to his orders so that they arrive at the exchanges
approximately simultaneously, or splitting his large order up into multiple
smaller orders). Or he can use a broker who will do these things for him. If
Jack doesn't want to pay for any of these things, then he has to put up with
lower quality execution. As much as he might wish it, the ability to buy as
many shares as he wants at the price he wants them is not a universal human
right.

~~~
noxn
"Fresh Apples here! Only the best apples for 2 dollars!" \- "I would like one,
please." \- "Thatll be 2.50, sir." \- "What? I thought you just said 2?" \-
"Demand has just gone up."

~~~
throwaway283719
I'm glad you brought this up, because this kind of thing happens _precisely
never_ on a financial exchange.

If you go to a store, the store owner sees you take your apples up to the
counter, and so he can theoretically change his price before you get there
(although in practice, if he ever did that he would soon be out of business).

On a financial exchange, the market maker doesn't even find out that you
wanted to buy _until the trade has already happened_. It is literally
impossible for the market maker to change his price, because he doesn't find
out about your order until it's already occurred.

What is possible is that the market maker is also quoting on _another, totally
separate_ exchange, and he decides to change his prices there, in reaction to
seeing a big order on the first exchange.

It's like an apple seller who owns two carts in different parts of town. When
you come to his first cart and buy all his apples for $2, he guesses that
maybe you are going to go over to his second cart and buy all the apples there
as well, so he calls his business partner who's running that cart, and tells
him to raise his prices to $2.50 - which makes perfect sense as a business
strategy, because demand _has_ gone up.

Note that he only raised his prices because you bought _all_ the apples at his
first cart. If you just bought one apple out of the hundreds he has (because
you're a small investor, not a giant investment bank) then he wouldn't bother
to raise his prices.

~~~
noxn
I accept that your explanation makes sense, but the fact that this can happen
automagically in an intransparent way when someone just wants to buy a number
of shares at a quoted price just feels wrong. And reading a few other articles
on Nanex also give me weird image of what happens in stocks in general.

Then again, I have no idea about these things and should probably shut up.

~~~
throwaway283719
Just remember that when you say

    
    
      "someone wants to buy a number of shares at a quoted price"
    

what you really mean is

    
    
      "a giant investment bank or hedge fund with some privileged
       information about a stock wants to buy so many shares that
       they actually need to go to multiple exchanges to satisfy 
       their demand"
    

and you'll be all set ;)

------
throwaway161803
This article establishes that two things often happen shortly after you place
an order to buy shares: 1) Another trader places a similar order on another
exchange. 2) A large number of outstanding sell orders are cancelled.

It's not clear to me that either of these are Bad Things, deontologically
speaking. [I don't recall Jesus mentioning them.]

The key question is consequentialist: Are there regulatory changes which would
improve the lot of the average investor, investing through, say, an index
tracker or pension fund? For each potential change, one ought see how it fares
w.r.t. this standard, considering, to the extent that it is possible, the
induced second-order effects.

Talk of theft, rigging, fairness (you don't owe people like me anything),
stolen goods and frontrunning is only useful to the extent that it helps us
converge on an answer to this question. These words are tools that we have
developed for analysing more familiar situations, where they correspond to
actions which are clearly harmful.

Most changes proposed here either lose market efficiency directly (trade
buffering / increased tick sizes) or just give us new games to play (if the
market clears once a second, we will get our orders in last), potentially
resulting in a less direct loss. The question remains.

------
thingylab
I don't see how this proves the market is rigged. What I do see is: 1) One
market participant is being less than clever by trying to buy, in one order,
80% of the offered quantity, and 2) Another market participant realizes this,
and reacts accordingly.

The post is written as if the world should freeze once the client sends an
order. He was 'stolen' shares. Really?

------
vampirechicken
As a non-trader, my question is:

Were the 24k shares being offered by one seller/broker, as in "I have 24k
shares to sell at 17" or was the 24k just an aggregation of the availability
all the smaller offers?

If the former, it seem to me that the seller is cheating, if it is the latter
then I can see how the HFT systems would raise the price in response to a
sale, but I also see how frustrating that is to the buyer.

