Goldman Gets Serious About High-Speed Trading

volpunter said:
Not sure which floor traders you are talking about, lol. Mate it is 2015, wake up.

We are talking about listed stock markets, options markets, futures markets. Anyone can look at times of extremely high volatility, hardly anyone supplied liquidity. You must be dreaming. Where during the flash crash were there spreaders? Let's keep the discussion civil but please also do not try to insult others with this bollocks.
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I said "trading floor" not trading pit, mate. I've been a professional trader for my entire working life and can assure you a room where traders are all sat around trading is still called a trading floor.

You site the flash crash, great, a once in a 30 year event, and I actually was working bids in that and made money. And what do you expect, we are all trying to make money here, no speculator is obligated to stand in front of a crashing market and buy it... markets are allowed to go down. Occasionally markets gets volatile, plenty of opportunity to make money.
 
first off, apologies if I misread, I thought you are referring to trading pits.

Secondly, I can counter-assure you as professional with more than a decade at sell side banks and hedge funds that you are drinking the kool-aid if you truly believe a few spreaders add meaningful liquidity. First of all, either spreads are exchange traded (in which case most do not add liquidity in the individual assets that underlie the spread legs) or if you spread "manually" you might supply liquidity on the initial leg but certainly not on subsequent ones when you need to get filled and rather turn into a liquidity taker.

And I do not know the brainwash you received in your bank but yes, the function of a market maker is to MAKE MARKETS. I have for many years traded at internal bank prop desks and it drove me crazy to the extent that I simply stopped relationships with some "market makers" who plenty of times refused to make markets. If you cannot or do not want to do your job then you are free to vacate your seat for someone more capable. We are not just talking about extreme events here. Widen your bid/offer, reduce size, but to withdraw and leave nowhere to be seen is ridiculous.

One thing I am absolutely certain of is that broad market liquidity is not heavily tilted by whether spreaders are active or not, so please do not blow up the importance of your desk or the desk whom your support in your back or middle office.

Maybe you want to read your job description again (or the one of the traders whom you work for): A market making book is expected to lose money or make very little money overall, it is a business that is supposed to provide LIQUIDITY to clients, the same clients that in turn are supposed to bring in business and generate revenues in other areas. I hope, by the way that you are planning for the future as I do not believe there is a future for market makers or spreaders at banks or hedge funds. If anything your desk must have shrunk by 70-80% over time, replaced by machines.

tommo said:
I said "trading floor" not trading pit, mate. I've been a professional trader for my entire working life and can assure you a room where traders are all sat around trading is still called a trading floor.

You site the flash crash, great, a once in a 30 year event, and I actually was working bids in that and made money. And what do you expect, we are all trying to make money here, no speculator is obligated to stand in front of a crashing market and buy it... markets are allowed to go down. Occasionally markets gets volatile, plenty of opportunity to make money.
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volpunter said:
first off, apologies if I misread, I thought you are referring to trading pits.

Secondly, I can counter-assure you as professional with more than a decade at sell side banks and hedge funds that you are drinking the kool-aid if you truly believe a few spreaders add meaningful liquidity. First of all, either spreads are exchange traded (in which case most do not add liquidity in the individual assets that underlie the spread legs) or if you spread "manually" you might supply liquidity on the initial leg but certainly not on subsequent ones when you need to get filled and rather turn into a liquidity taker.

And I do not know the brainwash you received in your bank but yes, the function of a market maker is to MAKE MARKETS. I have for many years traded at internal bank prop desks and it drove me crazy to the extent that I simply stopped relationships with some "market makers" who plenty of times refused to make markets. If you cannot or do not want to do your job then you are free to vacate your seat for someone more capable. We are not just talking about extreme events here. Widen your bid/offer, reduce size, but to withdraw and leave nowhere to be seen is ridiculous.

One thing I am absolutely certain of is that broad market liquidity is not heavily tilted by whether spreaders are active or not, so please do not blow up the importance of your desk or the desk whom your support in your back or middle office.

