

Market Data Sources for US Trading Venues - chollida1
http://www.nanex.net/aqck2/4666.html

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chollida1
I submitted this as a follow up to this post:

[https://news.ycombinator.com/item?id=9638748](https://news.ycombinator.com/item?id=9638748)

I think this, more than any other source, illustrates what is meant by latency
arbitrage, or "what HFT firms do".

Long story short, In the chart, the red and black squares are "fast", while
the blue squares are "slow".

When a trade happens on an exchange there is an opportunity for HFT firms to
look for mispricings on the exchanges with blue squares due to the HFT firm
knowing what happened even before the blue squared exchange does.

The reason the HFT firms have advance knowledge is that they build their own
networks consisting of microwave or fibre lines that are faster than the
SIP(blue square pricing source).

it's not always there and its certainly the type of trade that quickly
converges into a winner take all event, but this is latency arbitrage in a
nutshell.

What the diagram is missing is the 40 dark pools in the US, almost all of
which use the SIP to some degree, which only exacerbates the problem.

TL/DR distributed systems are tough, even more so when the people controlling
the money have a vested interest in making it so.

