7 ms·

Apple and the risks of trading 29,000 times per second

76 points by processing 14y ago

pnathan 14y ago
I'm sorry, but this reads like some sort of PR hit job vs. BATS.
- ceejayoz 14y ago
  Given their self-inflicted disastrous launch, I don't think anyone needs to pay for a PR hit job against them.
tedunangst 14y ago
"In 2011, BATS accounted for more than one in 10 U.S. stock trades, processing an average of 29,000 trades per second. Against that kind of computer power, retail investors don't stand a chance." Correct me if I'm wrong, but isn't BATS an exchange? Why are retail investors "competing" against the exchange? Is the solution some sort of paper and pencil exchange? Or maybe we can go back to jumping up and down and flapping our arms? "Why, these investors ask, do false prints and fat finger trades always happen on the downside" Because anybody with money can take advantage of it. On the upside, only people holding the stock can do so (unless you short the stock, but I've never tried nano timeframe shorting.)
- fleitz 14y ago
  Retail 'investors' shouldn't have any issue with BATS if anything BATS provides liquidity, however retail 'traders' stand no chance because the computer is far better at technical analysis and pattern matching than the average trader. Retail traders never really stood a chance against institutions because retail trades the market rather than creating it like institutions do. eg. A retailer can't execute a short squeeze but an institution can.
  - ahi 14y ago
    No one needs 29,000 trades a second liquidity. HFT serves no market making function. It is a drag on market operations and confidence.
    - cube13 14y ago
      No trader is doing 29,000 trades a second. BATS is an exchange like NASDAQ. They're facilitating and executing trades for their clients. NASDAQ handled 70k per second in 2008, and could handle almost 4 times that load(http://www.forbes.com/forbes/2009/0112/056.html http://www.forbes.com/forbes/2009/0112/056.html). HFT has nothing to do with this.
- retube 14y ago
  You're correct. It just means BATS is processing a lot of orders. I'm guessing LIFFE, LSE etc process far more. The articles conclusion is comepletey erreneous - this has nothing to do with HFT. Edit: And wrt to retail investors "competing" agianst HFT - they're not. A retail investor is not interested in expoiting very short-lived pricing discrepancies between different contracts (or perhaps the same/equivalent contracts that trade on multiple exchanges). A retail investor is just that - an _investor_ - who holds the stock.
fletchowns 14y ago
How is making 29,000 trades per second good for the market? It seems like trading at that frequency should be illegal.
- tedunangst 14y ago
  I believe that number is all trades by all participants.
- fleitz 14y ago
  Why should trading at that frequency be illegal? What is the optimal amount of trades per second one should be making? Once per second? Once per minute? Once per year? Even if there were such a number how could any bureaucrat ever arrive at the optimal frequency any particular market participant should be trading at?
  - ars 14y ago
    Just add a sales tax on stock.
    - anonymoushn 14y ago
      You'll just make the spread larger by the amount of the tax. Why is this a good thing?
      - EvilTerran 14y ago
        While it would make the spread larger, I disagree with your use of the word "just". It would have many other effects as well - for one thing, it'd make trades on small shifts in value (ie less than twice the sales tax) unprofitable. That would make HFT much less attractive at the ridiculous frequencies it happens currently, as you'd need to hold on to stock for longer for it to shift enough for the gross gain to exceed the sales tax. I suspect that's the effect ars had in mind. Also, you could always put the tax into a kitty for bailing out the financial institutions who're engaging in this lark the next time they mess it up ;)
brisance 14y ago
Marvin8 on that site had a great comment. Here it is: What I'd like to know is what happens to customers who have resting orders near those "fat-finger" trades. If a customer had a sell stop-loss at $583, did he get stopped out of the market at that price or near $582? I'll bet he did. If another customer had a buy order in at $583, did he get filled on the way down? I'll bet he didn't. The broker wil ALWAYS come up with a bs excuse as to why a customer got a bad fill and never gets a good one. It's the way the industry works. That's why folks are complete suckers to get involved. The industry makes BILLION$ screwing its customers.
- tedunangst 14y ago
  The guy who sold at 582 had to sell to somebody, so the buyer at 583 got his order too. That's why they're called trades. There's somebody on both sides.
  - brisance 14y ago
