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Wow. Imagine your livelihood depends on that game; your salary, your bonus, your standing. You can research the movements and HFT the micro-movements, but you

Wow. Imagine your livelihood depends on that game; your salary, your bonus, your standing. You can research the movements and HFT the micro-movements, but you're still playing that game.

tikhonj 11y ago
And then imagine the same thing but you're not playing the game. That's what happens when you have massive exposure (ie work at a company) without doing anything to manage it. Diversification is good.
- yummyfajitas 11y ago
  That's not really true. If the company goes bust, it doesn't affect your net worth at all. All that happens is one revenue stream dies, and you are free to replace that revenue stream. Your total portfolio doesn't go down at all. For most changes in share price you are completely insulated.
  - ZenoArrow 11y ago
    From what I understand about HFT, if you know what you're doing you basically can't lose. To understand how, you need to understand 'put options', which is a financial product available on the derivatives market. A put option is a deal to sell company stock at a pre-agreed price. Worth noting that you don't need company stock before the put option deal is reached. So let's say the stock price of Company X is currently valued at $50, and you arrange a put option to sell stock at $50. If the stock price goes down, let's say to $25, you buy stock at $25 and sell it at $50, so you've made a profit (from what I understand, you don't even need to buy the stock in this case, the put option broker will just pay you the difference to simplify the process). But what if the stock price rises? Let's say the stock price rises to $75. You can't buy stock and use your put option without losing money, and from what I understand you pay interest to the put option broker for the length of time you have it, so holding onto the put option causes you to lose money. But there's a 'get out of jail free' option. When you arrange the put option you also buy stock. If the stock price goes down, you buy more stock and sell at the pre-agreed put option price. If the stock price goes up, the stock you hold is worth more and you can use this to clear the put option without losing money. From what I understand, this is one example of 'hedging' against stock price changes, there are probably others. HFT is well suited to this kind of deal, as you can react quickly to market changes, minimising any risks resulting from delays. So although people see the stock market as gambling, you can game the system to move the odds in your favour. The end result is huge volumes of money invested into non-productive uses of money (and because of the ways banks create money, and the ways the financial markets are regulated, the restrictions on this speculation is basically non-existent). EDIT: I've got a downvote on this already. If anything I've said is untrue, then call me out on it.
    - kasey_junk 11y ago
      Who do you think is selling you the put option? Do you suppose they price those such that a trivial stock pair hedge will make money? If they did that they would be losing a ton of money & you would have replaced equity risk with counterparty risk as they go out of business. HFT are good at options trading for the same reason all options traders have been throughout history. They can find misspricings in the market and trade them while they last. HFT is taking over those trades because HFT is much cheaper than the humans they replace & can therefore take on less high margin mispricings than humans can. Also options trading is a regulated marketplace much like equities & commodities trading. Finally 'yummyfajitas is an ex-HFT who has written good blog posts on the subject.
      - ZenoArrow 11y ago
        >"Do you suppose they price those such that a trivial stock pair hedge will make money?" The example was just for illustration purposes, a simplified version of how it works. >"Also options trading is a regulated marketplace" Is that right? https://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-traded https://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_e... "Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, exotic options – and other exotic derivatives – are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. Reporting of OTC amounts is difficult because trades can occur in private, without activity being visible on any exchange." >"Finally 'yummyfajitas is an ex-HFT who has written good blog posts on the subject." I would welcome yummyfajitas 's feedback. I'm not attacking yummyfajitas, if that's what you're implying.
        kasey_junk 11y ago
        > The example was just for illustration purposes, a simplified version of how it works. Sure, but real options trading is much, much more complicated than that. You might as well have said "Find an equity that you know is underpriced and buy that". There is no secret sauce in options trading for HFT or otherwise. Like any market based trading profession you find a place you think is incorrectly priced, you take a position, and then you either make or lose money. The more often you are right the better a trader you are. There is literally nothing special about options trading vs equities trading in this regard (except maybe leverage as options can be dramatically leveraged). > Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties You could do private options I suppose (but HFT would have a distinct disadvantage here), but most options are traded on exchanges (I believe CBOE is still the biggest options exchange in the US) just like any other exchange traded instrument. The SEC, FINRA and CFTC all have rules about options trading in the US. > I'm not attacking yummyfajitas, if that's what you're implying. I didn't mean to imply you were attacking yummyfajitas, only that he probably knows about options pairs trades given that they are a very common trading pattern for anyone who has worked in the trading industry, HFT or otherwise.
  - YokoZar 11y ago
    It is true if you are in the unfortunate position of havig a good chunk of your pension tied up in company stock. This is a terrible idea for the pensioner, of course, but nevertheless many 401k plans and a good chunk of defined-benefit plans put substantial exposure into the employing company's stock or debt. They're becoming less popular after the slew of "company goes bankrupt -> retired workers lose their income" stories that have happened in the past few decades.