I wonder why these trades are not being performed in parallel across the
various exchanges, partially preventing this kind of arbitrage?

~~~
growse
> Were the 24k shares being offered by one seller/broker, as in "I have 24k
> shares to sell at 17" or was the 24k just an aggregation of the availability
> all the smaller offers?

The shares were being quoted on different exchanges, at the same ask price.
24k was the cumulative volume that the buyer wanted, but that couldn't be
fulfilled by a single exchange (the quote was for a smaller volume at that
price). Therefore, to buy 24k shares, the buyer needs to trade twice, once at
each exchange.

> I wonder why these trades are not being performed in parallel across the
> various exchanges, partially preventing this kind of arbitrage?

As has been pointed out, this is what a good broker will do - they will
compensate for latency to make sure that bids arrive at differing venues at
the same time to prevent the market shifting underneath them. A naïve broker
will simply send out the bids at the same, and latency means that they arrive
at different exchanges at different times. This lets the sellers at the more
distant exchange move the market in response to the information of the trade
being executed at the closer exchange.

------
willvarfar
All exchanges should have synced clocks and all messages should have a
timestamp up to 2 seconds in the future when they will be published by each
exchange. The buffering would be internal to each exchange and not shared with
anybody. You can only cancel after what you are cancelling is published. This
would allow everyone to make all exchanges publish at once so people with fast
cable between exchanges can't beat out those that don't.

~~~
ripb
>This would allow everyone to make all exchanges publish at once so people
with fast cable between exchanges can't beat out those that don't.

Why is one actor paying for an advantage that is available to anyone who
should desire it, and have the means to pay for it, an issue?

------
DevX101
Can someone explain what's happening with the order cancellations? What causes
it? Who is the party that is canceling orders?

~~~
Lazare
"Holy shit, someone is working there way through every broker, buying ever
share of Ford stock they have! ...huh, I've got some Ford stock for sale.
Maybe if I quickly pull it out of the shop window, and change the price, I can
make some extra cash!"

That's what it is: People are seeing the orders pour through the various
exchanges, and are reacting to it. If they were seeing the orders _before_
they hit the exchanges, that would be front running, and it would be illegal.
But Nanex appears to be showing people responding to orders after they hit the
exchanges, and that would seem to be legal and moral.

The moral is that if you want to buy so much of a single stock that you can't
even buy it all from a single exchange, you MAY end up paying a bit of a
premium, unless you're quite good at hiding what you're doing. And in this
example, the purchaser was not. It's a story as old as markets.

~~~
nhaehnle
The question, from a society-design point of view, is whether it is useful to
have a whole class of people who engage in what is ultimately a zero-sum game
and therefore an arms race, and whether it wouldn't be better to design
markets in such a way that a large buy order can be placed _without_ having to
be an expert at HFT.

After all, the market is supposed to be useful for organizing _long-term_
investments. The short-term stuff is pretty far removed from the progress of
society.

~~~
zelos
That's what I've always thought as well. We have large numbers of very
intelligent people dedicating all their efforts to playing games with the
values of real companies. It seems like a massive waste of talent IMHO.

~~~
30thElement
Is this comment real? You made this comment on a site that most people use to
waste time, and where one of the top posts is an Assembly implementation of
Flappy Bird.

Fun fact: HFT has an annual revenue ~1/50th[1][2] of Google's. What's worse: a
few hundred people wasting their time moving prices of select stocks a few
pennies, or several thousand wasting their time collecting scary amounts of
data about you to try and get you to click an ad?

[1][http://en.wikipedia.org/wiki/High-
frequency_trading#Market_s...](http://en.wikipedia.org/wiki/High-
frequency_trading#Market_share)

[2][http://en.wikipedia.org/wiki/Google](http://en.wikipedia.org/wiki/Google)

------
bakhy
An interesting contradiction appears here. On one hand, this increases market
efficiency, or so we're told. On the other, we are also told that if a big
pension fund wants to avoid being played like this, they should spend money on
their own HFT equipment.

It seems there is only one clear winner here - the IT people making money off
developing HFT systems.

~~~
harryh
Here's the chief executive of Vanguard (one of the largest investment
management companies in the world) discussing how HFT has dramatically lowered
their trading costs:

[http://www.ft.com/intl/cms/s/0/ff8c6486-cb37-11e3-ba95-00144...](http://www.ft.com/intl/cms/s/0/ff8c6486-cb37-11e3-ba95-00144feabdc0.html#axzz37dq3BD3q)

Spreads used to be a quarter, and now they're a penny! That's a huge deal!

------
mschuster91
Doesn't surprise me the least bit. Where there is something available to
exploit (in this case, access to direct, fast feeds), it will be exploited.

Would it be possible, legally and technically, to put a special additional
fee/tax onto high-frequency trading while leaving normal high-volume traders
alone?

~~~
noonespecial
Go to the router just entering the exchange, type:

    
    
      tc qdisc change dev eth0 root netem delay 100ms 10ms
    

Problem solved.

~~~
DevX101
what does this do? (non-finance guy here)

~~~
noonespecial
Its a bit of a joke. Its a network thing, not a finance thing. What it does is
adds a delay and more importantly, a bit more _random_ delay to the time it
takes the order to reach the exchanges server. Once you add in the non-
determinism, HFT basically falls apart because you can't take your truckload
of cash and buy yourself a place in a datacenter that's 2ms closer to the
exchange and front-run everyone.

