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A friend of mine works at one of the big high frequency trading companies. He does programming on the HFT systems. I have been trying to get a hold of him. This is a conversation I had with him a few minutes ago:
10:43 PM
me: How was work Thursday?
HTF Tech Guy: fucked
me: I can only imagine
HTF Tech Guy: NYSE is the biggest piece of shit on earth, they caused half the problems
me: From stopping the trades on certain stocks?
HTF Tech Guy: no, their electronic system is so shitty, and their dev staff is so shitty... it was taking them hours to tell us our order status, something that is usually instantaneous. how the fuck are people supposed to trade without knowing that, that's why everyone bailed out. which is why some stocks "plummetted" fast. just nobody in the market to buy or sell so it appeared to be "one cent" or whatever. the same shit happened on friday too actually, they are just a piece of shit
me: so you think their computers f'd up and they cound't fix them in a reasonably fast manner?
HTF Tech Guy: i think that the market swung pretty wildly and their system got backed up, then they couldn't get it going fast, then all the market makers lost confidence in their current position so stopped trading. i think my boss was there until 9pm on friday waiting for them to find their own asses
me: you guys co-locate, right?
HTF Tech Guy: yea everyone co-locates.
me: I saw that. You guys were one of the firms that stopped trading -- the media made it sound like you guys had a policy of stopping trading when the dow dropped 500 points or something
HTF Tech Guy: lol, no, i think NYSE was the main reason we stopped. and there was some shit going on with a few of our positions that made absolutely no sense, so it was mor elike "ok, wtf is going on, lets hit the red button and take a step back and see what the hell is going on". i looked at some charts, it looked like we actually stopped trading afer the big dip by a minute or so, but maybe some of our traders stopped earlier, its hard to tell really
me: that makes sense -- the articles I was reading made it sound like you and another HFT firm pulled out at some self-imposed arbitrary number -- they said 500 points down -- and that was responsible for the sudden drop
HTF Tech Guy: nah -- there was basically one trader who suddenly had the biggest negative position we have ever seen and then we were like "wtf, dow is down 700". then people started pulling back. i happened to witness all that actually just by dumb luck
me: yea, I just happened to look at google finance at the exact moment the markets were down 8% or so -- looked like the world was ending
HTF Tech Guy: well, the whole market was on edge is the real underlying cause honestly, if it was the day before xmas, this shit wouldn't have happened. all the institutions have had their finger on the sell button for months hoping not to be the last guy out. of course, for our firm we don't care about all that stuff, we just trade
me: Do you facilitate trades for third parties, or trade your own positions?
HTF Tech Guy: we have no customers
me: seems like you were in an amazing place to be when that went down. What were people doing?
HTF Tech Guy: basically everyone important up to the owner was standing behind the trader with the huge loss, just kind of ad-hoc doing things really -- like, backing out of trading, trying to reduce some large positions, get flat. this trader who had the huge loss on his screen is a younger guy, probably 24....at first he seriously had the most afraid look i have ever seen in-person on a man's face...it was weird
me: oh geez ..
HTF Tech Guy: he was soaked in sweat
me: yea
HTF Tech Guy: but, i think in the end he actually made that much in profit because it swung back while we were not trading
me: man. Accenture at 1 cent. What was going on there?
HTF Tech Guy: those are called stub quotes. basically market makers are required to always be in the market, so of course to avoid the rule they do shit like always have a buy of .01 and a sell for 99999 on the books
me: i see
HTF Tech Guy: so, if everyone else cancels their buy orders at the same time as some idiot puts in a market order, they end up matching to these stub quotes. all those trades were busted though (cancelled). so, it wasn't that accenture was .01, its just that nobody was offering to buy at any price
me: Do you think someone figured out they could P&G down and cause the market to tank like that, or was it just a glitch from the NYSE?
HTF Tech Guy: i'm not sure about the initial cause on P&G. i don't think that it had anything to do with nyse
me: But then when it started to get crazy the NYSE's computers f'd up?
