Undiscovered Country of HFT: FPGA JIT Ethernet Packet Assembly 452
michaelmalak writes "In a technique that reminds me of the just-in-time torpedo engineering of Star Trek VI: The Undiscovered Country, a company called Argon Design has "developed a high performance trading system" that puts an FPGA — and FPGA-based trading algorithms — right in the Ethernet switch. And it isn't just to cut down on switch/computer latency — they actually start assembling and sending out the start of an Ethernet packet simultaneously with receiving and decoding incoming price quotation Ethernet packets, and decide on the fly what to put in the outgoing buy/sell Ethernet packet. They call these techniques 'inline parsing' and 'pre-emption.'"
Re:Wow, (Score:2, Informative)
That's right!
I understand that none of the Democrats will have anything to do with WallStreet.
Heck, not a single one of them owns any stocks from what I hear.
Re:Next step : superluminic packet (Score:4, Informative)
Neutrinos exist.
Re: Wow, (Score:5, Informative)
Why only 15 seconds? Why not 24 hours? What reason, other than gaming the system, could there ever be to hold a stock for less than 24 hours? I don't understand why this wasn't made illegal 30 years ago... Well, I do - the people making the laws are the people profiting from them - but the reason is not a good one.
Re:Don't understand (Score:5, Informative)
Exactly. Say there's a classified site that you can only load once per minute due to bandwidth restrictions (being a human). I post "Bicycle for sale $500" and another guy posts "wanted: bicycle, $600 or less."
But there are some guys who can reload the page faster because they've bought a very expensive premium service from the classified site. Not a very fair site is it?
One of them sees the two ads, buys my bicycle, and posts "Bicycle for sale $599" before any non-premium members can see what's going on.
Who did that help except for the guy with the premium service? I didn't make more. The guy who wanted a bike just got screwed out of $99.
Re:Wow, (Score:3, Informative)
HFT provides liquidity, and liquidity is of the utmost importance to traders.
HFT is very misunderstood by people who don't participate in or understand trading. HFT in fact adds tremendous value to all market participants by dramatically increasing market efficiency with the significant proportion of trading volume it's responsible for.
When you trade a security, there are actually two prices: the bid price and the ask price. When you buy, you pay the ask price; when you sell, you receive the bid price. The ask price is always higher than the bid price, with the market makers keeping the difference. This means that if you buy a stock and immediately sell it, you lose this difference--this is known as slippage. When there aren't many trades occurring, these prices widen out, and the high degree of slippage makes trading profitably much more difficult. With markets as efficient as they are now, which is largely due to HFT, these spreads are often a single penny wide. Before HFT, these spreads were often ten, twenty, or more times as wide.
Anytime you want to buy or sell something, it's highly desirable to have a line of people willing to make you an offer. High frequency traders are these people. It doesn't matter why they want to take the other side of your trade. All that matters is they are there enabling you to make trades more easily and at better prices.
Getting rid of HFT would be like going back to the dark ages when everyone was being ripped off by market makers.
Re:What a waste (Score:4, Informative)
Re: Wow, (Score:1, Informative)
Why only 15 seconds? Why not 24 hours?
You seem to have a rather astonishing ignorance of how markets work. High Frequency Traders (HFTs) are not investors, they are market makers. They find a willing buyer and a willing seller, arrange the transaction, and execute the trade. They make a profit on the spread between the buy price and the sell price. The problem is that once they locate the buyer and seller, they need to buy the stock from the seller first, then turn around and sell it to the buyer, but the buyer may have cancelled the transaction, or they may have already bought the stock from someone else, in which case the HFT is stuck with the stock and may have to sell it to someone else at a loss. If transactions are granulated to even one second intervals, instead of say, millisecond intervals, then the risk of this happening is a thousand times higher, and the HFTs will insist on higher spreads, resulting in lower liquidity and higher transaction costs for both buyer and seller.
Since the introduction of high frequency trading, transaction costs have fallen considerably, saving plenty of people a lot of money. The only losers are the old market makers that used to have lucrative sweetheart deals with the exchanges. Many of those old market makers are now bankrupt. Good riddance.
What is your objection to high frequency trading? What is wrong with it? Other than people ranting about something they have made no effort whatsoever to understand, I haven't seen a single good argument against it. The advantages, to nearly everyone, seem pretty obvious to me.
Re:"free" market solution (Score:4, Informative)
"Because the effect of that would be to push even more transactions into unregulated "dark pools". Why do you believe that HFT is harmful? Do you have any evidence, other than fear of something you don't understand?"
Yes - (1) HFT has the potential to cause extreme volatility swings. (2) HFT essentially introduces a tax on every other buyer and seller in the market (because it actually widens the difference between the post and the offer).
On point #2, I'll just leave this here: http://qz.com/95088/high-frequency-trading-is-bad-for-normal-investors-researchers-say/ [qz.com]