
HFT in My Backyard - cheatdeath
http://sniperinmahwah.wordpress.com/2014/09/22/hft-in-my-backyard-part-i/
======
akavel
Nicely written piece; to give some taste of the article contents:

 _" Height, then, played an important part in facilitating that speed. A
trader’s physical height became an advantage, which is part of the reason some
traders were former basketball or football players – “taller traders were
easier to see”. In the 1990s, some traders wore high heels in the pits to
trade faster, and inevitably experienced injuries due to lack of balance. This
prompted the Chicago Mercantile Exchange (CME) to impose a ruling making the
maximum size of platform heels two inches in November 2000."_

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chollida1
There is just so much competition in the HFT space. Its starting to clear out
though.

[http://www.businessweek.com/articles/2013-06-06/how-the-
robo...](http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-
high-frequency-tradings-rise-and-fall)

I think in the next 5 years we'll be down to a handful of true Ultra low
latency, high frequency traders and they'll probably be the ones you know,
TradeBot, Getco, Citadel, etc.

I think I'm very fortunate not to have to compete in that space, it allows us
to concentrate more on the algorithms than the execution.

It's very hard to get started in it anymore. I work for a decent sized firm
and we can get laughed out of meetings when we ask about some of the more
desirable fiber routes. I can't imagine what it would take to get any
microwave spectrum space:)

The incumbents have the spectrum and fibre locked down and the bigger players
like Citadel pay the retail brokers for their retail flow so they can trade
against the "dumb" money before anyone else. I've heard that most Canadian
banks sell their flow to a big US fund that has a chance to trade against it
before it reaches the market.

If the CN tower was available for renting out microwave signals I'm sure
someone would have rented out the entire spectrum and held it for themselves.
Its in a very good location for Inter-listed arbitrage between Toronto and
Chicago and Toronto and New York:)

This is a good article about the cutthroat business of being in the HFT space
and the one I think the post was talking about.

> "There are rumors in the industry that people have bought tower space or
> have bought frequencies that they don’t use,” Cumberland said. “We call it
> ‘frequency squatting’ or ‘tower squatting."

> "Traders need multiple towers because signals run the risk of breaking up
> beyond 100 kilometers (62 miles). Controlling a single tower wouldn’t
> benefit a trader unless the goal was to force rivals to go around it by
> using a slower, less direct route, or hoarding the frequencies that
> companies rely on to transmit financial data, said Colt’s Cumberland."

 __Meta note __, if anyone wants to talk trading algos or technology feel free
to reach out, email in my profile.

~~~
HockeyPlayer
I run a ~15 person prop group in Denver and we have access to the fastest
connections on the routes we care about.

Paying a retail broker for flow is distasteful to me, I'd rather compete in
the marketplace for edge.

~~~
cynicalkane
Why is that distateful? My impression is selling flow is the only way for
retail brokers to keep competitive prices while complying with SEC rules.
Instead of executing orders themselves according to the rules, they sell the
order then price it to the customer as if it had been executed by the rules.
I've never worked in equities so correct me if I'm wrong.

~~~
HockeyPlayer
My concern is that the investor doesn't understand what is happening. Someone
goes out to hit a bid, but actually a prop group has paid to see their
intention before it goes to the market, and can choose to participate or not.

But I'm a futures guy, so my understanding of payment for flow is minimal.

------
lpage
The race to zero (or more accurately c) on the networking front is seeing
significant action, largely because it's the "lowest hanging fruit." Network
latency is six to eight orders of magnitude higher than processing latency in
most case. By Amdahl's Law, it's a very good system to optimize. This is
especially true for places like Korea, and for the US where there's
significant geographic distance between futures and equities.

Microwave is an "early adopter" technology that will soon be replaced with
superior ones. The first microwave network was slated to cost 15M/yr at the
time of its launch in 2012. However, competition dropped that number to around
2M by launch time, and within six months it was < 250K. Mind you, everyone was
locked into a 1-2yr contract at the higher price points. For the U.S.
Tradeworx (aka Thesys) is one of the fastest "publicly" available networks so
they're commanding a premium at $250K, but microwave is now available for less
than 80K a mere two years after launch. Same story for Spread - seven figures
and a two year commitment at the time of launch, down to 15-60K.

On days with snow, rain, or wind kicking up pollen/dust, packets are dropped
at comical rates. Dropping a packet is more expensive latency wise than
sending it over Spread, and if the weather is bad enough, you're not getting
anything through at all, which leads to dual Spread/microwave deployments.
Spread knows this which is why the introduction of microwave didn't
dramatically drop the price of Spread.

Bandwidth wise you used to get about 1.5Mbps over a shared link. That number
is better now, but not substantially. Even with no loss there's barely enough
bandwidth to carry L1 price updates on a single active market data symbol, so
market data on the whole is a no go. From what I can tell most people have
gone the route of transmitting many types of data over both fiber and
microwave while leaving the responsibility of deduping to the receiver.

There's not much coverage on it but we'll see some interesting things on the
fiber front soon. Photonic-crystal fiber is getting cheaper and we'll continue
to see interesting advances on the hollow-core photonic-bandgap front in
general [1]. These technologies can theoretically get very close to the speed
of light (.997c) with extremely high bandwidth and low attenuation (repeaters
in either fiber or microwave networks add significant latency) at which point
the race to zero will stair step down again.

[http://www.nature.com/nphoton/journal/v7/n4/full/nphoton.201...](http://www.nature.com/nphoton/journal/v7/n4/full/nphoton.2013.45.html)