Maybe you want to read your job description again (or the one of the traders whom you work for): A market making book is expected to lose money or make very little money overall, it is a business that is supposed to provide LIQUIDITY to clients, the same clients that in turn are supposed to bring in business and generate revenues in other areas. I hope, by the way that you are planning for the future as I do not believe there is a future for market makers or spreaders at banks or hedge funds. If anything your desk must have shrunk by 70-80% over time, replaced by machines.
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I actually specifically used the phrase "no speculator is obligated to stand in front of a crashing market and buy it" I did not say market maker. I have worked on market making desks and totally agree with you that as soon as a sustained move is in place they run for the hills. Most market making desks, as I am sure you are aware, are paid for time they have quotes in the market rather than fills they take. Most MM desks I know just stopped making a market once they were actually expected to take a fill. Its a joke.

I think we will have to agree to disagree on whether spreading adds liquidity or not. I was part of one of the first prop desks on the ICE/IPE exchange when it went electronic and for a long time was one of only a few people that even quoted the back months. You had to trade the OTC market to get any outright fill beyond the first 3 months or get a calendar off 6 months out. Now you have a 1 tick spread market and can comfortably do a couple of hundred lots without moving the market too much regardless of whether oil is going up down or sideways and 90% of the quotes in there are spreaders.
 
dude, you keep on contradicting yourself. Where in ibanks does one find "speculators" that trade spreads? You must be talking about Post-Crisis Cheat-Bank 2.0: Change the name of your desk and continue misleading internal risk managers and outside regulators. Or what else is a "Facilitation Desk" doing? They still run prop books though they are not supposed to other than warehouse positions from client trades yet most facil desks engage more in gambling and day trading markets than anything else.

I still disagree with you on the job description of market making desks. They are supposed to maximize turn over, not p&l. That is the top priority set forth for them.

Regarding spreading, sure, trading spreads can add liquidity in spreads, but as I said it rarely if ever adds liquidity to the overall market. With overall market I define outright futures contracts, stocks, bonds, options, futures options. Not spreads. The amount of liquidity that swaps from spreads into the direct contract market is minimal.

Look at oil contracts for example, outright oil futures (and for that matter most commodities) are actually very illiquid compared to index futures, stocks, currencies, bonds,...if the numerous commodity spreads (whether calendars or spreads in commodity byproducts or commodity derivatives) really benefitted the outright market then you would see a lot higher liquidity in front month crude oil futures, agriculturals, precious and base metals, livestock, ...take a simple look at the outstanding contracts...they pale in comparison to anything index, currency, bond, or stock related. I stand by my claim that exchange traded spreads hardly add liquidity to broad markets,....

...which brings me back to the point that spreaders should not be considered when attempting to fix the broken exchange traded market, especially fragmented equity markets. A cancellation fee is by wide agreement the best solution to fix this mess, and if that hurts a few spreaders then I think that is a reasonable price to pay to bring back overall trust and confidence in fair and equitable markets.

P.S.: Please do not take anything I said personal, I am mostly sharing facts and voicing thoughts originating from own experience. Which parts you accept as facts is left to your verifying my claims or believing me. Entirely up to you.

tommo said:
I actually specifically used the phrase "no speculator is obligated to stand in front of a crashing market and buy it" I did not say market maker. I have worked on market making desks and totally agree with you that as soon as a sustained move is in place they run for the hills. Most market making desks, as I am sure you are aware, are paid for time they have quotes in the market rather than fills they take. Most MM desks I know just stopped making a market once they were actually expected to take a fill. Its a joke.

I think we will have to agree to disagree on whether spreading adds liquidity or not. I was part of one of the first prop desks on the ICE/IPE exchange when it went electronic and for a long time was one of only a few people that even quoted the back months. You had to trade the OTC market to get any outright fill beyond the first 3 months or get a calendar off 6 months out. Now you have a 1 tick spread market and can comfortably do a couple of hundred lots without moving the market too much regardless of whether oil is going up down or sideways and 90% of the quotes in there are spreaders.
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volpunter said:
dude, you keep on contradicting yourself. Where in ibanks does one find "speculators" that trade spreads? You must be talking about Post-Crisis Cheat-Bank 2.0: Change the name of your desk and continue misleading internal risk managers and outside regulators. Or what else is a "Facilitation Desk" doing? They still run prop books though they are not supposed to other than warehouse positions from client trades yet most facil desks engage more in gambling and day trading markets than anything else.

I still disagree with you on the job description of market making desks. They are supposed to maximize turn over, not p&l. That is the top priority set forth for them.

Regarding spreading, sure, trading spreads can add liquidity in spreads, but as I said it rarely if ever adds liquidity to the overall market. With overall market I define outright futures contracts, stocks, bonds, options, futures options. Not spreads. The amount of liquidity that swaps from spreads into the direct contract market is minimal.