It would be a wonderful thing to see all of those millions these guys have
"invested" shaving a millisecond or two off their transaction times laid waste
by a single command.

~~~
dzderic
This "solution" will only make it harder for regular folks to execute orders,
since HFTs will beat the randomness by shooting multiple orders through
multiple order gateways.

~~~
noonespecial
Guess we'll need a hierarchical token bucket with stochastic fairness queueing
as well.

We don't just need it to be random. We need there to be no way of ever quite
knowing if any given order will beat another order to the exchange (within a
given time period, of course). They won't know if they can beat joe ordinary,
and they definitely won't know if they can beat the other HFT's. That might be
enough to put a lid on it.

Edit: For those playing along, here's the metaphor. Joe goes to market to buy
sheep. Bill knows Joe is going so he sends a fast runner ahead of him to buy
the cheapest sheep in town first so he can mark them up and sell them to Joe
when he arrives. We try making everyone wait at the town gate for a random
amount of time to give Joe a chance to arrive and get through. So Bill (being
very rich) just sends 10 guys so one is very likely to be let in before Joe
anyway. Next we introduce the stochastic filter. We make everyone line up and
then shuffle the order every once in a while, but Bill still has more guys so
he might still get one in first more often than not. Finally, we add the token
bucket. For every one guy that we know employed by Bill admitted, we make the
next one wait twice as long to get in, so if Joe and 10 Bills show up, Joe and
the first Bill are essentially on even footing again because the 2nd through
10th Bill would have to wait too long to matter.

~~~
gd1
"For those playing along, here's the metaphor. Joe goes to market to buy
sheep. Bill knows Joe is going so he sends a fast runner ahead of him to buy
the... "

Seriously, how many times have we discussed this issue on this site and we
still get this bullshit. Bill doesn't know Joe is going. He doesn't. Get it
through your thick heads.

~~~
mrow84
Somewhat farcically perpetuating the metaphor, is it not the case that Bill
gets to know that Joe is interested in buying sheep once Joe has bought a few
of them? And at that point Bill can outrun Joe and make money from his (very
near) future purchases?

That was my reading of the article - it seems that either there is a flow of
information from the trading events to the fast traders, or the scenario
portrayed in the article was very unlikely (though I guess that couldn't be
ruled out given how much trading there is). noonespecial's metaphor seems to
apply, what have I misunderstood?

~~~
twoodfin
_Somewhat farcically perpetuating the metaphor, is it not the case that Bill
gets to know that Joe is interested in buying sheep once Joe has bought a few
of them?_

He doesn't _know_ with certainty. He can guess that's what Joe is doing, but
he could be wrong and be stuck with sheep that he can't sell for the price he
intends to ask. Every second he owns sheep is a second he's taking a risk that
they'll go down in price, not up.

~~~
mrow84
Yes, that makes sense. From what I understood of the article, and it really
isn't my area so maybe I got something wrong, a buy order was not filled
completely even though there were sell orders available to fill it. Doesn't
that mean that people cancelled their orders whilst the buy was being filled,
meaning that they must have been able to execute market actions out of order?
That would put people who can act quickly at a big advantage on getting the
price they wanted, because they can cancel and re-bid at a higher price. Sure
it's a gamble, but it seems like one with little to lose.

I've probably misunderstood something, but it certainly seems to be an issue
that gets people very exercised. I presume there must be some competitive
advantage in being fast, otherwise people wouldn't do it, so surely the only
real issue is whether or not the consequence of exercising that advantage is
socially advantageous?

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waltherg
Just in case anyone has time to help me out:

What's the difference between trades and quotes here in this chart? And how
are the trader's order and purchases indicated?

~~~
sklivvz1971
A quote is a statement that someone is offering to buy or sell a specific
quantity of shares/commodities at a specific price: "I want to sell 10g of
gold at 40$ each". Typically the identity of the trader is known only to the
exchange (and the trader )

A trade is an announcement that an offer was accepted and a contract was
agreed on. "10g of gold have been sold at 40$ each". The identity of the
traders is typically known only by the exchange, and each of the trader knows
they are part of it, but don't know the counterparty.

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th3iedkid
what is market-pricing without arbitrage?

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data_scientist
This is the bad part of HFT, the one that is theft and destroy value. It is
paid by the big players, and "solved" by imperfect solution like dark pools. A
better solution could be to add a hour component to the order, so all commands
from an actor in all markets are executed at the exact same time.

This rotted apple should not hide the good part of HFT, which is to reduce
spread and inconsistencies between markets and to generate profits from this
(positive) action. HFT took the place of traders, who were paid a lot for
doing that stupid task.