HTF Tech Guy: i think that was when everyone paniced after the P&G drop -- they don't handle high volume very well i guess. i looked through the logs the night of the problem and never saw any "fat finger" order, and sure enough today i read that they don't think that theory is right anymore. i don't know where people come up with that shit when there are logs they all should have
me: Yea, most people were saying that was bogus pretty quick -- except CNBC kept saying for a few days: "oops, I pushed the 'b' instead of the 'm'"
HTF Tech Guy: haha. yea some comedian was like "i don't know about you, but etrade asks me like 3 times before it submits the order"
me: You guys concerned the senate will try to regulate HFT now?
HTF Tech Guy: i am somewhat concerned, but it sounds like they are more interested in regulating steep falls in individual stocks than regulating HFT
me: true
HTF Tech Guy: its funny watching articles talk about the NYSE and NASDAQ heads talking with the SEC -- they are both morons, but NYSE is just really bad. luckily BATS and DirectEdge are in now, eventually NYSE will fall, just will take some time
me: they are clueless, or just playing dumb?
HTF Tech Guy: they are pretty ******* clueless i think, from all our experience dealing with them
me: do your computers interface with the NYSEs then, at the co-loc center?
HTF Tech Guy: yeah. i mean, in the political world they are probably pretty smart and well connected, but technologically...morons
me: how many people are co-located, you have any idea?
HTF Tech Guy: no idea, no way to know
our IT guys go to the datacenter sometimes, but i think its kind of generic, i don't think its all stock people
me: do you see who you are trading with? psudeonym or anonymous?
HTF Tech Guy: its always anonymous, we can only tell what is ours
me: crazy
HTF Tech Guy: other than that, nothing else is discernable. although you can see things sometimes, like some guy who always puts in an order for 763 or something crazy like that. 763 shares that is
me: So then you grab two prices and make them meet, keeping the middle?
HTF Tech Guy: well, there's different strategies, some are based on market making, like buy now, sell in a few seconds. or some are based on some kind of arbitrage, like the price changes at exchange X but not yet at exchange Y
me: interesting
HTF Tech Guy: market making is kind of like being a bank. when you go to the bank to withdraw 500$, you don't have to wait for someone else to show up to deposit $500, the bank assumes someone else will show up on average, etc etc.
me: How was work Thursday?
HTF Tech Guy: fucked
me: I can only imagine
HTF Tech Guy: NYSE is the biggest piece of shit on earth, they caused half the problems
me: From stopping the trades on certain stocks?
HTF Tech Guy: no, their electronic system is so shitty, and their dev staff is so shitty... it was taking them hours to tell us our order status, something that is usually instantaneous. how the fuck are people supposed to trade without knowing that, that's why everyone bailed out. which is why some stocks "plummetted" fast. just nobody in the market to buy or sell so it appeared to be "one cent" or whatever. the same shit happened on friday too actually, they are just a piece of shit
me: so you think their computers f'd up and they cound't fix them in a reasonably fast manner?
HTF Tech Guy: i think that the market swung pretty wildly and their system got backed up, then they couldn't get it going fast, then all the market makers lost confidence in their current position so stopped trading. i think my boss was there until 9pm on friday waiting for them to find their own asses
me: you guys co-locate, right?
HTF Tech Guy: yea everyone co-locates.
me: I saw that. You guys were one of the firms that stopped trading -- the media made it sound like you guys had a policy of stopping trading when the dow dropped 500 points or something
HTF Tech Guy: lol, no, i think NYSE was the main reason we stopped. and there was some shit going on with a few of our positions that made absolutely no sense, so it was mor elike "ok, wtf is going on, lets hit the red button and take a step back and see what the hell is going on". i looked at some charts, it looked like we actually stopped trading afer the big dip by a minute or so, but maybe some of our traders stopped earlier, its hard to tell really
me: that makes sense -- the articles I was reading made it sound like you and another HFT firm pulled out at some self-imposed arbitrary number -- they said 500 points down -- and that was responsible for the sudden drop
HTF Tech Guy: nah -- there was basically one trader who suddenly had the biggest negative position we have ever seen and then we were like "wtf, dow is down 700". then people started pulling back. i happened to witness all that actually just by dumb luck
me: yea, I just happened to look at google finance at the exact moment the markets were down 8% or so -- looked like the world was ending
HTF Tech Guy: well, the whole market was on edge is the real underlying cause honestly, if it was the day before xmas, this shit wouldn't have happened. all the institutions have had their finger on the sell button for months hoping not to be the last guy out. of course, for our firm we don't care about all that stuff, we just trade
me: Do you facilitate trades for third parties, or trade your own positions?