~~~
andyjohnson0
_" The race to zero (or more accurately c)"_

Some interesting speculation on using Neutrino-based messaging to eliminate
the latency caused by the Earth's curvature [1].

[1]
[http://www.forbes.com/sites/brucedorminey/2012/04/30/neutrin...](http://www.forbes.com/sites/brucedorminey/2012/04/30/neutrinos-
to-give-high-frequency-traders-the-millisecond-edge/)

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cyphunk
what protects a HFT microwave line from a targeted (perhaps even legal) attack
of drones that get between line of site? or is the wave length larger than
this?

~~~
Maxious
There are easier ways to annoy HFT: "Every day for up to ten minutes near the
London Stock Exchange, someone blocks signals from the global positioning
system (GPS) network of satellites ... timestamps on trades made in financial
institutions can be affected. "
[http://www.economist.com/news/international/21582288-satelli...](http://www.economist.com/news/international/21582288-satellite-
positioning-data-are-vitalbut-signal-surprisingly-easy-disrupt-out)

~~~
minimax
Throwing off the exchange generated timestamps doesn't mess with any HFTs. The
exchanges themselves don't synchronize against one another so the timestamps
are basically useless to begin with.

~~~
kasey_junk
If you are timestamping in a data center and they throw off the timestamp
source for the entire data center that could theoretically cause you issues.

~~~
easytiger
Anyone serious will have their own oscillator with enough Holdover to get them
to sort the problem out.

~~~
kasey_junk
I think it is outlandish to suggest, but in theory you could time a GPS attack
long enough and timestamping requirements tight enough to make the drift a
problem.

I can't think of a single real use case for that level of timestamping
accuracy nor a reason you would want to mess with it. But you could.

~~~
easytiger
PLenty of things need that level of accuracy.

But it isn't just about the accuracy it is about the immediate degrees of
drift that can occur. With GPS time disciplining removed a crap OCXO (and
there are plenty) will wander off back and forth in mad errant degrees. With
this used to discipline dozens of other hosts results are not always pleasant.

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mxfh
So it seems inevitable that we'll get gravity trains some time soon as a HFT
side product?

[http://www.uh.edu/engines/epi2703.htm](http://www.uh.edu/engines/epi2703.htm)

~~~
k2enemy
Or for burrito delivery: [http://idlewords.com/2007/04/the_alameda-
weehawken_burrito_t...](http://idlewords.com/2007/04/the_alameda-
weehawken_burrito_tunnel.htm)

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CmonDev
I hope one day speed of trade execution will depend on beating cancer. Those
guys will solve it in a month.

~~~
auntienomen
Are you yourself working on a cure for cancer?

~~~
makeset
I was. HFT is an interesting and rich problem on its own, but its complexity
and difficulty pale in comparison to cancer research.

And I don't get this "our brightest minds wasted on HFT/adclicks/etc"
argument. Research positions at universities and labs are extremely
competitive. There are hordes of brilliant people beating down the door to
work on the problems that matter. The bottleneck is funding. A smart person
who chooses to work in a higher-paying field and contributes enough
financially may well have a larger impact on overall scientific progress than
doing research in person.

~~~
shurane
I've never thought of that. But it sure feels liek there are a ridiculous
number of positions in HFT/adclicks/etc compared to research in hospitals.
Certainly, there is less respect attached to earning money than 'making a
difference' in medical research, yes?

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markvdb
An important part of the Rothschild family fortune was apparently made in a
similar way around Napoleon's Waterloo defeat, using an optical precursor of
the telegraph networks. [http://www.lowtechmagazine.com/2007/12/email-in-
the-18.html](http://www.lowtechmagazine.com/2007/12/email-in-the-18.html)

