4 ms·

> Or you can let market makers all compete to buy from you at the best price taking into account all of the latest information. In your meat example, keep in mi

by ced 11y ago

> Or you can let market makers all compete to buy from you at the best price taking into account all of the latest information. In your meat example, keep in mind that there isn't just one trader who will buy from you for $10 to sell at $20. They're all competing to buy from you for the best possible price so they will very very quickly bid the price up to something very very close to $20. If I put a market order to sell meat at the market price of 10$ at 10AM (because I just produced a bunch more), then the first HFT to get the news of the catastrophe at 10AM + 1 microsecond will buy them from me at that price, but if I had gotten the news at the same time as they did, I would have withdrawn my market order and refused to trade at 10$. Maybe HFTs/market makers serve many different purposes and we're talking past each other. I agree with the liquidity argument, to the extent that I understand it. Is getting the news slightly faster really providing value? > You can expend a lot of effort to keep up with all the latest news. The news that my competitors burned down doesn't require a lot of effort to keep up with in the age of the Internet, but it does require large amounts of capital to get it 1 microsecond before everybody else. If trades were only allowed every 60 seconds like the comic suggests, to allow everyone time to process the news, what value would be lost? Should society rejoice when an HFT gets 10% closer to the speed of light?

harryh 11y ago
> If I put a market order to sell meat at the market price of 10$ at 10AM Yes, at 10AM (before news happens) you can take the $10 price. And, unfortunately for you, the world might change 1 microsecond later. And it sounds bad when you say "1 microsecond" but what if you say "5 minutes" or "1 hour" or "1 day"? You're probably going to feel just as bad about missing out on a better price even if the timescale is a human one instead of an electronic one. There is no way to avoid this. The world can change after your sell your meat. It might change 1 microsecond later or it might change a week later. You chose to sell when you chose to sell. You can't say oopsies and complain if the world changes after you made your decision. The fact that the world can change after you make your trade has absolutely nothing to do with high speed trading. Very high speed price discovery actually works in your favor here! At least the price jumps to $20 really really fast after the news now. Without computers it might take 5 or 10 minutes (or whatever). The sooner the news is incorporated the smaller the time window in which you can accidentally screw yourself. While thinking about this, keep in mind also that the price might drop (maybe there is a bumper crop of cows). If you sold now for $10 but then the price dropped to $5 you'd feel great. When you sell now you're taking the risk of a price change (in either direction) off the table. You can't on one hand, avoid a price drop, but on the other hand think that you should get the benefits of a price rise. > the first HFT to get the news of the catastrophe at 10AM + 1 microsecond will buy them from me at that price, This is actually wrong and not what happens. The trade you're talking about happened at 10AM (before the news). You put in a market order which means "take whatever price is being offered right now." not "put my meat out for sale and wait for someone else to trade with me." So no trade is happening at 10AM + 1 microsecond (after the news). > If trades were only allowed every 60 seconds like the comic suggests Ah yes. Everyone eventually hits on this idea, but it doesn't work. What happens if, at a given price, the # of buyers and sellers doesn't match up at the time you want to execute all the trades? 1. Execute the trades that put in their orders first. Well then you're back to where you were before. 2. Execute some % (less than 100%) of one side of the trades so that everything matches up. But then you create a very unstable situation. If I think that maybe only 50% of the trades are going to execute you've incentivized me to say I want to trade 2x of what I really want to trade. But wait, everyone else is also thinking the same thing. So maybe 4x? Repeat ad nauseam. This is a very unstable game-theory heavy sort of situation that's actually pretty dangerous. And really even if you do this you haven't removed the need for high speed computers & communication. Lets say that a block closes at precisely noon. I definitely don't want to input my trade at 11:59:01. What if there is news in the next 59 seconds? I really want to wait until the last possible microsecond to input my trades for the block right? So...we're back to where we were before anyways. The real world is continuous. It's not really possible to make markets based on the real world operate discretely.
- ced 11y ago
  This is actually wrong and not what happens. The trade you're talking about happened at 10AM (before the news). You put in a market order which means "take whatever price is being offered right now." not "put my meat out for sale and wait for someone else to trade with me." That's totally right, I blundered my hypothetical scenario. Let me try again. 1. 10AM catastrophe happens 2. 10AM + 1 ms: news reach some HFT 3. 10AM + 2 ms: I put out a market order, ignorant of the news 4. 10:01AM: the news reach me That's what I meant. But I suppose that given the competition between HFTs, the market price should have reached 20$ by then, so I get to sell it at the better price. Does that mean that HFTs do not generally make money from getting the information before everybody else unless some non-HFT trader used a limit order? If some HFT holds a lot of some company Y and gets the news early that Y had a bad quarter, won't they make money from that by selling Y to a non-HFT investor who hasn't received the press release yet? But maybe if no one but HFTs use limit order and everyone has a decent-speed internet connection, this is a vanishingly small occurrence? Ah yes. Everyone eventually hits on this idea, but it doesn't work. What happens if, at a given price, the # of buyers and sellers doesn't match up at the time you want to execute all the trades? 1. Execute the trades that put in their orders first. Well then you're back to where you were before. 2. Execute some % (less than 100%) of one side of the trades so that everything matches up. But then you create a very unstable situation. If I think that maybe only 50% of the trades are going to execute you've incentivized me to say I want to trade 2x of what I really want to trade. But wait, everyone else is also thinking the same thing. So maybe 4x? Repeat ad nauseam. This is a very unstable game-theory heavy sort of situation that's actually pretty dangerous. And really even if you do this you haven't removed the need for high speed computers & communication. Lets say that a block closes at precisely noon. I definitely don't want to input my trade at 11:59:01. What if there is news in the next 59 seconds? I really want to wait until the last possible microsecond to input my trades for the block right? So...we're back to where we were before anyways. All good points. Although there's probably a game-theoretic solution to that...
  - harryh 11y ago
    > Does that mean that HFTs do not generally make money from getting the information before everybody In general this is somewhat true. Market makers would actually love it if prices were very stable. Just sit there and buy at 9.99 and sell at 10.00 and make a penny a trade all day long. They need to respond very very quickly not so much to make money, but to avoid losing money when prices change.

