11 ms·

I have defined HFT to be evil, therefore HFT is evil. Brilliant.

by al451 11y ago

harry-wood 11y ago
Well this article says at the top "In simple terms, electronic trading brought down costs, while High Frequency Trading brought down ethics." ...but it doesn't really go on to explain that. It's just a fairly dry bullet pointed definition of different types of High Frequency Trading. It's a shame it doesn't explain, because high frequency trading is evil, and a really depressing waste of talent.
- omellet 11y ago
  I agree that it's a waste of talent and money, but how is it evil?
  - Frondo 11y ago
    It's an excellent example of the middleman that only extracts money from a system, that adds no value to the system. They insert themselves into the transactions where they can siphon off very small amounts of money over a very large number of transactions. Nobody benefits but them from what they're doing, no one walks away with something in their hands or brains by their actions. It's legal, but it isn't right or a good thing.
    - __d 11y ago
      The counter argument is that they do provide a benefit, by providing liquidity and/or making price discovery more efficient. Whether it's "good" liquidity or not, and whether the discovered prices actually reflect true value or not, is a discussion that seems to fairly rapidly head down an acrimonious rathole.
      - Marazan 11y ago
        They cannot add liquidity. They HFT can only make money when there are slower traders willing to buy and sell. Thus, by definition the liquidity already has to exist (market participants wanting to buy and sell) for HFT's to profit.
        vasilipupkin 11y ago
        this is incorrect. HFT can make money adding liquidity to a market that erroneously is lacking in liquidity ( mispricing )
        tptacek 11y ago
        Look at a market without market-makers. Housing is a good one. Houses sell only when there are "slow" traders willing to buy and sell. Have you ever bought or sold a house? Would you like the financial markets to be more like real estate?
        Frondo 11y ago
        The alternative to HFT is not the real estate market. The alternative to HFT is how the markets operated for decades prior to HFT companies vacuuming money out of the system--that is, quite well, and with adequate liquidity, and with lots of money still being made.
        tptacek 11y ago
        The markets in the decades before HFT were crooked like a bucket of fish hooks! They were NOTORIOUSLY corrupt. Everyone was scamming everyone else. The entire market was a giant grift. Are you really sticking up for 1980s trading? Or have you just not done much research about how it worked?
        Frondo 11y ago
        Really? And now, with HFT, they're no longer crooked? If I remember right, in the 2000s we've seen a ton of crooked market scandals (fraudulently rated securities, LIBOR, etc etc). I don't see this relationship you're positing between HFTs and a non-corrupt trading market at all.
      - Frondo 11y ago
        I don't think it's acrimonious to say that no, that liquidity is not beneficial to society as a whole. I struggle to see how any sector other than the financial sector would suffer if all trades happened once a second, or even once a minute. No process in the human world is going to change the value of a company quicker than that.
        tptacek 11y ago
        It's not "acrimonious", it's just wrong. Liquidity keeps spreads narrow. Wide spreads are a tax paid by retail investors to a cabal of sell-side firms.
        Frondo 11y ago
        We don't need the amount of liquidity the HFT people say they're providing. No one benefits but them. They're not adding value to society.
        tptacek 11y ago
        So what's the RIGHT amount of tax we should be paying to commercial market-makers for the privilege of trading? The residential real estate market is gigantic, a demonstrably functional piece of the US economy. Maybe the stock markets should work more like the real estate market. Forget about liquidity. Who needs it? Instead, we'll just pay seven percent of every transaction to an "agent".
        Frondo 11y ago
        Good question! I don't have an answer to that. I do know that the markets survived just fine before the HFT companies came along, and now that they're here, I don't see society as a whole any better off for their presence. Maybe, without just saying "they provide liquidity" and leaving it at that, you can explain how the post-HFT world is better for anyone but the HFT companies?
        11y ago
    - kasey_junk 11y ago
      > They insert themselves into the transactions Be very clear what you mean when you say this. Because the vast majority of the time when people talk about HFT, the only way the "insert themselves" into transactions is by acting as the counter party to one side of the transaction. In this context they add a lot of value to the system, they smooth the demand curves in time and take on some of the risks of warehousing supply.
      - ConfuciusSay 11y ago
        The big claim with HFT is they "add liquidity", but there's evidence that shows the opposite. Indeed it seems like HFT's only add liquidity when it's already plentiful, but reduces liquidity when it's really needed. The Fed has said as much recently.
        kasey_junk 11y ago
        > The big claim with HFT is they "add liquidity" I'm not sure who is making that claim, but I think what they are implying is that HFT "provides liquidity cheaper than the previous system of pit traders" or even "fragmentation of exchanges has dramatically brought down exchange fees at the cost of added complexity for liquidity providers (and possibly liquidity consumers). Only HFT systems could have cheaply dealt with this new complexity". In any case, I'd sum it up as "it is cheaper to trade now after the rise of HFT than at any other time, at least some of that is because they can market make more efficiently than a dude in a vest". Vanguard for one agrees with me (http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-frequency-trading-firms.html http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...). What many critics have claimed is that this has come at the cost of an increase in volatility, especially in the form of flash crashes and it is unclear as of yet if that is better/worse than the traditional liquidity crunches we saw under the previous regime and still see in markets not dominated by HFT. The Fed was specifically talking about this in the context of treasury bond (and futures) volatility and a skeptic might wonder which is more likely to have caused volatility in the treasury markets, HFT or unprecedented fed monetary policy. None of which is germane to the question of what the OP meant when he said that HFT insert themselves into transactions.
  - jegutman 11y ago
    Also the waste of talent argument is a red herring. People who say that assume the alternative is no financial system in their heads. It takes many fewer people to run many HFT firms than to run one JPM prop trading floor which is the actual alternative.
JonnieCache 11y ago
I found it a bit odd too. Isn't nanex a highly respected financial research firm of some kind?
- phyalow 11y ago
  No, just a fringe blog....
- brobinson 11y ago
  >highly respected I'd say "highly alarmist" based on what I've read from them over the years. They're pushing people to use their product, so it makes sense for them to publish alarmist stuff which segues into their product offerings.
  - genericacct 11y ago
    I concur. Had a brief exchange with one of them last night and he was all too eager to bend the truth to fit his message.
- __d 11y ago
  I used to respect them -- they do (or perhaps did) visualize events of interest in the markets in a useful way. Their recent crusading against HFT however has moved outside the bounds of logic, as evidenced by this "definition" of HFT, which is just silly (as others here have pointed out).
- bobcostas55 11y ago
  About as respected as ZH (i.e. not at all).
- kasey_junk 11y ago
  Nanex sells market data and tools for analyzing market data. Historically (I haven't looked in a long time) their market data was inappropriate for HFT usages as it was not at the fidelity required for those applications, but it was very cheap in comparison to other market data providers. This led to a natural segmentation of their market such that most of their clients are people who are a) interested in market structure but b) not interested in high fidelity market structure information and who aren't interested enough to spend more on other options. That frequently is large block traders (hedge funds) who have a natural opposition to HFT market makers. Whether that is the only factor in their strident anti-HFT position or if they have other personal moral reasons for it as well, they also publish a highly biased blog railing against HFT, but that is not their business. In the industry, I never encountered them in the context of "highly respected financial research firm" and only in the context of "dirt cheap market data archive".

