Jump Trading, Virtu and the 'hidden optical fibre cable' under an Ohio field

https://www.ft.com/content/099342e4-cae8-4ac7-86bd-a3f2048065e8

by throwaway2037 • 2 years ago

61 73 2 years ago

ft.com

throwaway2037• 2 years ago

FT Alphaville: High frequency trading

Skywave Networks accuses Wall Street titans of ‘continuous racketeering and conspiracy’

FT/Alphaville is blog attached to The Financial Times newspaper. It free to sign-up for an account.

brudgers• 2 years ago

https://archive.ph/2vQm6

dinkblam• 2 years ago

why would a radiowave that is reflected off the atmosphere (and therefore taking the longer route) be faster than a direct fibre cable?

FredFS456• 2 years ago

Speed of light in an optical fibre is about 2/3 that of the speed in air

scrlk2• 2 years ago

Radio waves travel at nearly the speed of light, whereas light in an fiber optic cable travels at ~67% of the speed of light due to the refractive index of glass.

cypherpunks01• 2 years ago

Ericsson blog wrote:

In a vacuum, electro-magnetic waves travel at a speed of 3.336 microseconds (μs) per kilometer (km). Through the air, that speed is a tiny fraction slower, clocking in at 3.337 μs per km, while through a fiber-optic cable it takes 4.937 μs to travel one kilometer – this means that microwave transport is actually 48% faster than fiber-optic, all other things being equal.

JumpCrisscross8• 2 years ago

More bluntly: light in a fibre is still bouncing around a lot.

stephen_g2• 2 years ago

I worked for three years designing custom low-latency point-to-point microwave radios for HFT for this very reason. They didn't need very high bandwidths (their long-haul network was less than 200 Mbit, whereas in New York/New Jersey we had about 5 Gbps because the hops were much shorter and they had licenses for more RF bandwidth at a higher frequency).

At those time scales, the difference is so large, it was incredible what they were willing to pay to build these networks!

_qua• 2 years ago

Light doesn’t go at light speed through optical fiber.

AStonesThrow• 2 years ago

By definition, it does, because the maximum speed is qualified by "the speed of light in a vacuum", so the speed of light [in other media] is simply a function of how much the medium slows it down, yet it is still the speed of light. Funny how that works!

nimish• 2 years ago

Sure it does. It's just that the speed of light in non-hollow optical fiber is slower than light in a vacuum.

Microsoft bought a hollow optical fiber company for a reason.

indiosmo• 2 years ago

In addition to the radio signal being faster as noted by the other commenters, for long distances the radiowave is actually the shorter route.

If you take one of the routes in the article, Chicago to Sao Paulo.

The distance is about 8,400km in a straight line.

According to https://en.wikipedia.org/wiki/Skywave a single shortwave hop can reach 3,500km, so 3 hops are required, or about 30ms.

The shortest commercially available submarine cable between the US and Sao Paulo alone is significantly higher than that (almost double), and it comes out of the east coast, so you'd still have to factor in the latency between Chicago and New York.

Even specialized low latency networks that mix wireless and fiber will still have much higher latency than the radio.

The tradeoff is that shortwave radio has very little bandwidth so you're restricted to simple signals.

biomcgary3• 2 years ago

Other than seemingly perverse incentives, is there a good reason not to quantize trading time?

mikewarot2• 2 years ago

I've argued in the past that we should have batch settlements every 30 seconds, instead of in real time. We don't really need microsecond based skimming/front running.

biomcgary3• 2 years ago

30 seconds seems reasonable. Don't the markets themselves make a fair amount of money off of providing fast access to the HFTs? Is that the primary perverse incentive?

Loughla• 2 years ago

I've read the arguments that the microsecond trading serves a purpose that benefits all of us, but I fail to see how, even with the explanations.

