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Cliff Asness on how HFT has benefited retail investors. How HFT has changed the allocation of the pie between various market professionals is hard to say. But

Cliff Asness on how HFT has benefited retail investors. How HFT has changed the allocation of the pie between various market professionals is hard to say. But there has been one unambiguous winner, the retail investors who trade for themselves. Their small orders are a perfect match for today's narrow bid-offer spread, small average-trade-size market. For the first time in history, Main Street might have it rigged against Wall Street. http://www.wsj.com/news/articles/SB10001424052702303978304579475102237652362?mod=WSJ_Opinion_LEADTop&mg=reno64-wsj http://www.wsj.com/news/articles/SB1000142405270230397830457... Matt Levine's followup post. http://www.bloombergview.com/articles/2014-04-02/high-frequency-trading-may-be-too-efficient http://www.bloombergview.com/articles/2014-04-02/high-freque...

gammarator 11y ago
Except that most of Main Street owns stocks through mutual funds, which make large trades on their behalf...
- harryh 11y ago
  Main Street mostly owns shares in index funds or other funds without alpha. They're much better served with faster price discovery.
- HiLo 11y ago
  Meanwhile, nobody on here complaining about those mutual fund fees that are orders of magnitude bigger than HFT haircuts for the savers themselves :)
HiLo 11y ago
The only reason retail orders actually get matched up well is because they're flagged as retail, are known to contain less information, and are a statistically good bet to transact against. Fundamentally, this was around before HFT and still is. The funny thing is that even if it's helping them in this small way, the whole idea of retail investing is some of the best marketing in the face of contradictory facts I've ever seen.
- MichaelGG 11y ago
  Please elaborate. If an order makes it to an exchange and that exchange has a bunch of small orders at all times, how is the retail-ness of the order relevant at all? I understand that at other parts of the order chain this might matter. But inside the matching engine there isn't "retail priority".
  - HiLo 11y ago
    Inside the matching engine, there's a sitting limit order on the limit order book flagged as a retail order, just off the bid/ask. Whereas you may not have taken the other side of that resting order before, you might now because you know it has extra informational value attached. Dealers will pay exchanges for the right to access this information, either outright or in reduced liquidity rebates they would normally otherwise receive (normally outright to my understanding).

gammarator 11y ago

Except that most of Main Street owns stocks through mutual funds, which make large trades on their behalf...

harryh 11y ago
Main Street mostly owns shares in index funds or other funds without alpha. They're much better served with faster price discovery.
HiLo 11y ago
Meanwhile, nobody on here complaining about those mutual fund fees that are orders of magnitude bigger than HFT haircuts for the savers themselves :)

HiLo 11y ago

The only reason retail orders actually get matched up well is because they're flagged as retail, are known to contain less information, and are a statistically good bet to transact against. Fundamentally, this was around before HFT and still is. The funny thing is that even if it's helping them in this small way, the whole idea of retail investing is some of the best marketing in the face of contradictory facts I've ever seen.

MichaelGG 11y ago
Please elaborate. If an order makes it to an exchange and that exchange has a bunch of small orders at all times, how is the retail-ness of the order relevant at all? I understand that at other parts of the order chain this might matter. But inside the matching engine there isn't "retail priority".
- HiLo 11y ago
  Inside the matching engine, there's a sitting limit order on the limit order book flagged as a retail order, just off the bid/ask. Whereas you may not have taken the other side of that resting order before, you might now because you know it has extra informational value attached. Dealers will pay exchanges for the right to access this information, either outright or in reduced liquidity rebates they would normally otherwise receive (normally outright to my understanding).