I have defined HFT to be evil, therefore HFT is evil. Brilliant.

by al451 11y ago

I have defined HFT to be evil, therefore HFT is evil. Brilliant.

Well this article says at the top "In simple terms, electronic trading brought down costs, while High Frequency Trading brought down ethics." ...but it doesn't really go on to explain that. It's just a fairly dry bullet pointed definition of different types of High Frequency Trading. It's a shame it doesn't explain, because high frequency trading is evil, and a really depressing waste of talent.

omellet 11y ago
I agree that it's a waste of talent and money, but how is it evil?
- Frondo 11y ago
  It's an excellent example of the middleman that only extracts money from a system, that adds no value to the system. They insert themselves into the transactions where they can siphon off very small amounts of money over a very large number of transactions. Nobody benefits but them from what they're doing, no one walks away with something in their hands or brains by their actions. It's legal, but it isn't right or a good thing.
  - __d 11y ago
    The counter argument is that they do provide a benefit, by providing liquidity and/or making price discovery more efficient. Whether it's "good" liquidity or not, and whether the discovered prices actually reflect true value or not, is a discussion that seems to fairly rapidly head down an acrimonious rathole.
    - Marazan 11y ago
      They cannot add liquidity. They HFT can only make money when there are slower traders willing to buy and sell. Thus, by definition the liquidity already has to exist (market participants wanting to buy and sell) for HFT's to profit.
      - vasilipupkin 11y ago
        this is incorrect. HFT can make money adding liquidity to a market that erroneously is lacking in liquidity ( mispricing )
      - tptacek 11y ago
        Look at a market without market-makers. Housing is a good one. Houses sell only when there are "slow" traders willing to buy and sell. Have you ever bought or sold a house? Would you like the financial markets to be more like real estate?
        Frondo 11y ago
        The alternative to HFT is not the real estate market. The alternative to HFT is how the markets operated for decades prior to HFT companies vacuuming money out of the system--that is, quite well, and with adequate liquidity, and with lots of money still being made.
        tptacek 11y ago
        The markets in the decades before HFT were crooked like a bucket of fish hooks! They were NOTORIOUSLY corrupt. Everyone was scamming everyone else. The entire market was a giant grift. Are you really sticking up for 1980s trading? Or have you just not done much research about how it worked?
        Frondo 11y ago
        Really? And now, with HFT, they're no longer crooked? If I remember right, in the 2000s we've seen a ton of crooked market scandals (fraudulently rated securities, LIBOR, etc etc). I don't see this relationship you're positing between HFTs and a non-corrupt trading market at all.
    - Frondo 11y ago
      I don't think it's acrimonious to say that no, that liquidity is not beneficial to society as a whole. I struggle to see how any sector other than the financial sector would suffer if all trades happened once a second, or even once a minute. No process in the human world is going to change the value of a company quicker than that.
      - tptacek 11y ago
        It's not "acrimonious", it's just wrong. Liquidity keeps spreads narrow. Wide spreads are a tax paid by retail investors to a cabal of sell-side firms.
        Frondo 11y ago
        We don't need the amount of liquidity the HFT people say they're providing. No one benefits but them. They're not adding value to society.
        tptacek 11y ago
        So what's the RIGHT amount of tax we should be paying to commercial market-makers for the privilege of trading? The residential real estate market is gigantic, a demonstrably functional piece of the US economy. Maybe the stock markets should work more like the real estate market. Forget about liquidity. Who needs it? Instead, we'll just pay seven percent of every transaction to an "agent".
        Frondo 11y ago
        Good question! I don't have an answer to that. I do know that the markets survived just fine before the HFT companies came along, and now that they're here, I don't see society as a whole any better off for their presence. Maybe, without just saying "they provide liquidity" and leaving it at that, you can explain how the post-HFT world is better for anyone but the HFT companies?
