5 ms·

You did raise a good point about latency sensitive brokers, and I feel like that is becoming a self-selecting cartel based around the NY/NJ area. So when you ha

You did raise a good point about latency sensitive brokers, and I feel like that is becoming a self-selecting cartel based around the NY/NJ area. So when you have these folks talking about moving to places like Houston or Dallas, in an implied or entailed way they are talking about breaking that latency cartel. Honestly, just by stupid personal opinion, the SEC should grow the courage to ban low-latency based trading. This topic has been beat to death over the years, so I'm not adding anything to the discussion, just chiming in to say the obvious things... have a nice day.

kasey_junk 2y ago
These “folks” run their “Chicago” exchange out of NJ and this announcement has nothing to do with moving the matching engine.
Galanwe 2y ago
> Honestly, just by stupid personal opinion, the SEC should grow the courage to ban low-latency based trading. I think that's really just a matter of the media giving bad press to HFTs "because it's scary". The boring reality is that not much people care, and HFTs are really not that important on the grand scale of things. We're talking about maybe 4/5 firms worldwide making single to low double digits billions in P&L, from an activity that is most likely overall positive, or say net 0 if you're a bit cynical. Good for them.
- tastyfreeze 2y ago
  > We're talking about maybe 4/5 firms worldwide making single to low double digits billions in P&L That is a fair amount of money being soaked up by a few firms. If low latency trading was banned real humans could compete for that money.
  - kasey_junk 2y ago
    We had that system, it was dominated by expensive pit traders and the spreads (the main cost driver for most people) were gigantic. This argument is precisely Luddite and a strange position for anyone on this particular forum.
    - steveBK123 2y ago
      No sure why this got downvoted, and I'm not sure what else people think "humans competing for that money" would look like? You're gonna need to physically collocate those people if you are trying to ban computers and latency based trading. Possibly in a "Pit" maybe in a building called an "Exchange" in places with a lot of financial services people like say NY or Chicago. Probably need to have some sort of membership/license requirement due to finite space. I dunno. Sounds like a novel concept that's never been tried.
      - tptacek 2y ago
        Whenever this topic comes up I always wonder how many people commenting have ever heard of the odd eighths scandal.
      - tastyfreeze 2y ago
        Before the internet? Things are a bit different now. HFT monopolized the market maker/arbitrage money with millisecond executions that nobody can compete with.
        steveBK123 2y ago
        You said "If low latency trading was banned real humans could compete for that money." As soon as you re-introduce distance, latency becomes a factor again. How do you eliminate "low latency trading" and prioritize "real humans" without putting them in the same room? What do you actually propose here? One way to reduce the impact of latency is to do away with continuous trading and move to frequent but discrete auctions. But this would just increase volatility. Imagine if every X minutes / hours stocks moved Y% like they do at market open, as all the information that was disseminated since the last auction was re-priced in. If anything the long term trend has been towards longer continuous trading sessions to reduce those types of jumps.
        kbelder 2y ago
        I've wondered if introducing a small but omnipresent random delay in all trading requests might suffice. Something like 0-100 milliseconds. Just enough to moderate some of the advantage that physically co-located automated traders have, while not outright banning it.
  - Galanwe 2y ago
    > That is a fair amount of money Honestly, that's not even a peanut compared to what more typical finance institutions manage and earn. Your typical institutional investor (pension funds, insurance company, fund of fund, bank, etc) manages in the 100s to 1000 billions. Each. The whole HFT industry probably makes what a single institutional investor earns by buying US debt at 1%. The HFT industry really is just a small microcosm, it just so happens that it triggers dreams and fantaisies in the public mind. > If low latency trading was banned real humans could compete for that money. But that's what we had before, and was it better ? I don't think having 1000s of trader monkeys buying and selling while refreshing their price feeds or shouting in a pit is any better. At the end of the day, as long as there will be market inefficiencies, there will be arbitragers. I don't see the point of kicking those arbitraging at 1us to replace them with people arbitraging at 1s or 1m.
    - bluGill 2y ago
      For a while at least HFC was able to pay a lot of money to some really smart people to do some really weird high performance computing projects. Sure to the industry the amount of money they has wasn't even a peanut, but to a normal person on the street it was still a lot of money, and even to the financial industry it was still worth (for a while) paying high salaries to the very best for that fraction of a peanut.
  - steveBK123 2y ago
    I worked for a NYSE Specialist floor broker back in the day. HFT, in a weird way, democratized market making while lowering spreads. Remember it wasn't that long ago that spreads were 10-100x as wide as they are today, PLUS transaction costs were $5/10/50 per trade. HFT & payment for order flow is what has made stock trading the low fee environment it is today.
    - vel0city 2y ago