HTF Tech Guy: we have no customers
me: seems like you were in an amazing place to be when that went down. What were people doing?
HTF Tech Guy: basically everyone important up to the owner was standing behind the trader with the huge loss, just kind of ad-hoc doing things really -- like, backing out of trading, trying to reduce some large positions, get flat. this trader who had the huge loss on his screen is a younger guy, probably 24....at first he seriously had the most afraid look i have ever seen in-person on a man's face...it was weird
me: oh geez ..
HTF Tech Guy: he was soaked in sweat
me: yea
HTF Tech Guy: but, i think in the end he actually made that much in profit because it swung back while we were not trading
me: man. Accenture at 1 cent. What was going on there?
HTF Tech Guy: those are called stub quotes. basically market makers are required to always be in the market, so of course to avoid the rule they do shit like always have a buy of .01 and a sell for 99999 on the books
me: i see
HTF Tech Guy: so, if everyone else cancels their buy orders at the same time as some idiot puts in a market order, they end up matching to these stub quotes. all those trades were busted though (cancelled). so, it wasn't that accenture was .01, its just that nobody was offering to buy at any price
me: Do you think someone figured out they could P&G down and cause the market to tank like that, or was it just a glitch from the NYSE?
HTF Tech Guy: i'm not sure about the initial cause on P&G. i don't think that it had anything to do with nyse
me: But then when it started to get crazy the NYSE's computers f'd up?
HTF Tech Guy: i think that was when everyone paniced after the P&G drop -- they don't handle high volume very well i guess. i looked through the logs the night of the problem and never saw any "fat finger" order, and sure enough today i read that they don't think that theory is right anymore. i don't know where people come up with that shit when there are logs they all should have
me: Yea, most people were saying that was bogus pretty quick -- except CNBC kept saying for a few days: "oops, I pushed the 'b' instead of the 'm'"
HTF Tech Guy: haha. yea some comedian was like "i don't know about you, but etrade asks me like 3 times before it submits the order"
me: You guys concerned the senate will try to regulate HFT now?
HTF Tech Guy: i am somewhat concerned, but it sounds like they are more interested in regulating steep falls in individual stocks than regulating HFT
me: true
HTF Tech Guy: its funny watching articles talk about the NYSE and NASDAQ heads talking with the SEC -- they are both morons, but NYSE is just really bad. luckily BATS and DirectEdge are in now, eventually NYSE will fall, just will take some time
me: they are clueless, or just playing dumb?
HTF Tech Guy: they are pretty ******* clueless i think, from all our experience dealing with them
me: do your computers interface with the NYSEs then, at the co-loc center?
HTF Tech Guy: yeah. i mean, in the political world they are probably pretty smart and well connected, but technologically...morons
me: how many people are co-located, you have any idea?
HTF Tech Guy: no idea, no way to know
our IT guys go to the datacenter sometimes, but i think its kind of generic, i don't think its all stock people
me: do you see who you are trading with? psudeonym or anonymous?
HTF Tech Guy: its always anonymous, we can only tell what is ours
me: crazy
HTF Tech Guy: other than that, nothing else is discernable. although you can see things sometimes, like some guy who always puts in an order for 763 or something crazy like that. 763 shares that is
me: So then you grab two prices and make them meet, keeping the middle?
HTF Tech Guy: well, there's different strategies, some are based on market making, like buy now, sell in a few seconds. or some are based on some kind of arbitrage, like the price changes at exchange X but not yet at exchange Y
me: interesting
HTF Tech Guy: market making is kind of like being a bank. when you go to the bank to withdraw 500$, you don't have to wait for someone else to show up to deposit $500, the bank assumes someone else will show up on average, etc etc.
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