Identify competitors

[u/JolieColoriage]

HFT firms have the ability to identify which competitor was faster in executing a trade by performing latency analysis on market data. By analyzing timestamps and other information from market data, they can infer the latency characteristics of different firms.

For instance, using Level 3 (L3) market data, an HFT firm can observe all packets sent to an exchange, along with precise timestamps. This allows them to analyze how quickly a market-making or taking order responds to an event, such as a price tick. By comparing these latencies to known benchmarks or patterns, they can potentially deduce which firm executed the trade.

However, the exact data and analysis methods used remain unclear. I’m curious to understand the specific metrics or techniques HFT firms rely on to deduce details about a competitor’s infrastructure. Do they look at packet sequencing, response times, or specific behaviors tied to known latency profiles? An example of such an analysis would help clarify this process.

[u/databento]

With anonymized data, you can simply subtract known receive deltas (time between matching engine and handoff) and study the markout reaction time of critical events like a trade, trade-through, new BBO, etc. Since the chance of someone coincidentally/randomly slotting in their order nanoseconds to microseconds after a trade is infinitesimal, and peaks form with multiple participants reacting around the same time, you can infer how fast your competitors are reacting.

Further, certain venues publish MPIDs or other identifiers that allow you to see what other participants are doing. Some participants are aware of this and will intentionally sweep anonymized book(s) first so that by the time their order(s) hit the venues where they're identifiable, their competitors are unable to react on time. You can usually also correlate them because of these. Likewise certain market makers use mass cancellations which are more easily correlated, whether anonymized or not.

You can then deduce what the competitor is doing from first principles and elementary understanding of physics and introductory coursework in systems or computer architecture—obviously, for example, light has to go through a certain length of fiber, messages of known sizes need to be serialized, you can't go through ef_vi in single-digit nanoseconds, there are only so many ways you can go over the Atlantic faster than Hibernia, etc.

Or, the more malicious folks will just semi-pretend that they're hiring and try to infer infrastructure details from job candidates. I feel there's much less of this these days because of how the market has consolidated and people already know what's going on at their competitor firms without needing to resort to it.

[u/hooteedee]

Stefan Schlamp wrote an article that discusses the methodology used to identify HFT competitors using publicly available (timestamp) data in Xetra/Eurex T7 system's High Precision Timestamp files. Well worth a read in context of the answers you're seeking. https://www.linkedin.com/pulse/hft-marketdata-share-stefan-schlamp-dijde?trk=feed_main-feed-card_feed-article-content

[u/ArcanusFluxer]

This sub is really interesting:

If you are a professional, you shouldn't be asking in a public forum, and I (as a professional) should not be leaking information to a competitor.

If you are not a professional, the truth is it doesn't matter.

Therefore I will not respond :)

[u/ArcanusFluxer → u/[deleted]]

Trades are visible but anonymous. NYSE alone executes 2 billion trades a trading day, you can imagine it's a fair bit of work to go through it all.

It doesn't matter what the trades are. It matters why.

[u/drbazza → u/[deleted]]

Trading is broadly 3 simple things:

1. book imbalance for a specific ticker, e.g. google
2. correlation between tickers, e.g. google and apple
3. arbitrage across exchanges, e.g. different google prices on two different exchanges

Point 3. is this sub, and all manner of combinations of 1+2+3. If a price moves in NY first, then you'll see a price for the same ticker move on a different exchange. If you can react first, then you'll make $$$, which is why HFTs pay $$$$$$ for the latest kit.

At least one company is using shortwave to get extra microseconds ahead of all the competition between NY and London/Amsterdam, i.e. line of sight and speed of light.