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The very first assertion in the article is "AMERICA’S equity markets are broken." Do you think that's false? I trade the "markets" every day and I think they a

The very first assertion in the article is "AMERICA’S equity markets are broken." Do you think that's false? I trade the "markets" every day and I think they are almost completely broken. If HFTs supply liquidity, what do you think happened during the flash crashes of recent history? Hint: they stopped supplying liquidity. That's why Virtu can make 2 years of trades with only one negative day - a feat that is almost impossible without the front-running advantage that they have.

consz 11y ago
Why do you think Virtu's performance is impossible without "front-running"? Do you not think you would see similar results for any firm with statistically positive EV that makes a large number of trades every day?
- lotsoflumens 11y ago
  No I don't. Can you name any such "firm"?
  - consz 11y ago
    Sure -- Jump, Tower, HRT, Citadel all have similar results. Why do you not believe such results are possible? Do you think it's impossible for a firm to have statistically positive edge for sustained periods of time?
    - lotsoflumens 11y ago
      I assume you're referring to these guys: http://www.bloomberg.com/news/articles/2014-07-23/don-t-tell-anybody-about-this-story-on-hft-power-jump-trading http://www.bloomberg.com/news/articles/2014-07-23/don-t-tell...
      - consz 11y ago
        Of course, I think they're the only trading firm named Jump. Is there something particular in that article you wanted to point out?
        lotsoflumens 11y ago
        The article speaks for itself ... and anyway your examples are all HFTs. Of course, having an edge for a long time is possible, even essential. The entire argument here is about having a legitimate edge.
        consz 11y ago
        Please be more specific, the article doesn't appear to say anything other than that Jump has no interest in talking about themselves to outsiders (and why should they? They have no customers, they have no reason to publicize themselves). I don't see anything negative in the article. My examples are HFTs because those are the firms that make the largest number of bets per day, so they have the highest chance of having a day end up being positive (law of large numbers). That's why all the top HFT firms have ~100% positive days. Do you believe that no HFT firms have a legitimate positive edge? If so, do you have any proof that e.g. Jump/Tower/HRT have an "illegitimate" edge?
        lotsoflumens 11y ago
        I usually like a good heated discussion on the interwebs as much as anyone, but when you say: "I don't see anything negative in the article", I realize that I'm wasting my time and I'm already bored.
        consz 11y ago
        I don't see how our discussion is heated. I'm merely asking for specific examples, because reading an article about how quiet and media-averse a particular HFT firm is doesn't ring any bells in my head.
deadgrey19 11y ago
Front running is a technical term. It means to take orders from clients, and then make trades in front of the clients orders, using the information obtained to trade against the client. It's a very quick way to make a profit. It is also illegal. If you have any evidence that Virtu is front running, then you should report them to the SEC to be investigated.
- lotsoflumens 11y ago
  That's why I said I agree that the markets are broken. The SEC already knows that this occurs but chooses to not stop it.
  - yummyfajitas 11y ago
    Virtu cannot front run; they are not a brokerage. Folks like E-Trade are the ones who could potentially front-run. Do you have any evidence that they are?
    - lotsoflumens 11y ago
      Do you understand the purpose of paying for order flow?
      - yummyfajitas 11y ago
        Yes - you get to trade with uninformed guys making small trades (i.e., folks too small to front-run) rather than informed traders with large amounts of adverse selection. Do you understand the mechanics of paying for order flow? could you state explicitly (i.e., a sequence of trades) how you believe paying for order flow allows you to "front-run"?
  - deadgrey19 11y ago
    Either that. Or front running (in the technical sense) is not happening. If it were, other HFT's would pounce at an opportunity to declare a cheat. Occams razor suggests that systemic corruption within the SEC is less likely than the probability that trading operations are operating legally (especially in Virtu's case since they do not even have clients!).
yummyfajitas 11y ago
Some HFTs stopped supplying liquidity during flash crashes, others didn't. The ones who didn't were actually the ones to end the flash crash; they see great bargains and buy them up. The main reason HFTs pull out of markets during flash crashes and similar events is regulatory (broken trades). The only HFTs who can stay in the market during a flash crash are the ones who believe they can predict the retroactive actions of human regulators. Obviously this will only be a small subset of HFTs. If you want to change this, eliminate the breaking of "clearly erroneous trades". (Japan doesn't have this rule and they do fine.)
- lotsoflumens 11y ago
  I absolutely agree - all trades should be final.