I'm with you. Every 30 seconds. Cap the power of connection speed in trading. Trading should be based on the value of the item being traded, not on how short the fiber run is.

harry82• 2 years ago

so now the race is to get the order in (or out) @ 29.999999985 seconds or 15nS before the batch deadline. Interesting twist on the game. Unlikely to change who wins it, could it be worse for retail punters?

We need to kill "front running" as a criticism of low-latency algo trding with fire. It's garbage.

Front running is highly illegal and is where a broker knows a client is going to do a big trade due to inside information and trades on the account of others (themselves, typically) to exploit that inside information. It's a straight up cheat.

Inferring from market data alone which way a price will move is legal, honest, been attempted since forever and absolutely fine. Also very, very difficult. Anyone who can do it makes the market more efficient, reduces the money available by doing it (which goes into investors pockets through tighter spreads) and really earns their money. You don't have to like them if you don't want to but it's worlds apart from front running using inside information.

Where did algo trading profit come from? Won by being more competitive from brokers profit with a good chunk of that broker profit going to investors. Spreads are tighter.

Where are the clients' yachts? Well tech did something about the some of the broker ripoffs earning their yachts - which puts money in your pocket.

usefulcat3• 2 years ago

If there are multiple orders at the same price on the same side, how should we determine which ones are filled first?

Or put another way, how should we determine which orders are least likely to get filled?

infecto4• 2 years ago

Why not 1 minute then?

You have ignored the whole issue of how are you then ordering those contracts in 30second batches?

renewiltord• 2 years ago

I have made many very good arguments before that 45 seconds is ideal.

usefulcat3• 2 years ago

If you're talking about something like having an auction (per security) every N seconds, I don't see how that addresses the underlying issue, which is how to determine order priority.

If you have a bunch of orders at the same price on the same side, and an order comes in from the other side that crosses those orders (or there is an auction and there are orders on the other side which cross), how do you decide which of the resting orders at the same price should be filled first?

The most common way is that the first order to arrive at the exchange at that price gets filled first, and for that reason being fast is inherently advantageous.

ssivark• 2 years ago

How about along a randomized delay (0-T time) to each order? For T=30s it will largely nullify millisecond latency advantages.

api3• 2 years ago

Randomize orders using a cryptographic hash of the order, client info, and all other fields plus a random salt added when the order is submitted.

Sort by hash. Impossible to game unless you can break the hash function.

eterm• 2 years ago

You could partially fulfil both resting orders, weighted by their (remaining) order size.

You might get "games" around people oversizing orders to try to get more "weight" to their orders, but that would be inefficient behaviour that could in turn be exploited, so people would still be incentivised to keep their orders honest.

jjallen• 2 years ago

You fill the orders proportional to the order quantity for everyone

toast0• 2 years ago

If you're doing batches to reduce the advantage of being fast, you'd have to treat all orders that come in during a batch tick as simultaneous.

Resting orders from previous batches could have priority, if you want. You'd probably end up doing something with assignment of equal priority orders that looks like option assignment, basically random selection of shares among the pool of orders.

Personally, I'd fill unconditional market orders first, then market all or nothing (if fillable), then sort limit orders by price and from within limit orders of the same price, unconditional first, then all or nothing, then all or nothing + fill or kill.

I don't know if I would assign shares proportional to orders or to shares in orders. Probably shares in orders. Might be gamed, but putting in a really big order because you want to capture a couple shares is risky.

infecto4• 2 years ago

There are cases to be made that you get tighter spreads.

The larger the time interval the larger the risk on pricing. If I am selling and it’s a large time to trade I am going to probably want to sell it for a higher price. The same goes on the bid.

anonymoushn2• 2 years ago

The non-terrible version of this proposal is called Frequent Batch Auctions. I've read the paper and it seems like a decent idea to me.

I have heard that some real-life venues have implemented the terrible version of this proposal instead though.

mhmmmmmm3• 2 years ago

Taiwan Stock Exchange used to have quantized trading times (read "frequent batch auction"), but it led to worse price discovery and a bigger bid ask spread: https://focus.world-exchanges.org/articles/citadel-trading-a...