Wow. Imagine your livelihood depends on that game; your salary, your bonus, your standing. You can research the movements and HFT the micro-movements, but you're still playing that game.

tikhonj 11y ago

And then imagine the same thing but you're not playing the game. That's what happens when you have massive exposure (ie work at a company) without doing anything to manage it. Diversification is good.

yummyfajitas 11y ago
That's not really true. If the company goes bust, it doesn't affect your net worth at all. All that happens is one revenue stream dies, and you are free to replace that revenue stream. Your total portfolio doesn't go down at all. For most changes in share price you are completely insulated.
- ZenoArrow 11y ago
  From what I understand about HFT, if you know what you're doing you basically can't lose. To understand how, you need to understand 'put options', which is a financial product available on the derivatives market. A put option is a deal to sell company stock at a pre-agreed price. Worth noting that you don't need company stock before the put option deal is reached. So let's say the stock price of Company X is currently valued at $50, and you arrange a put option to sell stock at $50. If the stock price goes down, let's say to $25, you buy stock at $25 and sell it at $50, so you've made a profit (from what I understand, you don't even need to buy the stock in this case, the put option broker will just pay you the difference to simplify the process). But what if the stock price rises? Let's say the stock price rises to $75. You can't buy stock and use your put option without losing money, and from what I understand you pay interest to the put option broker for the length of time you have it, so holding onto the put option causes you to lose money. But there's a 'get out of jail free' option. When you arrange the put option you also buy stock. If the stock price goes down, you buy more stock and sell at the pre-agreed put option price. If the stock price goes up, the stock you hold is worth more and you can use this to clear the put option without losing money. From what I understand, this is one example of 'hedging' against stock price changes, there are probably others. HFT is well suited to this kind of deal, as you can react quickly to market changes, minimising any risks resulting from delays. So although people see the stock market as gambling, you can game the system to move the odds in your favour. The end result is huge volumes of money invested into non-productive uses of money (and because of the ways banks create money, and the ways the financial markets are regulated, the restrictions on this speculation is basically non-existent). EDIT: I've got a downvote on this already. If anything I've said is untrue, then call me out on it.
  - kasey_junk 11y ago
    Who do you think is selling you the put option? Do you suppose they price those such that a trivial stock pair hedge will make money? If they did that they would be losing a ton of money & you would have replaced equity risk with counterparty risk as they go out of business. HFT are good at options trading for the same reason all options traders have been throughout history. They can find misspricings in the market and trade them while they last. HFT is taking over those trades because HFT is much cheaper than the humans they replace & can therefore take on less high margin mispricings than humans can. Also options trading is a regulated marketplace much like equities & commodities trading. Finally 'yummyfajitas is an ex-HFT who has written good blog posts on the subject.
    - ZenoArrow 11y ago
      >"Do you suppose they price those such that a trivial stock pair hedge will make money?" The example was just for illustration purposes, a simplified version of how it works. >"Also options trading is a regulated marketplace" Is that right? https://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-traded https://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_e... "Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, exotic options – and other exotic derivatives – are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. Reporting of OTC amounts is difficult because trades can occur in private, without activity being visible on any exchange." >"Finally 'yummyfajitas is an ex-HFT who has written good blog posts on the subject." I would welcome yummyfajitas 's feedback. I'm not attacking yummyfajitas, if that's what you're implying.
      - kasey_junk 11y ago
        > The example was just for illustration purposes, a simplified version of how it works. Sure, but real options trading is much, much more complicated than that. You might as well have said "Find an equity that you know is underpriced and buy that". There is no secret sauce in options trading for HFT or otherwise. Like any market based trading profession you find a place you think is incorrectly priced, you take a position, and then you either make or lose money. The more often you are right the better a trader you are. There is literally nothing special about options trading vs equities trading in this regard (except maybe leverage as options can be dramatically leveraged). > Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties You could do private options I suppose (but HFT would have a distinct disadvantage here), but most options are traded on exchanges (I believe CBOE is still the biggest options exchange in the US) just like any other exchange traded instrument. The SEC, FINRA and CFTC all have rules about options trading in the US. > I'm not attacking yummyfajitas, if that's what you're implying. I didn't mean to imply you were attacking yummyfajitas, only that he probably knows about options pairs trades given that they are a very common trading pattern for anyone who has worked in the trading industry, HFT or otherwise.
- YokoZar 11y ago
  It is true if you are in the unfortunate position of havig a good chunk of your pension tied up in company stock. This is a terrible idea for the pensioner, of course, but nevertheless many 401k plans and a good chunk of defined-benefit plans put substantial exposure into the employing company's stock or debt. They're becoming less popular after the slew of "company goes bankrupt -> retired workers lose their income" stories that have happened in the past few decades.