by ced 11y ago

harryh 11y ago

> If I put a market order to sell meat at the market price of 10$ at 10AM Yes, at 10AM (before news happens) you can take the $10 price. And, unfortunately for you, the world might change 1 microsecond later. And it sounds bad when you say "1 microsecond" but what if you say "5 minutes" or "1 hour" or "1 day"? You're probably going to feel just as bad about missing out on a better price even if the timescale is a human one instead of an electronic one. There is no way to avoid this. The world can change after your sell your meat. It might change 1 microsecond later or it might change a week later. You chose to sell when you chose to sell. You can't say oopsies and complain if the world changes after you made your decision. The fact that the world can change after you make your trade has absolutely nothing to do with high speed trading. Very high speed price discovery actually works in your favor here! At least the price jumps to $20 really really fast after the news now. Without computers it might take 5 or 10 minutes (or whatever). The sooner the news is incorporated the smaller the time window in which you can accidentally screw yourself. While thinking about this, keep in mind also that the price might drop (maybe there is a bumper crop of cows). If you sold now for $10 but then the price dropped to $5 you'd feel great. When you sell now you're taking the risk of a price change (in either direction) off the table. You can't on one hand, avoid a price drop, but on the other hand think that you should get the benefits of a price rise. > the first HFT to get the news of the catastrophe at 10AM + 1 microsecond will buy them from me at that price, This is actually wrong and not what happens. The trade you're talking about happened at 10AM (before the news). You put in a market order which means "take whatever price is being offered right now." not "put my meat out for sale and wait for someone else to trade with me." So no trade is happening at 10AM + 1 microsecond (after the news). > If trades were only allowed every 60 seconds like the comic suggests Ah yes. Everyone eventually hits on this idea, but it doesn't work. What happens if, at a given price, the # of buyers and sellers doesn't match up at the time you want to execute all the trades? 1. Execute the trades that put in their orders first. Well then you're back to where you were before. 2. Execute some % (less than 100%) of one side of the trades so that everything matches up. But then you create a very unstable situation. If I think that maybe only 50% of the trades are going to execute you've incentivized me to say I want to trade 2x of what I really want to trade. But wait, everyone else is also thinking the same thing. So maybe 4x? Repeat ad nauseam. This is a very unstable game-theory heavy sort of situation that's actually pretty dangerous. And really even if you do this you haven't removed the need for high speed computers & communication. Lets say that a block closes at precisely noon. I definitely don't want to input my trade at 11:59:01. What if there is news in the next 59 seconds? I really want to wait until the last possible microsecond to input my trades for the block right? So...we're back to where we were before anyways. The real world is continuous. It's not really possible to make markets based on the real world operate discretely.

ced 11y ago
This is actually wrong and not what happens. The trade you're talking about happened at 10AM (before the news). You put in a market order which means "take whatever price is being offered right now." not "put my meat out for sale and wait for someone else to trade with me." That's totally right, I blundered my hypothetical scenario. Let me try again. 1. 10AM catastrophe happens 2. 10AM + 1 ms: news reach some HFT 3. 10AM + 2 ms: I put out a market order, ignorant of the news 4. 10:01AM: the news reach me That's what I meant. But I suppose that given the competition between HFTs, the market price should have reached 20$ by then, so I get to sell it at the better price. Does that mean that HFTs do not generally make money from getting the information before everybody else unless some non-HFT trader used a limit order? If some HFT holds a lot of some company Y and gets the news early that Y had a bad quarter, won't they make money from that by selling Y to a non-HFT investor who hasn't received the press release yet? But maybe if no one but HFTs use limit order and everyone has a decent-speed internet connection, this is a vanishingly small occurrence? Ah yes. Everyone eventually hits on this idea, but it doesn't work. What happens if, at a given price, the # of buyers and sellers doesn't match up at the time you want to execute all the trades? 1. Execute the trades that put in their orders first. Well then you're back to where you were before. 2. Execute some % (less than 100%) of one side of the trades so that everything matches up. But then you create a very unstable situation. If I think that maybe only 50% of the trades are going to execute you've incentivized me to say I want to trade 2x of what I really want to trade. But wait, everyone else is also thinking the same thing. So maybe 4x? Repeat ad nauseam. This is a very unstable game-theory heavy sort of situation that's actually pretty dangerous. And really even if you do this you haven't removed the need for high speed computers & communication. Lets say that a block closes at precisely noon. I definitely don't want to input my trade at 11:59:01. What if there is news in the next 59 seconds? I really want to wait until the last possible microsecond to input my trades for the block right? So...we're back to where we were before anyways. All good points. Although there's probably a game-theoretic solution to that...
- harryh 11y ago
  > Does that mean that HFTs do not generally make money from getting the information before everybody In general this is somewhat true. Market makers would actually love it if prices were very stable. Just sit there and buy at 9.99 and sell at 10.00 and make a penny a trade all day long. They need to respond very very quickly not so much to make money, but to avoid losing money when prices change.