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0 pointsyummyfajitas9y ago0 comments

What you are describing is an acausal (i.e. physically impossible, since cause effect happens before cause) version of demand anticipation - changing prices in response to market demand.

It's impossible because the HFT will only know your order has reached exchange A after exchange A has told him about it. Obviously A can't tell him about it until after your order has arrived.

Front running is a strategy where your broker sees your order, trades ahead of it, and then routes your order to the market. It's highly illegal.

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7 comments · 2 top-level

darawk9y ago· 3 in thread

Did you not read my example? We are talking here about multiple, physically separated exchanges.

Example:

Vanguard sends a buy order of 1000 shares of AAPL to exchange A. Some HFT firm sees that order on exchange A and knows that it will also be placed on exchange B, and was surely broadcast from Vanguard's trading floor at the exact same moment as the order to exchange A.

However, the HFT firm also knows that Vanguard is physically closer to exchange A then B, and the HFT firm has invested a lot of money to ensure that they have the physically shortest possible route from themselves to exchange B.

This allows them to broadcast their order to exchange B and have it arrive there before the order broadcast by Vanguard, even though they broadcast their order later.

It is somewhat difficult to wrap your head around, but it is a physical reality, and people are making millions of dollars from it as I write this.

kasey_junk9y ago

A) 'yummyfajitas has worked in hft and written several blog posts on the subject.

B) he is reacting specifically to the term front-running which has a known technical definition in trading and cannot happen the way you describe (I've said elsewhere I believe the term has been appropriated and redefined and am not willing to fight that anymore, maybe he is).

C) it's funny that you mention Vanguard as they have been pretty adamant that HFT market makers of the form that use latency are save them money.

yummyfajitasOP9y ago

Here's what the HFT actually sees:

TRADE AAPL 1000@$96.98.

He does not see "Vanguard" - the trade confirmation is anonymous. It could even be him! (Yes, you are subscribed to a multicast trade confirmation feed and even your own trade confirmations are anonymized.) He does not see Vanguard's physical location - for all he knows Vanguard is closer than he is.

So actually, all the HFT knows is that someone bought some AAPL.

Now what? Whenever someone buys AAPL he goes out and buys a bunch more? That doesn't sound like a moneymaking strategy to me.

What evidence do you have that people are making millions of dollars from this as you write this? Michael Lewis?

eru9y ago

> Now what? Whenever someone buys AAPL he goes out and buys a bunch more?

Especially since for every seller there's also a buyer.

dllthomas9y ago· 2 in thread

Perhaps the parent comment was edited after you posted, but while what is described is not "front running", it's not acausal. The observation is happening at Exchange A, the reaction at Exchange B.

yummyfajitasOP9y ago

If he sees an order on exchange A (which is completely anonymized and disconnected from anything on exchange B), he cannot know if you are making an order on exchange B.

"Buying ahead of you" requires some kind of advance knowledge, and in the scenario described you simply don't have it.

dllthomas9y ago

If there's a pattern of sloppy traders trying to fill large orders by splitting them across exchanges and firing them off at roughly the same time, then having seen a trade at one exchange and not yet at another, it might be a good guess that a trade was incoming, if I'm faster enough to make those decisions.

I don't really know if that is the case (or ever was).

In any event, it's not acausal.

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7 comments · 2 top-level

darawk9y ago· 3 in thread

Did you not read my example? We are talking here about multiple, physically separated exchanges.

Example:

This allows them to broadcast their order to exchange B and have it arrive there before the order broadcast by Vanguard, even though they broadcast their order later.

It is somewhat difficult to wrap your head around, but it is a physical reality, and people are making millions of dollars from it as I write this.

kasey_junk9y ago

A) 'yummyfajitas has worked in hft and written several blog posts on the subject.

C) it's funny that you mention Vanguard as they have been pretty adamant that HFT market makers of the form that use latency are save them money.

yummyfajitasOP9y ago

Here's what the HFT actually sees:

TRADE AAPL 1000@$96.98.

So actually, all the HFT knows is that someone bought some AAPL.

Now what? Whenever someone buys AAPL he goes out and buys a bunch more? That doesn't sound like a moneymaking strategy to me.

What evidence do you have that people are making millions of dollars from this as you write this? Michael Lewis?

eru9y ago

> Now what? Whenever someone buys AAPL he goes out and buys a bunch more?

Especially since for every seller there's also a buyer.

dllthomas9y ago· 2 in thread

Perhaps the parent comment was edited after you posted, but while what is described is not "front running", it's not acausal. The observation is happening at Exchange A, the reaction at Exchange B.

yummyfajitasOP9y ago

If he sees an order on exchange A (which is completely anonymized and disconnected from anything on exchange B), he cannot know if you are making an order on exchange B.

"Buying ahead of you" requires some kind of advance knowledge, and in the scenario described you simply don't have it.

dllthomas9y ago

I don't really know if that is the case (or ever was).

In any event, it's not acausal.

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