    That's the theory. In practice we know that's not necessarily true. e.g. stop-loss order and the stock gaps down. Did the stop-loss order execute? No, it may have executed as a market order. And that's the point he was trying to make. He's saying that the broker can create any suitable excuse to fit the situation. With HFT it may not even be an excuse and could very well reflect the reality of the situation i.e. the price has moved too quickly for the exchange to keep up.
    - tedunangst 14y ago
      If the claim is that a sell at 582 executed and a buy at 583 did not execute, I want to see evidence. I see variations on this claim with a frequency approaching high, always by a random internet commenter "betting" on some hypothetical. the price has moved too quickly for the exchange to keep up. What does that even mean?
      - brisance 14y ago
        Edit: added link to show that orders don't necessarily get filled according to time priority ("an order clearly arrived later than ours with the same limit price, yet it was filled and we were not.") It's only hypothetical until it happens to you. Refer to the fleitz's comment about short squeeze. That's an example of orders that don't get filled. In theory the broker is supposed to borrow shares to allow the trader to sell them short. What happens if the broker flouts securities law and does not follow the rules? http://www.nytimes.com/2012/03/26/business/goldman-sachs-denies-claims-it-led-to-copper-rivers-demise.html?_r=1&hpw=&pagewanted=all http://www.nytimes.com/2012/03/26/business/goldman-sachs-den... BTW, non-HFT'ers get consolidated market feeds which have higher latency than raw feeds that HFT'ers use. That's what a major part of the HFT debate is about. http://www.hftreview.com/pg/blog/mike/read/5317/hft-and-latency-arbitrage http://www.hftreview.com/pg/blog/mike/read/5317/hft-and-late... http://www.tradeworx.com/TWX-SEC-2010.pdf http://www.tradeworx.com/TWX-SEC-2010.pdf [PDF] (refer to page 17, 18)
guelo 14y ago
I've been trying to figure out how to keep my money as far away from Wall Street goons as possible. The hit on Goldman Sachs' reputation from a couple weeks ago is the latest signal that Wall Street's job is to steal customers' money, stay away. The loss in confidence will eventually get them, though that will probably just mean they get another bailout.
- crististm 14y ago
  I just like how they invent lingo to cover up their screw-ups. False print? Come on - Now if I want to describe the problem there is a name for it. And they made sure to mention it three times + one in the photo so I will remember it.
  - bloat 14y ago
    Right... because we don't have any jargon in the tech industry.
    - crististm 14y ago
      The jargon is for the insiders to speed up their communication. Using the jargon with the outsiders is just short for BS.
  - tezza 14y ago
    Easy, "false print" comes from the days of ticker-tape Ticker tape would literally be a paper tape. Trade info like last trade prices/qty would be sent over a telegraph link to be printed on the paper tape. That's where the Print comes from. The False bit is some error along the way means the print you got should be discarded. Historical reasons were operator error, dead rats on wires, cosmic rays etc
jrabone 14y ago
My fear as a pessimistic engineer is that unless there is more regulation of HFT, sooner or later someone big (a bank, an exchange, a country) is going to be financially wiped out by a HFT-gone-bad incident, and the resulting mess will take years to unravel while everyone else (pension funds, private investments, etc.) gets to suffer for the sins of their masters. I propose an exponentially decaying tax on trades - the longer you hold a purchase, the less you pay when you sell it. If you WANT to trade at sub-microsecond levels, you can bloody well pay for the clean-up fund when your system goes bad.
- bo1024 14y ago
  > I propose an exponentially decaying tax on trades - the longer you hold a purchase, the less you pay when you sell it. If you WANT to trade at sub-microsecond levels, you can bloody well pay for the clean-up fund when your system goes bad. It seems like any tax on trades at all (even a fixed tiny percentage per trade) would go a long way toward reducing HFT.
talmand 14y ago
Tom Clancy predicted this kind of thing years ago. Although in his story the catalyst was a foreign power messing with the system. Once things got rolling the automated systems went with it to the point of the whole system crashing. Clancy wrote it so that a retired money guy had to explain to the people in charge what really happened because they were clueless on how the system actually worked. The solution was to simply reset the clock back to what was before the problems began and they pretended it never happened. Some of the discussion on the economy and trading were really interesting in that book.