      > HFT & payment for order flow is what has made stock trading the low fee environment it is today. I get how payment for order flow would help enable this current low upfront fee trading system we have today, they're managing to get their money from places other than direct fees. I don't exactly get how HFT also makes it low cost. Could you further explain that? Is it that mostly the people paying for the order flow is pretty much exclusively HFTs, and if they didn't exist the order flow market wouldn't exist? Making up numbers here, if the HFTs manage to squeeze a dollar of profit out of the order flow data after buying my trade data for a dollar (two dollars of spread they manage to find), is that really better than me paying a dollar or two in fees for that order? It would be interesting to see the real values in question here on such things to actually gauge what is better for an average trader now trading in the low to zero fee trade market.
      - Galanwe 2y ago
        > I don't exactly get how HFT also makes it low cost Because most HFT firms are also market makers. You can see them basically as middlemen that are mandated by the exchange to provide liquidity on both bid and ask by the market. These liquidity mandates reduce the spread for other traders, and in exchange market makers have lower, or even positive fees (i.e. they are _paid_ to trade). Usually, market makers use these rebates to earn money by taking a passive order risk on behalf of an aggressive order from a flow they bought. Think of it that way: You're an exchange, you want people to trade on your platform, that's how you earn money. For people to trade on your platform, you need liquidity, actual shares to buy and sell. So you invite market makers on your platform, and sign a contract with them, along the lines of "you have 0 trading fee but in exchange you need to provide $X of liquidity on bid and ask at any time and ensure a spread <Ybps". Market makers accepting to on-board now have to somehow make a living while providing liquidity, but this is a risky business, because they are basically market making for people that are _more_ informed than them (they have adverse selection by design), and they have to respect their mandate of providing liquidity. That is, if a stock goes down, and people start selling it, the market maker still need to provide liquidity for sellers and buyers, which means maybe he will have to actually buy these shares that are tanking. Usually the pure market making mandate is close to 0 profit, unless you spice it up with some other strategy. Taking passive order risk, netting order flow, maybe short term technical alpha, etc. You can think of market makers and HFT basically as the same people. If you trade at high frequency, you're playing on micro changes in price, there's only so much a stock price can realistically move in 1s. HFT is only viable if you have very low, or no transaction cost. That's why there's a natural overlap between HFTs and MM.
dylan604 2y ago
> the SEC should grow the courage In the current political environment, I don't see SEC (or any other gov't agency) growing courage anytime soon. Well, other than DOGE acting like an energy vampire growing stronger off of its victims.
- jethro_tell 2y ago
  Yeah, the time to grow the courage to do the right thing was the last 4 years but seems on one could be bothered so now we are here
  - elzbardico 2y ago
    Too bad they used the last 4 years mostly to do the absurdly stupid wrong thing.
atomicnumber3 2y ago
Just for the record, the latency arb / microwave networks speed game is basically dead as of 2018-2021. Looks at Virtu, formerly classic examples of the trade and now almost entirely "switched sides" and doing order execution services for the same big banks whose lunch they were formerly eating. Furthermore, the wireless stuff is commoditized at this point. You can just rent to be on the wireless that Apsara (et al) offer, and while some have private networks, there's not enough money left in the trade (see above) to be worth it if you don't already have one. This is combined with liquidity moving away from public exchanges (both the lits and darks) towards being matched internally/by a partner (PFOF matching), which is purely a win for retail traders and is its own force that isn't going away. (Go on robinhood and buy 2 shares of SPY. It fills instantly. People love that. You can't just go get 2 shares of SPY off the lits, so where dyou think those are coming from?) Traditional HFT is dead. The only extent any of the firms are still alive is the extent to which they've moved on to other trades, many of which are so much less latency sensitive that the microwave edge doesn't really give you enough alpha to be worth it. (I worked for a firm for a long time that didnt move on to other trades... so I'm quite familiar with the scene.)
- areyousure 2y ago
  > You can't just go get 2 shares of SPY off the lits, so where dyou think those are coming from? Why can't you just get 2 shares on an exchange?
  - ddulaney 2y ago
    Exchange trading happens in round lots that are usually 100 shares. This is pretty much just a legacy thing, but so many technical systems have this assumption built in that while odd-lot trading (trades not in the round lot size) has become a little more common on the exchanges, it’s still treated weirdly by the various systems involved. But also, it’s better for you as a retail investor, to get them from a middleman, because they will generally give you a better price than the exchange. They will give you a better price because retail traders tend on average to be worse at trading than the overall market. You should take advantage of that, regardless of your actual ability level.

kasey_junk 2y ago

These “folks” run their “Chicago” exchange out of NJ and this announcement has nothing to do with moving the matching engine.

