Nicely written piece; to give some taste of the article contents:
"Height, then, played an important part in facilitating that speed. A trader’s physical height became an advantage, which is part of the reason some traders were former basketball or football players – “taller traders were easier to see”. In the 1990s, some traders wore high heels in the pits to trade faster, and inevitably experienced injuries due to lack of balance. This prompted the Chicago Mercantile Exchange (CME) to impose a ruling making the maximum size of platform heels two inches in November 2000."
I think in the next 5 years we'll be down to a handful of true Ultra low latency, high frequency traders and they'll probably be the ones you know, TradeBot, Getco, Citadel, etc.
I think I'm very fortunate not to have to compete in that space, it allows us to concentrate more on the algorithms than the execution.
It's very hard to get started in it anymore. I work for a decent sized firm and we can get laughed out of meetings when we ask about some of the more desirable fiber routes. I can't imagine what it would take to get any microwave spectrum space:)
The incumbents have the spectrum and fibre locked down and the bigger players like Citadel pay the retail brokers for their retail flow so they can trade against the "dumb" money before anyone else. I've heard that most Canadian banks sell their flow to a big US fund that has a chance to trade against it before it reaches the market.
If the CN tower was available for renting out microwave signals I'm sure someone would have rented out the entire spectrum and held it for themselves. Its in a very good location for Inter-listed arbitrage between Toronto and Chicago and Toronto and New York:)
This is a good article about the cutthroat business of being in the HFT space and the one I think the post was talking about.
> "There are rumors in the industry that people have bought tower space or have bought frequencies that they don’t use,” Cumberland said. “We call it ‘frequency squatting’ or ‘tower squatting."
> "Traders need multiple towers because signals run the risk of breaking up beyond 100 kilometers (62 miles). Controlling a single tower wouldn’t benefit a trader unless the goal was to force rivals to go around it by using a slower, less direct route, or hoarding the frequencies that companies rely on to transmit financial data, said Colt’s Cumberland."
Meta note, if anyone wants to talk trading algos or technology feel free to reach out, email in my profile.
You are being overly pessimistic about access to these microwave paths. In some cases in the U.S. you can purchase wireless market data directly from the exchanges†. I am less familiar with the Canadian markets so I can't speak to what is available there.
How profitable are the large HFT firms? My understanding is that as more competitors entered the space profitability has gone down significantly. I remember hearing one HFT guy explain how in the early 2000s, before HFT became big the bid-ask spread could very large but it is now virtually non-existent due to so much HFT activity.
The race to zero (or more accurately c) on the networking front is seeing significant action, largely because it's the "lowest hanging fruit." Network latency is six to eight orders of magnitude higher than processing latency in most case. By Amdahl's Law, it's a very good system to optimize. This is especially true for places like Korea, and for the US where there's significant geographic distance between futures and equities.
Microwave is an "early adopter" technology that will soon be replaced with superior ones. The first microwave network was slated to cost 15M/yr at the time of its launch in 2012. However, competition dropped that number to around 2M by launch time, and within six months it was < 250K. Mind you, everyone was locked into a 1-2yr contract at the higher price points. For the U.S. Tradeworx (aka Thesys) is one of the fastest "publicly" available networks so they're commanding a premium at $250K, but microwave is now available for less than 80K a mere two years after launch. Same story for Spread - seven figures and a two year commitment at the time of launch, down to 15-60K.
On days with snow, rain, or wind kicking up pollen/dust, packets are dropped at comical rates. Dropping a packet is more expensive latency wise than sending it over Spread, and if the weather is bad enough, you're not getting anything through at all, which leads to dual Spread/microwave deployments. Spread knows this which is why the introduction of microwave didn't dramatically drop the price of Spread.
Bandwidth wise you used to get about 1.5Mbps over a shared link. That number is better now, but not substantially. Even with no loss there's barely enough bandwidth to carry L1 price updates on a single active market data symbol, so market data on the whole is a no go. From what I can tell most people have gone the route of transmitting many types of data over both fiber and microwave while leaving the responsibility of deduping to the receiver.
There's not much coverage on it but we'll see some interesting things on the fiber front soon. Photonic-crystal fiber is getting cheaper and we'll continue to see interesting advances on the hollow-core photonic-bandgap front in general [1]. These technologies can theoretically get very close to the speed of light (.997c) with extremely high bandwidth and low attenuation (repeaters in either fiber or microwave networks add significant latency) at which point the race to zero will stair step down again.
what protects a HFT microwave line from a targeted (perhaps even legal) attack of drones that get between line of site? or is the wave length larger than this?
There are easier ways to annoy HFT: "Every day for up to ten minutes near the London Stock Exchange, someone blocks signals from the global positioning system (GPS) network of satellites ... timestamps on trades made in financial institutions can be affected. "
http://www.economist.com/news/international/21582288-satelli...