76 points by processing 14y ago

pnathan 14y ago

I'm sorry, but this reads like some sort of PR hit job vs. BATS.

ceejayoz 14y ago
Given their self-inflicted disastrous launch, I don't think anyone needs to pay for a PR hit job against them.

tedunangst 14y ago

"In 2011, BATS accounted for more than one in 10 U.S. stock trades, processing an average of 29,000 trades per second. Against that kind of computer power, retail investors don't stand a chance." Correct me if I'm wrong, but isn't BATS an exchange? Why are retail investors "competing" against the exchange? Is the solution some sort of paper and pencil exchange? Or maybe we can go back to jumping up and down and flapping our arms? "Why, these investors ask, do false prints and fat finger trades always happen on the downside" Because anybody with money can take advantage of it. On the upside, only people holding the stock can do so (unless you short the stock, but I've never tried nano timeframe shorting.)

fleitz 14y ago
Retail 'investors' shouldn't have any issue with BATS if anything BATS provides liquidity, however retail 'traders' stand no chance because the computer is far better at technical analysis and pattern matching than the average trader. Retail traders never really stood a chance against institutions because retail trades the market rather than creating it like institutions do. eg. A retailer can't execute a short squeeze but an institution can.
- ahi 14y ago
  No one needs 29,000 trades a second liquidity. HFT serves no market making function. It is a drag on market operations and confidence.
  - cube13 14y ago
    No trader is doing 29,000 trades a second. BATS is an exchange like NASDAQ. They're facilitating and executing trades for their clients. NASDAQ handled 70k per second in 2008, and could handle almost 4 times that load(http://www.forbes.com/forbes/2009/0112/056.html http://www.forbes.com/forbes/2009/0112/056.html). HFT has nothing to do with this.
retube 14y ago
You're correct. It just means BATS is processing a lot of orders. I'm guessing LIFFE, LSE etc process far more. The articles conclusion is comepletey erreneous - this has nothing to do with HFT. Edit: And wrt to retail investors "competing" agianst HFT - they're not. A retail investor is not interested in expoiting very short-lived pricing discrepancies between different contracts (or perhaps the same/equivalent contracts that trade on multiple exchanges). A retail investor is just that - an _investor_ - who holds the stock.

fletchowns 14y ago

How is making 29,000 trades per second good for the market? It seems like trading at that frequency should be illegal.

tedunangst 14y ago
I believe that number is all trades by all participants.
fleitz 14y ago
Why should trading at that frequency be illegal? What is the optimal amount of trades per second one should be making? Once per second? Once per minute? Once per year? Even if there were such a number how could any bureaucrat ever arrive at the optimal frequency any particular market participant should be trading at?
- ars 14y ago
  Just add a sales tax on stock.
  - anonymoushn 14y ago
    You'll just make the spread larger by the amount of the tax. Why is this a good thing?
    - EvilTerran 14y ago
      While it would make the spread larger, I disagree with your use of the word "just". It would have many other effects as well - for one thing, it'd make trades on small shifts in value (ie less than twice the sales tax) unprofitable. That would make HFT much less attractive at the ridiculous frequencies it happens currently, as you'd need to hold on to stock for longer for it to shift enough for the gross gain to exceed the sales tax. I suspect that's the effect ars had in mind. Also, you could always put the tax into a kitty for bailing out the financial institutions who're engaging in this lark the next time they mess it up ;)

brisance 14y ago

Marvin8 on that site had a great comment. Here it is: What I'd like to know is what happens to customers who have resting orders near those "fat-finger" trades. If a customer had a sell stop-loss at $583, did he get stopped out of the market at that price or near $582? I'll bet he did. If another customer had a buy order in at $583, did he get filled on the way down? I'll bet he didn't. The broker wil ALWAYS come up with a bs excuse as to why a customer got a bad fill and never gets a good one. It's the way the industry works. That's why folks are complete suckers to get involved. The industry makes BILLION$ screwing its customers.

