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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 n
by __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 agoThey 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 agothis is incorrect. HFT can make money adding liquidity to a market that erroneously is lacking in liquidity ( mispricing )
- tptacek 11y agoLook 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 agoThe 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 agoThe 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 agoReally? 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.
- tptacek 11y agoThat's an illogical response.
- Frondo 11y agoYou said: prior to HFTs the markets were corrupt, the entire market was a giant grift. You implied that, without HFT companies, we'd be right back there, though I see now that you didn't explicitly say exactly that.
- tptacek 11y agoFor your argument to make sense, all forms of corruption would need to have a single cause, and all interventions to reduce corruption would need to impact all forms of corruption. That's nonsensical and not a point I'm willing to engage further with. I think we've pushed this thread far enough to the right margin of the page.
- Frondo 11y agoI get that you're passionate about HFTs, but what's that old saying? Fool me once, shame on — shame on you. Fool me — you can't get fooled again.
- Marazan 11y agoYou seem to be accepting the premise that HFT algorithms a e acting as market makers. I reject that premise. HFT algos are majoritarily run in markets with deep liquidity.
- tptacek 11y agoSo do most market-making firms.
- toomuchtodo 11y agoI believe the question is: could the same market-making/liquidity be provided without the amount of profit being taken by HFT firms?
- auntienomen 11y agoMarkets with lots of market-makers have more liquidity! Film at 11!
- Frondo 11y agoI 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 agoIt'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 agoWe 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 agoSo 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 agoGood 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