Our analysis of the TWSE’s transition clearly demonstrates that continuous trading results in better liquidity provision, lower bid-ask spreads, more stable prices and enhanced price discovery, as well as higher trading volumes.

biomcgary3• 2 years ago

Thank you, it is nice to see an empirical observation of before and after the transition to continuous trading.

tzs• 2 years ago

Is that better liquidity, etc., actually needed?

If we consider the function of a market to be to arrive at prices that lead to the optimal allocation of the goods sold on that market, intuitively it would seem that there should be a limit on how fast trades need to propagate to achieve that, and the limit would be tied to how fast new information relevant to the producers and consumers of those goods comes out.

I don't think I'm expressing this well but the idea is that prices of goods should be tied to things that actually affect those goods. That's generally going to be real world news.

If you turn up trading speed much past the speed necessary to deal with that I'd expect that you could end up with the market reacting to itself. Kind of like when you turn an amplifier up to much and start getting distortion and even feedback.

spirobelv2• 2 years ago

mev but for tradfi

frinxor• 2 years ago

some fantastic older reading (2014):

HFT in My Backyard

https://news.ycombinator.com/item?id=8354278

https://news.ycombinator.com/item?id=8371852

ikmckenz• 2 years ago

Also, from the same blog:

Shortwave Trading | Part I | The West Chicago Tower Mystery

https://sniperinmahwah.wordpress.com/2018/05/07/shortwave-tr...

SHORTWAVE TRADING | PART II | FAQ AND OTHER CHICAGO AREA SITES

https://sniperinmahwah.wordpress.com/2018/06/07/shortwave-tr...

_boffin_• 2 years ago

If you want even more fun reading, check out: http://www.nanex.net/aqck/aqckIndex.html

It’s the only site I know of that has posts like it. Sadly, he hasn’t posted in awhile.

ycombobreaker• 2 years ago

He fell off the rails when Trump was running for office. I remember being really disappointed to see the trading observations (and his own product advertisement) replaced by political rants.

theturtletalks• 2 years ago

Skywave has a point, they were through regulatory oversight to get their microwave working whereas these other firms went behind the FCC’s back and profited by not doing so. The fine is likely a lot lower than the profits they made so what incentive would future companies have to go through the proper channels?

brcmthrowaway• 2 years ago

Remember when HN was always HFT comp dick swinging contests? Would any top grad nowadays go to Jane Street over OpenAI or Anthropic?

JumpCrisscross8• 2 years ago

Would any top grad nowadays go to Jane Street over OpenAI or Anthropic?

You’re measuring which part of the economy pays math majors best. If I had to trace the centre of gravity of my top former colleagues, it was banks and hedge funds (never Jane); Uber; some leakage to crypto, they never recovered; now AI.

bubberducky• 2 years ago

No, I doubt it. At the same time, OAI and Anthropic both hire waaay less people straight from undergrad whereas Jane Street (and similar) are a lot more realistic, and it's not like the pay is bad.

bob1029• 2 years ago

Experimental licences have more bandwidth than commercial licences, allow for “frequency hopping”

I think there is another angle to this where the modulation scheme makes a lot of the difference. If you figure out a way to send market information below the noise floor (i.e., spread spectrum schemes) how would anyone even know what you are doing?

If I was operating an HFT firm I would be all-in on the "ask for forgiveness, not for permission" angle, because the politics around my business are really nasty.

JumpCrisscross8• 2 years ago

I would be all-in on the "ask for forgiveness, not for permission" angle, because the politics around my business are really nasty

Securities are one of the few parts of the American economy regulated like a European sector. Complain-investigate regimes. Various agencies at multiple levels who can ban you from industry and fine you. The rational response is to turn risk tolerance down, not up.

Jump Trading, Virtu and the 'hidden optical fibre cable' under an Ohio field

Related Stories