        11y ago
  - kasey_junk 11y ago
    > They insert themselves into the transactions Be very clear what you mean when you say this. Because the vast majority of the time when people talk about HFT, the only way the "insert themselves" into transactions is by acting as the counter party to one side of the transaction. In this context they add a lot of value to the system, they smooth the demand curves in time and take on some of the risks of warehousing supply.
    - ConfuciusSay 11y ago
      The big claim with HFT is they "add liquidity", but there's evidence that shows the opposite. Indeed it seems like HFT's only add liquidity when it's already plentiful, but reduces liquidity when it's really needed. The Fed has said as much recently.
      - kasey_junk 11y ago
        > The big claim with HFT is they "add liquidity" I'm not sure who is making that claim, but I think what they are implying is that HFT "provides liquidity cheaper than the previous system of pit traders" or even "fragmentation of exchanges has dramatically brought down exchange fees at the cost of added complexity for liquidity providers (and possibly liquidity consumers). Only HFT systems could have cheaply dealt with this new complexity". In any case, I'd sum it up as "it is cheaper to trade now after the rise of HFT than at any other time, at least some of that is because they can market make more efficiently than a dude in a vest". Vanguard for one agrees with me (http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-frequency-trading-firms.html http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...). What many critics have claimed is that this has come at the cost of an increase in volatility, especially in the form of flash crashes and it is unclear as of yet if that is better/worse than the traditional liquidity crunches we saw under the previous regime and still see in markets not dominated by HFT. The Fed was specifically talking about this in the context of treasury bond (and futures) volatility and a skeptic might wonder which is more likely to have caused volatility in the treasury markets, HFT or unprecedented fed monetary policy. None of which is germane to the question of what the OP meant when he said that HFT insert themselves into transactions.
- jegutman 11y ago
  Also the waste of talent argument is a red herring. People who say that assume the alternative is no financial system in their heads. It takes many fewer people to run many HFT firms than to run one JPM prop trading floor which is the actual alternative.

JonnieCache 11y ago

I found it a bit odd too. Isn't nanex a highly respected financial research firm of some kind?

phyalow 11y ago
No, just a fringe blog....
brobinson 11y ago
>highly respected I'd say "highly alarmist" based on what I've read from them over the years. They're pushing people to use their product, so it makes sense for them to publish alarmist stuff which segues into their product offerings.
- genericacct 11y ago
  I concur. Had a brief exchange with one of them last night and he was all too eager to bend the truth to fit his message.
__d 11y ago
I used to respect them -- they do (or perhaps did) visualize events of interest in the markets in a useful way. Their recent crusading against HFT however has moved outside the bounds of logic, as evidenced by this "definition" of HFT, which is just silly (as others here have pointed out).
bobcostas55 11y ago
About as respected as ZH (i.e. not at all).
kasey_junk 11y ago
Nanex sells market data and tools for analyzing market data. Historically (I haven't looked in a long time) their market data was inappropriate for HFT usages as it was not at the fidelity required for those applications, but it was very cheap in comparison to other market data providers. This led to a natural segmentation of their market such that most of their clients are people who are a) interested in market structure but b) not interested in high fidelity market structure information and who aren't interested enough to spend more on other options. That frequently is large block traders (hedge funds) who have a natural opposition to HFT market makers. Whether that is the only factor in their strident anti-HFT position or if they have other personal moral reasons for it as well, they also publish a highly biased blog railing against HFT, but that is not their business. In the industry, I never encountered them in the context of "highly respected financial research firm" and only in the context of "dirt cheap market data archive".