tedunangst 14y ago
The guy who sold at 582 had to sell to somebody, so the buyer at 583 got his order too. That's why they're called trades. There's somebody on both sides.
- brisance 14y ago
  That's the theory. In practice we know that's not necessarily true. e.g. stop-loss order and the stock gaps down. Did the stop-loss order execute? No, it may have executed as a market order. And that's the point he was trying to make. He's saying that the broker can create any suitable excuse to fit the situation. With HFT it may not even be an excuse and could very well reflect the reality of the situation i.e. the price has moved too quickly for the exchange to keep up.
  - tedunangst 14y ago
    If the claim is that a sell at 582 executed and a buy at 583 did not execute, I want to see evidence. I see variations on this claim with a frequency approaching high, always by a random internet commenter "betting" on some hypothetical. the price has moved too quickly for the exchange to keep up. What does that even mean?
    - brisance 14y ago
      Edit: added link to show that orders don't necessarily get filled according to time priority ("an order clearly arrived later than ours with the same limit price, yet it was filled and we were not.") It's only hypothetical until it happens to you. Refer to the fleitz's comment about short squeeze. That's an example of orders that don't get filled. In theory the broker is supposed to borrow shares to allow the trader to sell them short. What happens if the broker flouts securities law and does not follow the rules? http://www.nytimes.com/2012/03/26/business/goldman-sachs-denies-claims-it-led-to-copper-rivers-demise.html?_r=1&hpw=&pagewanted=all http://www.nytimes.com/2012/03/26/business/goldman-sachs-den... BTW, non-HFT'ers get consolidated market feeds which have higher latency than raw feeds that HFT'ers use. That's what a major part of the HFT debate is about. http://www.hftreview.com/pg/blog/mike/read/5317/hft-and-latency-arbitrage http://www.hftreview.com/pg/blog/mike/read/5317/hft-and-late... http://www.tradeworx.com/TWX-SEC-2010.pdf http://www.tradeworx.com/TWX-SEC-2010.pdf [PDF] (refer to page 17, 18)

guelo 14y ago

I've been trying to figure out how to keep my money as far away from Wall Street goons as possible. The hit on Goldman Sachs' reputation from a couple weeks ago is the latest signal that Wall Street's job is to steal customers' money, stay away. The loss in confidence will eventually get them, though that will probably just mean they get another bailout.

crististm 14y ago
I just like how they invent lingo to cover up their screw-ups. False print? Come on - Now if I want to describe the problem there is a name for it. And they made sure to mention it three times + one in the photo so I will remember it.
- bloat 14y ago
  Right... because we don't have any jargon in the tech industry.
  - crististm 14y ago
    The jargon is for the insiders to speed up their communication. Using the jargon with the outsiders is just short for BS.
- tezza 14y ago
  Easy, "false print" comes from the days of ticker-tape Ticker tape would literally be a paper tape. Trade info like last trade prices/qty would be sent over a telegraph link to be printed on the paper tape. That's where the Print comes from. The False bit is some error along the way means the print you got should be discarded. Historical reasons were operator error, dead rats on wires, cosmic rays etc

jrabone 14y ago

My fear as a pessimistic engineer is that unless there is more regulation of HFT, sooner or later someone big (a bank, an exchange, a country) is going to be financially wiped out by a HFT-gone-bad incident, and the resulting mess will take years to unravel while everyone else (pension funds, private investments, etc.) gets to suffer for the sins of their masters. I propose an exponentially decaying tax on trades - the longer you hold a purchase, the less you pay when you sell it. If you WANT to trade at sub-microsecond levels, you can bloody well pay for the clean-up fund when your system goes bad.

bo1024 14y ago
> I propose an exponentially decaying tax on trades - the longer you hold a purchase, the less you pay when you sell it. If you WANT to trade at sub-microsecond levels, you can bloody well pay for the clean-up fund when your system goes bad. It seems like any tax on trades at all (even a fixed tiny percentage per trade) would go a long way toward reducing HFT.

talmand 14y ago

Tom Clancy predicted this kind of thing years ago. Although in his story the catalyst was a foreign power messing with the system. Once things got rolling the automated systems went with it to the point of the whole system crashing. Clancy wrote it so that a retired money guy had to explain to the people in charge what really happened because they were clueless on how the system actually worked. The solution was to simply reset the clock back to what was before the problems began and they pretended it never happened. Some of the discussion on the economy and trading were really interesting in that book.