I have not heard of anyone intentionally interfering with microwave links, but generally speaking these RF lines are not reliable and you get gaps from time to time due to weather and whatnot. There are a couple of ways to deal with this. In the market data case, the data only flows in one direction and usually consists of sequenced messages, so you just send the data down both the microwave and a fiber path simultaneously. You can do simple line arbitration (throw away duplicates) at the receiving end.
I wonder how low we could get friction for one of these things. An evacuated tunnel and magnetic suspension are probably decent, but I'm curious how much additional power would be required to get the train all the way up the uphill portion.
An important part of the Rothschild family fortune was apparently made in a similar way around Napoleon's Waterloo defeat, using an optical precursor of the telegraph networks. http://www.lowtechmagazine.com/2007/12/email-in-the-18.html
Along the lines of your question, the guys at escapecom also wrote a white paper [1] that covers the high level technical details, and talk through the Chicago to Jersey problem from the OP. They do also sell such gear, so there may be some bias and salesmanship in there as well, but it was a good read.
I don't see how HFT does any good for anyone. It adds no real value, and serves no purpose except to shift money from someone else's pockets, not by clever investment and market knowledge but pure technical advantage.
It's a lot like BitCoin, it turns some expensive resource (be it CPU/GPU power or optimized data links) into money, but it doesn't help with earning/generating the money in the first place, so it just extracts it from someone else.
It's a scam and should be banned worldwide. I don't know anything about trading, but I guess by making very small changes (make people hold stock for a few seconds?) you could render the whole HFT industry useless without any negative effects to the real economy.
HFT is basically just computerised market making. Market making increases liquidity and reduces spread, which is fantastic for small investors.
HFT is the reason I can personally put in an order and have it executed within 10 seconds without the price moving much. I've traded on markets with little to no liquidity, it sucks. You wait half a day for your order to fill only to have the price significantly move against you...
if you make people hold stock for a few seconds, you will increase bid/ask spreads and that extra cost will be imposed on the real economy. The cutthroat technical competition in HFT space serves the real economy by having HFT firms spend lots of money on technology, fast computers, etc.
Having read 'Flash Boys' by Michael Lewis, this post seems like the logical followup after someone discovered the first microwave tower at the end of the book.
Didn't know that the same scam is running in Europe...
HFT has been around in Europe and is as well established as the US, so I assume the alleged scam relates directly to buying and operating Microwave networks. Seriously, please do provide more information, I am keen to learn more.
disclaimer: I've not read 'Flash Boys' yet, so apologies if it's all explained in that book
[+] [-] akavel|11 years ago|reply
"Height, then, played an important part in facilitating that speed. A trader’s physical height became an advantage, which is part of the reason some traders were former basketball or football players – “taller traders were easier to see”. In the 1990s, some traders wore high heels in the pits to trade faster, and inevitably experienced injuries due to lack of balance. This prompted the Chicago Mercantile Exchange (CME) to impose a ruling making the maximum size of platform heels two inches in November 2000."
[+] [-] chollida1|11 years ago|reply
http://www.businessweek.com/articles/2013-06-06/how-the-robo...
I think in the next 5 years we'll be down to a handful of true Ultra low latency, high frequency traders and they'll probably be the ones you know, TradeBot, Getco, Citadel, etc.
I think I'm very fortunate not to have to compete in that space, it allows us to concentrate more on the algorithms than the execution.
It's very hard to get started in it anymore. I work for a decent sized firm and we can get laughed out of meetings when we ask about some of the more desirable fiber routes. I can't imagine what it would take to get any microwave spectrum space:)
The incumbents have the spectrum and fibre locked down and the bigger players like Citadel pay the retail brokers for their retail flow so they can trade against the "dumb" money before anyone else. I've heard that most Canadian banks sell their flow to a big US fund that has a chance to trade against it before it reaches the market.
If the CN tower was available for renting out microwave signals I'm sure someone would have rented out the entire spectrum and held it for themselves. Its in a very good location for Inter-listed arbitrage between Toronto and Chicago and Toronto and New York:)
This is a good article about the cutthroat business of being in the HFT space and the one I think the post was talking about.
> "There are rumors in the industry that people have bought tower space or have bought frequencies that they don’t use,” Cumberland said. “We call it ‘frequency squatting’ or ‘tower squatting."
> "Traders need multiple towers because signals run the risk of breaking up beyond 100 kilometers (62 miles). Controlling a single tower wouldn’t benefit a trader unless the goal was to force rivals to go around it by using a slower, less direct route, or hoarding the frequencies that companies rely on to transmit financial data, said Colt’s Cumberland."
Meta note, if anyone wants to talk trading algos or technology feel free to reach out, email in my profile.
[+] [-] HockeyPlayer|11 years ago|reply
Paying a retail broker for flow is distasteful to me, I'd rather compete in the marketplace for edge.
