Goldman Gets Serious About High-Speed Trading

[tommo]

I agree i960

As much as I hate to see costs going up I think it will require a little sacrifice from everyone to rebalance the markets to make it a more level playing field and perhaps having a lower limit on how low trading comissions can go would be the way forward.

It needs to be low enough to encourage short term trading...it is a huge benefit to the markets.

But by giving one or two firms virtually free trading costs (perhaps making the exchange a cent or so) in exchange for diming everyone out of the market would be a place i would start.

I honestly think the exchanges would make more money by pricing HFT's out the market. When I first started trading which was at the start of markets really starting to become very computerised we were doing 3x the volume we do these days AND commissions were higher.

 

[EnergyTrader]

Anything involving "jump ahead" screams abuse.

Can you give an example of how this could be abused ? Anyone placing a limit order would be free to place either type of limit order, so the playing field would remain level. For most traders the new limit order would have no downside and give you a leg up over HFT which would not be likely to use the new limit order type.

 

[i960]

Can you give an example of how this could be abused ? Anyone placing a limit order would be free to place either type of limit order, so the playing field would remain level. For most traders the new limit order would have no downside and give you a leg up over HFT which would not be likely to use the new limit order type.

Well quite honestly I don't have any specific examples of how it would be abused but my gut feel is there will be an angle on how it will get abused. Also there is actually a downside to this order type: you cannot cancel out of it for 5 seconds. Remember that HFT not only has access to speed but they also have access to size. Size can float a price around until a more beneficial move happens - in fact these things could either participate in it or recognize it then use this new order type to jump the queue when price is about to move to it. How would they know when that is? By being the same entities that are keeping price away from it.

 

[tommo]

Yeah also you an just stack the order book 3 or 4 prices back. 90% of the time you won't get filled in the next 5 seconds and you will be at the front of every price when it gets there and just pull the order if you don't want it. Just as many orders will be pulled.

Only way to combat HFT is to make them pay a commission fee more inline with what the majority have to pay.

Giving the big players costs 90% lower than everyone else just encourages them to nick micro pennies off everyone else

 

[EnergyTrader]

Someone else suggested a simpler approach to just delay all cancel orders by 0.1 seconds : this way HFT programs couldn't pull their order in response to a market order, and anyone else would hardly be impacted.

 

[volpunter]

Cancellation charges do adequately address the problem and that is precisely why affected parties are kicking and screaming.
By the way, spreads have never in history, not back then and not today, significantly added liquidity.

Cancellation fees are way more effective than speed bumps for the exact reason i960 mentioned

I totally agree with you about the 2001 market scenario. I started trading professionally in 2005 and the markets were a lot fairer back then without doubt and the markets did a lot more volume. But I really don't see how we could ever go back to those days because it wasn't just manipulation (assuming HFT is manipulation) it was the fact technology wasn't as advanced. Humans did the jobs of computers and were generally slower and less efficient. When a news release came out there was 30 seconds whilst we all worked out what it meant for the market. Not just an algo plugged into Bloomberg that read it in a micro second. If you were a spreader you worked out the spread price in your head which most ppl couldn't be bothered to do so spreads stayed in a tighter range and markets stayed organised. If a big buyer came into the market they didn't use algos to execute the order, they left a huge footprint in the order book. But those days are gone ,stopping HFT wouldn't take it back to those days it would require a reversal in technology which would be impossible to do.

I would love to see a change but I don't think anything suggested so far would be a solution...unless trading went back on the floor but that's was fraught with corruption and inefficiencies too.

Regarding HFT pulling orders in a fast market they do but true spreaders (using autospreaders) are very active during fast markets. I quote very aggressively in fast markets.

It's a tough question for sure. But everything the authorities are doing are killing off true speculators in the market which will actually lead to more manipulation and more freak moves

 

[achilles28]

How much should cancellation fees be?

 

[volpunter]

high enough to deter hft operations and low enough to not deter those who are true liquidity providers. Simple as that. I am no expert on assessing the exact levels nor do I think anyone else on this site is. I think only produent regulators who really want to make a change and who see the current chaos in listed markets, particularly in the US and UK can request exchange data in order to analyze and determine an appropriate hurdle rate.

How much should cancellation fees be?

 

[tommo]

By the way, spreads have never in history, not back then and not today, significantly added liquidity.

Im sorry but I take issue with that. Spreading (not that I am a die hard spreader, i make money outright trading and spreading) adds infinitely more liquidity to the market. If a market is in freefall I would never be making bids in it as an outright trader, but as a spreader I will have bids working non stop and offsetting the fills in other markets.

Just about every market maker in the world is offsetting their inventory against another market.

You go on to any trading floor and 90% of their energy traders, STIRS traders, ags traders, soft traders are spreading. I personally know traders that clip 100 lots in oil and 10,000 lots in STIRS that wouldnt be there if they couldnt spread their risk off along the rest of the curve. I could probably count on one hand the amount of people I know that trade outrights trading more than 300 lots a day but even a trainee spread trader will be doing double that.

Oh and that doesnt include the implied price matching engine exchanges have that aggregate all the calendar spread orders onto the outright contract and vice versa.

I agree about the 0.01 delay on pulled orders as a possible way to combat HFT though

 

[volpunter]

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.

Im sorry but I take issue with that. Spreading (not that I am a die hard spreader, i make money outright trading and spreading) adds infinitely more liquidity to the market. If a market is in freefall I would never be making bids in it as an outright trader, but as a spreader I will have bids working non stop and offsetting the fills in other markets.

Just about every market maker in the world is offsetting their inventory against another market.

You go on to any trading floor and 90% of their energy traders, STIRS traders, ags traders, soft traders are spreading. I personally know traders that clip 100 lots in oil and 10,000 lots in STIRS that wouldnt be there if they couldnt spread their risk off along the rest of the curve. I could probably count on one hand the amount of people I know that trade outrights trading more than 300 lots a day but even a trainee spread trader will be doing double that.

Oh and that doesnt include the implied price matching engine exchanges have that aggregate all the calendar spread orders onto the outright contract and vice versa.

I agree about the 0.01 delay on pulled orders as a possible way to combat HFT though