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The Trading Mesh

Useful Video from Nanex on Facebook IPO Opening

Fri, 25 May 2012 00:14:00 GMT           

I just came across this video today, posted by Eric Hunsader of Nanex, which shows graphically what happened with the Facebook IPO on Nasdaq last Friday. It makes for interesting viewing:

Here's Eric's own description of what's happening in the video:

Watch Nasdaq's quote (first box to appear - 10 o'clock). Note the crazy bid prices are higher than the equally crazy ask prices. After trading opens, Nasdaq's quote will start turning red when it's no longer eligible to set the NBBO. Watch how quotes on the other exchanges react wildly causing the price to evaporate.

Each box represents one exchange. The SIP (UQDF in this case) is the box at 6 o'clock. It shows the National Best Bid/Offer. The shapes represent quote changes which are the result of a change to the top of the book at each exchange. The time at the top of the screen is the time of the last quote or trade update in Eastern Time HH:MM:SS:mmm (mmm = millisecond). We accelerate time until the open, and then we slow time down so you can see what goes on at the millisecond level. A millisecond (ms) is 1/1000th of a second. The blink of an eye is about 200 ms.

Note how every exchange must process every quote from the others -- for proper trade through price protection. This complex web of technology must run flawlessly every millisecond of the trading day, or arbitrage (HFT profit) opportunities will appear.

I interviewed Eric for the HFT Review back in October last year, and you can find that interview here:

Improving Academic Research into HFT & Fighting High Frequency Spam

I also read a blog post from the chaps at Themis Trading this morning, "You’re My Hot Rod Mama And You’re Really Built For Speed. Cough.", which proposes that HFT traders should be slowed down because the exchanges aren't fast enough to cope. But isn't that the wrong way round? Shouldn't the exchanges speed up rather than the HFTs slow down?

What do you think?

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