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by monch1962
2914 days ago
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Bear in mind that exchanges are owned by the companies that trade on them - they've got a VERY strong vested interest in not fixing the problem. HFT works because fast traders can see a buy and sell order that are a distance apart, buy from the seller, then immediately offer to sell it at a fractionally higher price. Because they can see the buy order at all times, they know they can sell what they've just bought and make a tiny profit. All they have to do is ensure they can see the buy and sell orders faster than anyone else, then keep hitting those orders. Repeat until retirement. Several years ago, a new exchange was set up to try to address this problem by simply putting a huge coil (many km) of fibre in front of the system/s that accepted orders. This approach meant that, while HFTs could still see orders before anyone else and hit them faster, their speed advantage was largely lost due to the latency as their order placement was just a bit slower. As a result there was no guarantee the 2nd part of the order those HFTs were hitting was still there, so they might get left holding a position without being able to sell it at the profit they were used to. Each HFT could try to front run orders as they do now, but the fairly small increase in latency killed their advantage. HFT companies managed to avoid using this exchange very successfully. |
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You mean they didn't accidentally trade on IEX? That's not surprising.
Also, I would believe that if you're doing pure latency arb, then trading on IEX isn't profitable, but there are other high-frequency strategies besides pure latency arb. Are you restricting your definition of HFT to pure latency arb strategies?