[Beowulf] Pricing and Trading Networks: Down is Up, Left is Right

[Vincent Diepeveen]

On Feb 16, 2012, at 10:29 PM, Lux, Jim (337C) wrote:

> They don't hire their High Frequency Trading software people from  
> ads. Personal recommendations, more likely.  The ads for Java  
> coders are for run of the mill back end banking stuff. Most banks  
> are doing their enterprise scale work in Java (which is replacing  
> PowerBuilder, RPG, and COBOL).  Or Java interfaces to a SQL backend.
>

Most platforms have been entirely written in JAVA - there are many  
platforms and i read recently an estimate the platforms are 80% of the
total trading volume - what happens inside the platform didn't even  
get counted.

If your entire base already is in Java, it is the logical choice if  
you're a noob to choose that for a platform as well.

Yet it directly makes you a loser.

A good example in Netherlands of such platform, but there are a lot  
more platforms is Flowtraders.

They hire exclusively Java coders.

neary all the NSA level programmers are hardly busy with object  
orientation (as that's dead slow of course, even avoiding
object oriented manners of setting up code you're in company code a  
lot slower because of the many layers deep code you have
where no compiler can make sense out of).

I bet those using those platforms just lose money nowadays. Must be  
very exceptionel to find someone who made a profit there - for sure not
in a systematic manner. Yet of course the platform owners make cash  
because of the fixed fee on each transaction - so they cheer loud.

In fact nearly all big financial institutes have such a platform that  
will take care you lose money as the only way to win some is long  
term trading.

Long term trading in this is trading that takes longer than a few  
seconds, say buy something in the morning and sell it in the afternoon.

> I don't know of any million dollar FPGAs.  Even space qualified big  
> Xilinx parts are about a tenth of that.
>

Most software has a price of a couple of tens of thousands of dollars  
a month.
The FPGA's are a multiple of that.
the IBM websphere bla bla that can be used to parse market data and  
trade, it's around a $100k a year.
Add some tens of thousands for additional functionality.

Getting a FPGA a tad higher clocked from Xilinx, say the first sample  
at 22 nm, is probably not cheap either.

Being 1 Mhz higher clocked with your FPGA there than the competition  
is worth tens of millions of course.

Price doesn't matter at this area; the hedgefunds who are convinced  
invest major cash into being faster.

> Modern FPGAs could do substantially better than 1 microsecond  
> latency.  They have multiGbps interfaces on chip (e.g. Rocket I/O)  
> and external clocks in the hundreds of MHz range.  Now, if you're  
> doing store and forward routing of 1000 bit packets on a 1Gbps  
> wire, of course you're going to have 1 microsecond latency.
>

Actually most trading software that you can hire for tens of  
thousands a month has latencies closer to 500 microseconds to parse  
some data
and then give the order to do a trade.

Only recently they try to speed it up.

Majority trades at 100+ microseconds.

Of course NIC latencies are not counted here - we just speak about  
latencies you suffer at the computer.

And sure this is at very high clocked Nehalem processors.

By now i guess many will have moved to IBM software as that's mass  
software that's offered for just a 100k dollar a year or so,
and claims, last time i checked, around a 7 to 11 microseconds.

This was tested by themselves, so not during a surge.

In fact whatever fast latency you claim is useless, it's all about  
the surge latency of course.

The Exchanges measure surges in intervals of 50 milliseconds. So to  
give an example Bernanke coughs loud when the word 'US overspending',  
which currently
is approaching 50% of total income of the US government is (income  
projected 2644 billion, spendings far over 3600 billion). No way to  
fix that.

Obama's trick to express it as a percentage of GDP, i'm sure  
financial world is total ignoring that.

This makes the markets extremely volatile though.

 From traders viewpoint that's a long term consideration which todays  
exchanges won't reflect of course.

Yet it means that if 1 sentence gets said, that for a second suddenly  
you'll see huge surge in the market. The external platforms usually  
get blocked out
so you can have up to 15 minutes delay for your query to reach the  
market, if you're on an external platform, as you can see in some  
analysis;
any ticker you'll see or reflection of what's going on is gonna be  
minutes behind - we saw this clearly during the flash crash.

Only the datacenter of the exchange itself was accurate and anyone  
far away from that had to wait for minutes because of all the traffic  
jams caused by
massive trading volumes.

In short trading from external platforms during a crash is the  
silliest thing possible. You need a box inside the exchange - or you  
better be prepared to
be a loser when trading in derivatives.

So just to avoid you from losing all your money, investing big cash  
into being the fastest, it is worth it.

For some of you, they are maybe a bit surprised i just speak about  
futures here and not other tradeables.
That's for a simple reason, the derivatives market has expanded major  
league and is probably the only exchange where, if you're having
fast hardware and fast software, can still make good money.

Hope this doesn't get as a shock for you, but if you bought a year or  
70 ago the Dow Jones Industrial, same by the way for others,
and just did do nothing for 70 years then by 2005 or so, you would've  
had an average profit of 12% a year roughly.

 From which far over 7% is indexation and nearly 5% is dividend.
Most financials however found that 12% not good enough as they wanted  
to perform above the market average (indexation).
It was common to see no one got hired who couldn't bring home 20%+,  
that's what they wanted.

The stock market is simply moving total horizontal now, they no  
longer can make that 12% now; also it's much harder to sell them,
whereas futures are easy to sell and buy.

There is other derivatives as well, and i see on TV financials each  
time advertize other derivatives, yet in reality the markets mainly  
trades futures,
things like spreads and swaps are less popular.

Again the difference of presentation to the public what to buy and  
do, versus what they do their own.

Huge differences there. Just not even funny it is.

>
> -----Original Message-----
> From: beowulf-bounces at beowulf.org [mailto:beowulf- 
> bounces at beowulf.org] On Behalf Of Vincent Diepeveen
> Sent: Thursday, February 16, 2012 8:26 AM
> To: Eugen Leitl
> Cc: tt at postbiota.org; Beowulf Mailing List; forkit!
> Subject: Re: [Beowulf] Pricing and Trading Networks: Down is Up,  
> Left is Right
>
> Yes very good article.
>
> 1)
> But now the weirdest thing - i offered myself at different spots to  
> write a < 1 microsecond software to parse that marketdata, but no  
> one wants to hire you it seems - they just look for JAVA coders.
>
> Example is also Morgan Chase. All their job offers, which i receive  
> daily, 99% is JAVA jobs.
>
> ----------------
> Java is of course TOO SLOW for working with trading data. Much  
> better is C/C++ and assembler after you already have achieved that  
> < 1 microseconds in C.
>
> Note that the 'FPGA'S" that are advertized costs millions most of  
> them and the only latency quote i saw there is 2 microseconds,  
> which also sounds a bit slow to me, but well.
>
>