consz 11y ago

Why do you think Virtu's performance is impossible without "front-running"? Do you not think you would see similar results for any firm with statistically positive EV that makes a large number of trades every day?

lotsoflumens 11y ago
No I don't. Can you name any such "firm"?
- consz 11y ago
  Sure -- Jump, Tower, HRT, Citadel all have similar results. Why do you not believe such results are possible? Do you think it's impossible for a firm to have statistically positive edge for sustained periods of time?
  - lotsoflumens 11y ago
    I assume you're referring to these guys: http://www.bloomberg.com/news/articles/2014-07-23/don-t-tell-anybody-about-this-story-on-hft-power-jump-trading http://www.bloomberg.com/news/articles/2014-07-23/don-t-tell...
    - consz 11y ago
      Of course, I think they're the only trading firm named Jump. Is there something particular in that article you wanted to point out?
      - lotsoflumens 11y ago
        The article speaks for itself ... and anyway your examples are all HFTs. Of course, having an edge for a long time is possible, even essential. The entire argument here is about having a legitimate edge.
        consz 11y ago
        Please be more specific, the article doesn't appear to say anything other than that Jump has no interest in talking about themselves to outsiders (and why should they? They have no customers, they have no reason to publicize themselves). I don't see anything negative in the article. My examples are HFTs because those are the firms that make the largest number of bets per day, so they have the highest chance of having a day end up being positive (law of large numbers). That's why all the top HFT firms have ~100% positive days. Do you believe that no HFT firms have a legitimate positive edge? If so, do you have any proof that e.g. Jump/Tower/HRT have an "illegitimate" edge?
        lotsoflumens 11y ago
        I usually like a good heated discussion on the interwebs as much as anyone, but when you say: "I don't see anything negative in the article", I realize that I'm wasting my time and I'm already bored.
        consz 11y ago
        I don't see how our discussion is heated. I'm merely asking for specific examples, because reading an article about how quiet and media-averse a particular HFT firm is doesn't ring any bells in my head.

deadgrey19 11y ago

Front running is a technical term. It means to take orders from clients, and then make trades in front of the clients orders, using the information obtained to trade against the client. It's a very quick way to make a profit. It is also illegal. If you have any evidence that Virtu is front running, then you should report them to the SEC to be investigated.

lotsoflumens 11y ago
That's why I said I agree that the markets are broken. The SEC already knows that this occurs but chooses to not stop it.
- yummyfajitas 11y ago
  Virtu cannot front run; they are not a brokerage. Folks like E-Trade are the ones who could potentially front-run. Do you have any evidence that they are?
  - lotsoflumens 11y ago
    Do you understand the purpose of paying for order flow?
    - yummyfajitas 11y ago
      Yes - you get to trade with uninformed guys making small trades (i.e., folks too small to front-run) rather than informed traders with large amounts of adverse selection. Do you understand the mechanics of paying for order flow? could you state explicitly (i.e., a sequence of trades) how you believe paying for order flow allows you to "front-run"?
- deadgrey19 11y ago
  Either that. Or front running (in the technical sense) is not happening. If it were, other HFT's would pounce at an opportunity to declare a cheat. Occams razor suggests that systemic corruption within the SEC is less likely than the probability that trading operations are operating legally (especially in Virtu's case since they do not even have clients!).

yummyfajitas 11y ago

Some HFTs stopped supplying liquidity during flash crashes, others didn't. The ones who didn't were actually the ones to end the flash crash; they see great bargains and buy them up. The main reason HFTs pull out of markets during flash crashes and similar events is regulatory (broken trades). The only HFTs who can stay in the market during a flash crash are the ones who believe they can predict the retroactive actions of human regulators. Obviously this will only be a small subset of HFTs. If you want to change this, eliminate the breaking of "clearly erroneous trades". (Japan doesn't have this rule and they do fine.)

lotsoflumens 11y ago
I absolutely agree - all trades should be final.