Look at oil contracts for example, outright oil futures (and for that matter most commodities) are actually very illiquid compared to index futures, stocks, currencies, bonds,...if the numerous commodity spreads (whether calendars or spreads in commodity byproducts or commodity derivatives) really benefitted the outright market then you would see a lot higher liquidity in front month crude oil futures, agriculturals, precious and base metals, livestock, ...take a simple look at the outstanding contracts...they pale in comparison to anything index, currency, bond, or stock related. I stand by my claim that exchange traded spreads hardly add liquidity to broad markets,....

...which brings me back to the point that spreaders should not be considered when attempting to fix the broken exchange traded market, especially fragmented equity markets. A cancellation fee is by wide agreement the best solution to fix this mess, and if that hurts a few spreaders then I think that is a reasonable price to pay to bring back overall trust and confidence in fair and equitable markets.

P.S.: Please do not take anything I said personal, I am mostly sharing facts and voicing thoughts originating from own experience. Which parts you accept as facts is left to your verifying my claims or believing me. Entirely up to you.
More...

I think we may be talking on crossed wires as I wasn't specifically talking about IBanks. I am talking about the trading industry as a whole. I come from a prop/fund background where everything is done for profit. I feel sorry for you guys at banks. The sooner you guys are allowed to prop trade again the better. It is better for the market as a whole.

The firms I work do hundreds and hundreds of thousands of futures contracts a month and 80% of it is spread trading, if spreaders are killed off this is 100'sk of orders and quotes that wont be in the market. Let me put it this way, if I was short 500 S&P's and the market was turning against me on a surprise interest rate cut and I wanted out who is more likely to sell into me and give me my out? An outright trader that decided he wants to sell into a surprise rate cut announcement (these people do exist unbelievably) or someone that was quoting the Russell or Dow Jones getting a fill on the bid side and then offsetting it the Spoos? Or someone that has lifted an underlying stock that hasnt reacted to the news and selling futures against it because and the arb between stock x and the Spoos has blown out?

But don't get me wrong, I don't really care if spreaders were hampered by a cancellation fee, I make plenty outright trading too and if anything would kill off a load of competition in the spread markets, im all for it. Its just all the evidence I have in my experience, both theoretical and empirical finds spreaders add more traded volume and quoted prices to the market. At least futures.
 
Let's agree to disagree. But thanks for sharing your side of the story.

tommo said:
I think we may be talking on crossed wires as I wasn't specifically talking about IBanks. I am talking about the trading industry as a whole. I come from a prop/fund background where everything is done for profit. I feel sorry for you guys at banks. The sooner you guys are allowed to prop trade again the better. It is better for the market as a whole.

The firms I work do hundreds and hundreds of thousands of futures contracts a month and 80% of it is spread trading, if spreaders are killed off this is 100'sk of orders and quotes that wont be in the market. Let me put it this way, if I was short 500 S&P's and the market was turning against me on a surprise interest rate cut and I wanted out who is more likely to sell into me and give me my out? An outright trader that decided he wants to sell into a surprise rate cut announcement (these people do exist unbelievably) or someone that was quoting the Russell or Dow Jones getting a fill on the bid side and then offsetting it the Spoos? Or someone that has lifted an underlying stock that hasnt reacted to the news and selling futures against it because and the arb between stock x and the Spoos has blown out?

But don't get me wrong, I don't really care if spreaders were hampered by a cancellation fee, I make plenty outright trading too and if anything would kill off a load of competition in the spread markets, im all for it. Its just all the evidence I have in my experience, both theoretical and empirical finds spreaders add more traded volume and quoted prices to the market. At least futures.
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Interesting article thanks. Although, there didn't seem to be a 'control' group where there was no HFT providing liquidity for the initial part of the transaction. If there were no HFT's the initial institutional order may have to pay a lot more on their first tranche in wide spread/less liquidity....just being devils advocate.
 
tommo said:
Interesting article thanks. Although, there didn't seem to be a 'control' group where there was no HFT providing liquidity for the initial part of the transaction. If there were no HFT's the initial institutional order may have to pay a lot more on their first tranche in wide spread/less liquidity....just being devils advocate.
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Everyone keeps saying this but if it were the case why would institutions even be complaining? They'd be considering pre-2005 the Stone Age and declaring HFT as the savior of markets.
 
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