Galanwe 2y ago

> Honestly, just by stupid personal opinion, the SEC should grow the courage to ban low-latency based trading. I think that's really just a matter of the media giving bad press to HFTs "because it's scary". The boring reality is that not much people care, and HFTs are really not that important on the grand scale of things. We're talking about maybe 4/5 firms worldwide making single to low double digits billions in P&L, from an activity that is most likely overall positive, or say net 0 if you're a bit cynical. Good for them.

tastyfreeze 2y ago
> We're talking about maybe 4/5 firms worldwide making single to low double digits billions in P&L That is a fair amount of money being soaked up by a few firms. If low latency trading was banned real humans could compete for that money.
- kasey_junk 2y ago
  We had that system, it was dominated by expensive pit traders and the spreads (the main cost driver for most people) were gigantic. This argument is precisely Luddite and a strange position for anyone on this particular forum.
  - steveBK123 2y ago
    No sure why this got downvoted, and I'm not sure what else people think "humans competing for that money" would look like? You're gonna need to physically collocate those people if you are trying to ban computers and latency based trading. Possibly in a "Pit" maybe in a building called an "Exchange" in places with a lot of financial services people like say NY or Chicago. Probably need to have some sort of membership/license requirement due to finite space. I dunno. Sounds like a novel concept that's never been tried.
    - tptacek 2y ago
      Whenever this topic comes up I always wonder how many people commenting have ever heard of the odd eighths scandal.
    - tastyfreeze 2y ago
      Before the internet? Things are a bit different now. HFT monopolized the market maker/arbitrage money with millisecond executions that nobody can compete with.
      - steveBK123 2y ago
        You said "If low latency trading was banned real humans could compete for that money." As soon as you re-introduce distance, latency becomes a factor again. How do you eliminate "low latency trading" and prioritize "real humans" without putting them in the same room? What do you actually propose here? One way to reduce the impact of latency is to do away with continuous trading and move to frequent but discrete auctions. But this would just increase volatility. Imagine if every X minutes / hours stocks moved Y% like they do at market open, as all the information that was disseminated since the last auction was re-priced in. If anything the long term trend has been towards longer continuous trading sessions to reduce those types of jumps.
        kbelder 2y ago
        I've wondered if introducing a small but omnipresent random delay in all trading requests might suffice. Something like 0-100 milliseconds. Just enough to moderate some of the advantage that physically co-located automated traders have, while not outright banning it.
- Galanwe 2y ago
  > That is a fair amount of money Honestly, that's not even a peanut compared to what more typical finance institutions manage and earn. Your typical institutional investor (pension funds, insurance company, fund of fund, bank, etc) manages in the 100s to 1000 billions. Each. The whole HFT industry probably makes what a single institutional investor earns by buying US debt at 1%. The HFT industry really is just a small microcosm, it just so happens that it triggers dreams and fantaisies in the public mind. > If low latency trading was banned real humans could compete for that money. But that's what we had before, and was it better ? I don't think having 1000s of trader monkeys buying and selling while refreshing their price feeds or shouting in a pit is any better. At the end of the day, as long as there will be market inefficiencies, there will be arbitragers. I don't see the point of kicking those arbitraging at 1us to replace them with people arbitraging at 1s or 1m.
  - bluGill 2y ago
    For a while at least HFC was able to pay a lot of money to some really smart people to do some really weird high performance computing projects. Sure to the industry the amount of money they has wasn't even a peanut, but to a normal person on the street it was still a lot of money, and even to the financial industry it was still worth (for a while) paying high salaries to the very best for that fraction of a peanut.
- steveBK123 2y ago
  I worked for a NYSE Specialist floor broker back in the day. HFT, in a weird way, democratized market making while lowering spreads. Remember it wasn't that long ago that spreads were 10-100x as wide as they are today, PLUS transaction costs were $5/10/50 per trade. HFT & payment for order flow is what has made stock trading the low fee environment it is today.
  - vel0city 2y ago
    > HFT & payment for order flow is what has made stock trading the low fee environment it is today. I get how payment for order flow would help enable this current low upfront fee trading system we have today, they're managing to get their money from places other than direct fees. I don't exactly get how HFT also makes it low cost. Could you further explain that? Is it that mostly the people paying for the order flow is pretty much exclusively HFTs, and if they didn't exist the order flow market wouldn't exist? Making up numbers here, if the HFTs manage to squeeze a dollar of profit out of the order flow data after buying my trade data for a dollar (two dollars of spread they manage to find), is that really better than me paying a dollar or two in fees for that order? It would be interesting to see the real values in question here on such things to actually gauge what is better for an average trader now trading in the low to zero fee trade market.
    - Galanwe 2y ago
      > I don't exactly get how HFT also makes it low cost Because most HFT firms are also market makers. You can see them basically as middlemen that are mandated by the exchange to provide liquidity on both bid and ask by the market. These liquidity mandates reduce the spread for other traders, and in exchange market makers have lower, or even positive fees (i.e. they are _paid_ to trade). Usually, market makers use these rebates to earn money by taking a passive order risk on behalf of an aggressive order from a flow they bought. Think of it that way: You're an exchange, you want people to trade on your platform, that's how you earn money. For people to trade on your platform, you need liquidity, actual shares to buy and sell. So you invite market makers on your platform, and sign a contract with them, along the lines of "you have 0 trading fee but in exchange you need to provide $X of liquidity on bid and ask at any time and ensure a spread <Ybps". Market makers accepting to on-board now have to somehow make a living while providing liquidity, but this is a risky business, because they are basically market making for people that are _more_ informed than them (they have adverse selection by design), and they have to respect their mandate of providing liquidity. That is, if a stock goes down, and people start selling it, the market maker still need to provide liquidity for sellers and buyers, which means maybe he will have to actually buy these shares that are tanking. Usually the pure market making mandate is close to 0 profit, unless you spice it up with some other strategy. Taking passive order risk, netting order flow, maybe short term technical alpha, etc. You can think of market makers and HFT basically as the same people. If you trade at high frequency, you're playing on micro changes in price, there's only so much a stock price can realistically move in 1s. HFT is only viable if you have very low, or no transaction cost. That's why there's a natural overlap between HFTs and MM.