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anemitz
Does anyone have insight into the go-to hardware used for these microwave
links? I'm curious what vendors are pushing the limits in this space.

~~~
t3f
Along the lines of your question, the guys at escapecom also wrote a white
paper [1] that covers the high level technical details, and talk through the
Chicago to Jersey problem from the OP. They do also sell such gear, so there
may be some bias and salesmanship in there as well, but it was a good read.

[1]
[http://www.escapecom.com/pdf/low_latency_white_paper.pdf](http://www.escapecom.com/pdf/low_latency_white_paper.pdf)

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NicoJuicy
Okay, i just want to say...

I live like 10 km's from Veurne (what are the odds that is ontopic... I can
rarely even mention Belgium :P)

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hammock
Could these microwave transceivers be used to communicate while avoiding state
surveillance? Insider trading, terrorism, etc

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moreentropy
I don't see how HFT does any good for anyone. It adds no real value, and
serves no purpose except to shift money from someone else's pockets, not by
clever investment and market knowledge but pure technical advantage.

It's a lot like BitCoin, it turns some expensive resource (be it CPU/GPU power
or optimized data links) into money, but it doesn't help with
earning/generating the money in the first place, so it just extracts it from
someone else.

It's a scam and should be banned worldwide. I don't know anything about
trading, but I guess by making very small changes (make people hold stock for
a few seconds?) you could render the whole HFT industry useless without any
negative effects to the real economy.

~~~
vasilipupkin
if you make people hold stock for a few seconds, you will increase bid/ask
spreads and that extra cost will be imposed on the real economy. The cutthroat
technical competition in HFT space serves the real economy by having HFT firms
spend lots of money on technology, fast computers, etc.

~~~
jal278
Perhaps spreads will increase -- but that 'extra cost' seems pretty trivial:
Stock trading worked just fine when those spreads were larger. The average
citizen isn't reaping the benefits of lower spreads, perhaps financial firms
are, perhaps corporations are?

I'd say the larger disservice of HFT is funneling resources away from anything
with real concrete meaning into this strange invented money-shuffling game in
the financial world. A big drain on the potential of society's best and
brightest is that many are drawn to chase money in silicon valley or in the
financial world. And both options often serve to create a sort of
technological bubble in which the idea of increasing 'real human value' can be
lost.

~~~
icebraining
If the best and brightest are working on it, what makes you more competent to
judge that they shouldn't?

~~~
rasz_pl
best and brightest worked on atom bomb

~~~
cellis
The invention of the atomic bomb has stopped superpowers armed to the teeth
with conventional weapons from fighting each other in massive land wars every
10-20 years.

------
spacefight
Having read 'Flash Boys' by Michael Lewis, this post seems like the logical
followup after someone discovered the first microwave tower at the end of the
book.

Didn't know that the same scam is running in Europe...

~~~
Bootvis
How is microwave dish based communication a 'scam'?

~~~
spacefight
The scam is what you use the microwave communication for. If you have access
to fast lines or even faster radio comms means, that you can rig the market
more efficiently.

It's called front running.

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

~~~
Bootvis
Being faster is rigging the market? How does that work?

Also, it isn't called front running, at least not legally. It can't be, HFT
don't have any customers. Maybe Michael Lewis has a different definition of
front running but for the rest of us: words have a meaning.

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

~~~
spacefight
HFT might not have direct customers per se, but if an order matches, they have
a counterpart on each trade they make. If you have an unfair advantage for
that trade, what would you call that system? Rigged? That's what the big
players in the HFT field are doing by using the various tools available (near-
location, co-location, fast networks, fast custom hardware and lately
microwave networks).

On the term, you're right - front running might not have been the correct
therm.

~~~
wdewind
> Rigged? That's what the big players in the HFT field are doing by using the
> various tools available (near-location, co-location, fast networks, fast
> custom hardware and lately microwave networks).

I can't personally afford to have a Bloomberg feed in my living room to trade
off of. Why is this any different?

~~~
spacefight
Neither can I. Do you feel having the same fair market access without the BB
terminal at your disposal?

~~~
tptacek
Does it upset you when you go to buy a car to think that Avis can buy that car
at a gigantic discount because they buy in bulk?

~~~
ldng
But it does if I have to buy it at higher price just because Avis knew a that
I and a few fellows where to buy the car 2 min in advance because he saw us
asking about that car, bought the available stock of car we were interested in
to the car dealer, propose them at a slight premium to the the car dealer who
then finally sell it to me and my fellow 1 minute later at another premium
because, you know, it has to make its own margin. The whole thing happening
just under my nose.

That's how I (unobjectively I concede) feel about HFT.

~~~
tptacek
Ok, now let's take that thought experiment and make it closer to the real
world:

Imagine that Avis is buying cars in bulk and getting better deals as a result,
and then imagine that the knock-on effect of them doing that is that _you get
better deals on cars_ because of how they change the way the car market works.

Car dealerships are, for obvious reasons, really fucking upset about this. And
they are noisy and well-funded. Normal people start getting angry at the giant
rental car companies and the unfair advantage they get, unaware of the fact
that without those companies, they'd be getting screwed even worse by the
dealerships.

That's what HFT does to normal investors. You don't have to take my word for
it; the Chief Investment Officer at Vanguard, among many other people, has
said exactly this.