[+] [-] minimax|11 years ago|reply
† http://www.nasdaqtrader.com/content/Productsservices/trading...
[+] [-] jeffreyrogers|11 years ago|reply
[+] [-] lpage|11 years ago|reply
Microwave is an "early adopter" technology that will soon be replaced with superior ones. The first microwave network was slated to cost 15M/yr at the time of its launch in 2012. However, competition dropped that number to around 2M by launch time, and within six months it was < 250K. Mind you, everyone was locked into a 1-2yr contract at the higher price points. For the U.S. Tradeworx (aka Thesys) is one of the fastest "publicly" available networks so they're commanding a premium at $250K, but microwave is now available for less than 80K a mere two years after launch. Same story for Spread - seven figures and a two year commitment at the time of launch, down to 15-60K.
On days with snow, rain, or wind kicking up pollen/dust, packets are dropped at comical rates. Dropping a packet is more expensive latency wise than sending it over Spread, and if the weather is bad enough, you're not getting anything through at all, which leads to dual Spread/microwave deployments. Spread knows this which is why the introduction of microwave didn't dramatically drop the price of Spread.
Bandwidth wise you used to get about 1.5Mbps over a shared link. That number is better now, but not substantially. Even with no loss there's barely enough bandwidth to carry L1 price updates on a single active market data symbol, so market data on the whole is a no go. From what I can tell most people have gone the route of transmitting many types of data over both fiber and microwave while leaving the responsibility of deduping to the receiver.
There's not much coverage on it but we'll see some interesting things on the fiber front soon. Photonic-crystal fiber is getting cheaper and we'll continue to see interesting advances on the hollow-core photonic-bandgap front in general [1]. These technologies can theoretically get very close to the speed of light (.997c) with extremely high bandwidth and low attenuation (repeaters in either fiber or microwave networks add significant latency) at which point the race to zero will stair step down again.
http://www.nature.com/nphoton/journal/v7/n4/full/nphoton.201...
[+] [-] andyjohnson0|11 years ago|reply
Some interesting speculation on using Neutrino-based messaging to eliminate the latency caused by the Earth's curvature [1].
[1] http://www.forbes.com/sites/brucedorminey/2012/04/30/neutrin...
[+] [-] cyphunk|11 years ago|reply
[+] [-] Maxious|11 years ago|reply
[+] [-] minimax|11 years ago|reply
[+] [-] wglb|11 years ago|reply
Targeted attacks might just be doable.
Legal, they would not be. Deliberately interfering with communications is not legal.
[+] [-] mxfh|11 years ago|reply
http://www.uh.edu/engines/epi2703.htm
[+] [-] k2enemy|11 years ago|reply
[+] [-] baddox|11 years ago|reply
[+] [-] CmonDev|11 years ago|reply
[+] [-] mdda|11 years ago|reply
[+] [-] auntienomen|11 years ago|reply
[+] [-] markvdb|11 years ago|reply
[+] [-] anemitz|11 years ago|reply
[+] [-] t3f|11 years ago|reply
[1] http://www.escapecom.com/pdf/low_latency_white_paper.pdf
[+] [-] jackgavigan|11 years ago|reply
[+] [-] NicoJuicy|11 years ago|reply
I live like 10 km's from Veurne (what are the odds that is ontopic... I can rarely even mention Belgium :P)
[+] [-] hammock|11 years ago|reply
[+] [-] moreentropy|11 years ago|reply
It's a lot like BitCoin, it turns some expensive resource (be it CPU/GPU power or optimized data links) into money, but it doesn't help with earning/generating the money in the first place, so it just extracts it from someone else.
It's a scam and should be banned worldwide. I don't know anything about trading, but I guess by making very small changes (make people hold stock for a few seconds?) you could render the whole HFT industry useless without any negative effects to the real economy.
[+] [-] Mikeb85|11 years ago|reply
HFT is the reason I can personally put in an order and have it executed within 10 seconds without the price moving much. I've traded on markets with little to no liquidity, it sucks. You wait half a day for your order to fill only to have the price significantly move against you...
[+] [-] vasilipupkin|11 years ago|reply
[+] [-] lifeformed|11 years ago|reply
[+] [-] gnaritas|11 years ago|reply
Then why do you have such strong opinions about trading methods like HFT?
[+] [-] spacefight|11 years ago|reply
Didn't know that the same scam is running in Europe...
[+] [-] grinnbearit|11 years ago|reply
There are other posts by the same author which cover the same topic if you're interested.
[+] [-] Bootvis|11 years ago|reply
[+] [-] _mulder_|11 years ago|reply
HFT has been around in Europe and is as well established as the US, so I assume the alleged scam relates directly to buying and operating Microwave networks. Seriously, please do provide more information, I am keen to learn more.
disclaimer: I've not read 'Flash Boys' yet, so apologies if it's all explained in that book