dylan604 2y ago

> the SEC should grow the courage In the current political environment, I don't see SEC (or any other gov't agency) growing courage anytime soon. Well, other than DOGE acting like an energy vampire growing stronger off of its victims.

jethro_tell 2y ago
Yeah, the time to grow the courage to do the right thing was the last 4 years but seems on one could be bothered so now we are here
- elzbardico 2y ago
  Too bad they used the last 4 years mostly to do the absurdly stupid wrong thing.

atomicnumber3 2y ago

Just for the record, the latency arb / microwave networks speed game is basically dead as of 2018-2021. Looks at Virtu, formerly classic examples of the trade and now almost entirely "switched sides" and doing order execution services for the same big banks whose lunch they were formerly eating. Furthermore, the wireless stuff is commoditized at this point. You can just rent to be on the wireless that Apsara (et al) offer, and while some have private networks, there's not enough money left in the trade (see above) to be worth it if you don't already have one. This is combined with liquidity moving away from public exchanges (both the lits and darks) towards being matched internally/by a partner (PFOF matching), which is purely a win for retail traders and is its own force that isn't going away. (Go on robinhood and buy 2 shares of SPY. It fills instantly. People love that. You can't just go get 2 shares of SPY off the lits, so where dyou think those are coming from?) Traditional HFT is dead. The only extent any of the firms are still alive is the extent to which they've moved on to other trades, many of which are so much less latency sensitive that the microwave edge doesn't really give you enough alpha to be worth it. (I worked for a firm for a long time that didnt move on to other trades... so I'm quite familiar with the scene.)

areyousure 2y ago
> You can't just go get 2 shares of SPY off the lits, so where dyou think those are coming from? Why can't you just get 2 shares on an exchange?
- ddulaney 2y ago
  Exchange trading happens in round lots that are usually 100 shares. This is pretty much just a legacy thing, but so many technical systems have this assumption built in that while odd-lot trading (trades not in the round lot size) has become a little more common on the exchanges, it’s still treated weirdly by the various systems involved. But also, it’s better for you as a retail investor, to get them from a middleman, because they will generally give you a better price than the exchange. They will give you a better price because retail traders tend on average to be worse at trading than the overall market. You should take advantage of that, regardless of your actual ability level.