3 ms·

> HFT has led to a dramatic decrease in the price of market making. How? It seems like this should not be that hard to explain.

by librvf 11y ago

kasey_junk 11y ago
Link in the posted article: http://www.bloombergview.com/articles/2014-03-31/michael-lewis-doesn-t-like-high-frequency-traders http://www.bloombergview.com/articles/2014-03-31/michael-lew.... Quote from the posted article: " it should be said that market makers have existed in the stock market for a long time and that electronic market makers do the job waaaaaaaaaay cheaper than their human predecessors."
- plonh 11y ago
  Electronic market makers are a much larger category than HFT. Microsoft Word is phenomenally heaper than hiring a typewriterist, because it is electronic.
  - kasey_junk 11y ago
    Neither electronic market maker or HFT is a technically defined term, nor is it clear what people mean when they use those terms. That said, when I was in the industry the common usage of the terms would be that electronic market makers were a subset of HFT. That is there are HFT strategies that are not market makers, but there are no electronic market makers who are not HFT.
- crdoconnor 11y ago
  I was wondering when some HFT shill was going to try and pretend that electronic market making and HFT were the same thing. Every damn time...
  - kasey_junk 11y ago
    Given that the posted article made that comparison and it matches my experience in the industry it seemed ok to "pretend" that electronic market making was a subset of HFT. I understand that these terms are used differently by different people, so maybe you can define what you mean to make it more clear what you think the distinctions are. [edit] You've edited your comment since I replied to call me a shill. Full disclosure, I have worked in HFT and make no secret of it. I do not currently.
  - tptacek 11y ago
    Do not accuse people on HN of being shills. And, remain civil. https://hn.algolia.com/?query=author:dang%20shill&sort=byDate&prefix&page=0&dateRange=all&type=comment https://hn.algolia.com/?query=author:dang%20shill&sort=byDat...
gnaritas 11y ago
> How? It seems like this should not be that hard to explain. Decreased spreads; trading is much cheaper now than it was before HFT.
- librvf 11y ago
  > Decreased spreads; trading is much cheaper now than it was before HFT. By how much? And is HFT the cause or is it merely correlated?
  - lmm 11y ago
    By a factor of 25, and it's only not more because there's a law against making them any smaller. And it's very much because of computerization; whether you consider it to be HFT is a question of whether you count the early days when computerized firms competed on price or the later ones when the aforementioned law meant they could only compete on latency. In any case, compete they have, pushing their profits pretty close to zero. Look at the graphs in http://www.zerohedge.com/news/2013-02-13/how-getco-went-hft-trading-giant-dwarf-and-raked-over-50-million-te-expenses-along-w http://www.zerohedge.com/news/2013-02-13/how-getco-went-hft-... (article is terrible, it was just the easiest place to find the graphs).
  - gnaritas 11y ago
    It's directly causal, algo's fighting for better position directly decrease the spread. Competition has the effect of removing unnecessary markup as the next guy who sells just a bit cheaper or offers just a bit more wins until the price is as close as possible to barely profitable. Humans are too slow to play such a tight game, computers aren't.

> HFT has led to a dramatic decrease in the price of market making. How? It seems like this should not be that hard to explain.

by librvf 11y ago

> HFT has led to a dramatic decrease in the price of market making. How? It seems like this should not be that hard to explain.

kasey_junk 11y ago

Link in the posted article: http://www.bloombergview.com/articles/2014-03-31/michael-lewis-doesn-t-like-high-frequency-traders http://www.bloombergview.com/articles/2014-03-31/michael-lew.... Quote from the posted article: " it should be said that market makers have existed in the stock market for a long time and that electronic market makers do the job waaaaaaaaaay cheaper than their human predecessors."

plonh 11y ago
Electronic market makers are a much larger category than HFT. Microsoft Word is phenomenally heaper than hiring a typewriterist, because it is electronic.
- kasey_junk 11y ago
  Neither electronic market maker or HFT is a technically defined term, nor is it clear what people mean when they use those terms. That said, when I was in the industry the common usage of the terms would be that electronic market makers were a subset of HFT. That is there are HFT strategies that are not market makers, but there are no electronic market makers who are not HFT.
crdoconnor 11y ago
I was wondering when some HFT shill was going to try and pretend that electronic market making and HFT were the same thing. Every damn time...
- kasey_junk 11y ago
  Given that the posted article made that comparison and it matches my experience in the industry it seemed ok to "pretend" that electronic market making was a subset of HFT. I understand that these terms are used differently by different people, so maybe you can define what you mean to make it more clear what you think the distinctions are. [edit] You've edited your comment since I replied to call me a shill. Full disclosure, I have worked in HFT and make no secret of it. I do not currently.
- tptacek 11y ago
  Do not accuse people on HN of being shills. And, remain civil. https://hn.algolia.com/?query=author:dang%20shill&sort=byDate&prefix&page=0&dateRange=all&type=comment https://hn.algolia.com/?query=author:dang%20shill&sort=byDat...

gnaritas 11y ago

> How? It seems like this should not be that hard to explain. Decreased spreads; trading is much cheaper now than it was before HFT.

librvf 11y ago
> Decreased spreads; trading is much cheaper now than it was before HFT. By how much? And is HFT the cause or is it merely correlated?
- lmm 11y ago
  By a factor of 25, and it's only not more because there's a law against making them any smaller. And it's very much because of computerization; whether you consider it to be HFT is a question of whether you count the early days when computerized firms competed on price or the later ones when the aforementioned law meant they could only compete on latency. In any case, compete they have, pushing their profits pretty close to zero. Look at the graphs in http://www.zerohedge.com/news/2013-02-13/how-getco-went-hft-trading-giant-dwarf-and-raked-over-50-million-te-expenses-along-w http://www.zerohedge.com/news/2013-02-13/how-getco-went-hft-... (article is terrible, it was just the easiest place to find the graphs).
- gnaritas 11y ago
  It's directly causal, algo's fighting for better position directly decrease the spread. Competition has the effect of removing unnecessary markup as the next guy who sells just a bit cheaper or offers just a bit more wins until the price is as close as possible to barely profitable. Humans are too slow to play such a tight game, computers aren't.