A much more entertaining and informative book than it's title or pedigree would hint at. Genuinely recommended reading.
One of the most surprising details in the whole book was the trading system devised by the biggest HFT-complainer, "Thor". And not even the system itself. Trading firms have to connect to practically all the exchanges, because they need the ability to send in orders directly to one of them. In trading, adverse selection is a thing - if an institutional trader sends in a big order, liquidity providers (HFT firms) can get hammered pretty badly. So when someone is buying or selling in one exchange, the HFT shops will adjust (read: pull) their quotes on other exchanges before the same executions would hit them there as well.
The basic assumption of a liquidity provider can be summed up as: if someone is executing trades, they must know something more; the prices currently on offer are clearly wrong. Pull quotes before things get expensive.
Thor wasn't exactly an optimisation engine, it was more a synchronisation engine. It kept track of transmission latencies across all the exchanges and could coordinate order creation times to such a degree that the orders that it wanted executed would land in all the exchanges at almost exactly the same time. This would allow it to execute its orders on all the exchanges at the prices available at that very time, without giving HFT firms the time to communicate across exchanges to pull their quotes. If I remember correctly, even the book used the term "slam" for the behaviour.
Thor used a strategy that any half-decent engineer should come up with in less than 5 minutes. But it was considered unfair by all the other market participants. The book didn't tell much more about Thor, other than that its use was discontinued shortly afterwards.
One of the most surprising details in the whole book was the trading system devised by the biggest HFT-complainer, "Thor". And not even the system itself. Trading firms have to connect to practically all the exchanges, because they need the ability to send in orders directly to one of them. In trading, adverse selection is a thing - if an institutional trader sends in a big order, liquidity providers (HFT firms) can get hammered pretty badly. So when someone is buying or selling in one exchange, the HFT shops will adjust (read: pull) their quotes on other exchanges before the same executions would hit them there as well.
The basic assumption of a liquidity provider can be summed up as: if someone is executing trades, they must know something more; the prices currently on offer are clearly wrong. Pull quotes before things get expensive.
Thor wasn't exactly an optimisation engine, it was more a synchronisation engine. It kept track of transmission latencies across all the exchanges and could coordinate order creation times to such a degree that the orders that it wanted executed would land in all the exchanges at almost exactly the same time. This would allow it to execute its orders on all the exchanges at the prices available at that very time, without giving HFT firms the time to communicate across exchanges to pull their quotes. If I remember correctly, even the book used the term "slam" for the behaviour.
Thor used a strategy that any half-decent engineer should come up with in less than 5 minutes. But it was considered unfair by all the other market participants. The book didn't tell much more about Thor, other than that its use was discontinued shortly afterwards.
Rather amusing, nonetheless.