5 ms·

its weird that in every industry where computers replace people, HN considers it progress, but when its making securities markets, its a scam.

by andylei 11y ago

wpietri 11y ago
Back in the day I worked for financial traders on early automated trading systems, and I think your summary is fantastically poor. First, people have long had questions about the societal effects and costs of trading, even when humans did it. Second, the automation of trading isn't merely replicating what humans do at a lower cost. I'd call it a fundamentally different activity. Third, one of the things that has become more and more attenuated is any sense of moral responsibility. Traders were never known for attacks of the warm fuzzies, but algorithms not only don't give a shit about how the affect humans, they can't. And fourth, instead of saving everybody money, finance eats up an ever-increasing share of the economy, and I think automation is part of that. Automation isn't universally good. Sometimes it makes things better, sometimes worse. As technologists our job isn't just to automate everything. It's to use our professional skills and experience to improve the world, to improve human lives.
- oldmanjay 11y ago
  How does one eat a share of the economy? Do I have to assume it to be zero sum for the concept to be clear?
  - wpietri 11y ago
    You don't have to assume zero sum in general. Just that some interactions can be zero or negative sum. The simple example is monopoly rents: monopolists can increase their share of total profits without increasing value delivered. By a lot of measures, the financial industry captures a lot more money than they did in previous decades. But it's far from clear that they're delivering a lot more value, and given that computers have drastically reduced their costs, it's reasonable to expect them to be smaller, not larger. As a start, this has some good graphs: http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance.html http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance... And here are a couple more general-audience articles: http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-the-day-us-financial-profits/ http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-th... http://blogs.wsj.com/economics/2011/12/10/number-of-the-week-finances-share-of-economy-continues-to-grow/ http://blogs.wsj.com/economics/2011/12/10/number-of-the-week...
- dtornabene 11y ago
  I feel like you're side stepping the point of his argument. Maybe I'm misreading you both. It read (to me at least) more of a "why isn't hn this hard on other automation stories" and less of an indictment of the (fashionable) distaste for HFT.
  - wpietri 11y ago
    I suppose one could read it either way. But a) most engineers are pro-automation, b) he works for a financial company, and c) computers haven't really replaced people in finance, so absent other evidence, I am going to stick with my reading of his comment for now.
jandrese 11y ago
Eh, using computers to replace people in front running was really not an improvement to the situation.
- tptacek 11y ago
  Yes it was. Even stipulating your use of the term "front running"†, it's not hard to see how. When humans intermediated trades, spreads were denominated in dimes and quarters (and even higher as you go back further in time). Now they're pennies. Google "odd eighths scandal" for a good starting point. † "Front running" has a specific technical meaning, which very few people who throw the term around seem to know about: a front-runner violates a fiduciary duty they have to a client, trading against their clients for their own benefit. Market makers and prop trading firms aren't generally brokers for other people and don't have that duty; they can't "front-run" the people they out-trade. Your real estate agent would "front run" you if they knew you wanted to buy a particular house, knew your maximum price, bought the same house for less than that price and then sold it to you at a profit. Same with your stock broker and, say, IBM stock; they have a duty of best execution to you.
  - AjithAntony 11y ago
    I only know as much as I read in Flash Boys, and it sounds like front-running is generally the right name for this, but the difference is that it is not your broker but 3rd parties who are fishing for info on potential trades that are front-running. By your analogy, the real estate agent knows you want to buy 5 houses, and suddenly after closing the first one, the price of the remaining 4 goes up.
    - tptacek 11y ago
      No. Your real estate agent has a duty to you and cannot trade against your interests. A prop trading firm (or "3rd party firm") has no such duty, and thus can't "front-run" you. If your own real estate agent bought a bunch of houses to resell them to you at a profit, they would be front running you. If another real estate firm noticed that you seemed intent on buying 5 houses and bought a bunch of them to resell to you, that would not be front-running; in fact, that would basically be a description of how the real estate market works.

its weird that in every industry where computers replace people, HN considers it progress, but when its making securities markets, its a scam.

by andylei 11y ago

its weird that in every industry where computers replace people, HN considers it progress, but when its making securities markets, its a scam.

wpietri 11y ago

Back in the day I worked for financial traders on early automated trading systems, and I think your summary is fantastically poor. First, people have long had questions about the societal effects and costs of trading, even when humans did it. Second, the automation of trading isn't merely replicating what humans do at a lower cost. I'd call it a fundamentally different activity. Third, one of the things that has become more and more attenuated is any sense of moral responsibility. Traders were never known for attacks of the warm fuzzies, but algorithms not only don't give a shit about how the affect humans, they can't. And fourth, instead of saving everybody money, finance eats up an ever-increasing share of the economy, and I think automation is part of that. Automation isn't universally good. Sometimes it makes things better, sometimes worse. As technologists our job isn't just to automate everything. It's to use our professional skills and experience to improve the world, to improve human lives.

oldmanjay 11y ago
How does one eat a share of the economy? Do I have to assume it to be zero sum for the concept to be clear?
- wpietri 11y ago
  You don't have to assume zero sum in general. Just that some interactions can be zero or negative sum. The simple example is monopoly rents: monopolists can increase their share of total profits without increasing value delivered. By a lot of measures, the financial industry captures a lot more money than they did in previous decades. But it's far from clear that they're delivering a lot more value, and given that computers have drastically reduced their costs, it's reasonable to expect them to be smaller, not larger. As a start, this has some good graphs: http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance.html http://esoltas.blogspot.com/2013/02/5-more-graphs-on-finance... And here are a couple more general-audience articles: http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-the-day-us-financial-profits/ http://blogs.reuters.com/felix-salmon/2011/03/30/chart-of-th... http://blogs.wsj.com/economics/2011/12/10/number-of-the-week-finances-share-of-economy-continues-to-grow/ http://blogs.wsj.com/economics/2011/12/10/number-of-the-week...
dtornabene 11y ago
I feel like you're side stepping the point of his argument. Maybe I'm misreading you both. It read (to me at least) more of a "why isn't hn this hard on other automation stories" and less of an indictment of the (fashionable) distaste for HFT.
- wpietri 11y ago
  I suppose one could read it either way. But a) most engineers are pro-automation, b) he works for a financial company, and c) computers haven't really replaced people in finance, so absent other evidence, I am going to stick with my reading of his comment for now.

jandrese 11y ago

Eh, using computers to replace people in front running was really not an improvement to the situation.

tptacek 11y ago
Yes it was. Even stipulating your use of the term "front running"†, it's not hard to see how. When humans intermediated trades, spreads were denominated in dimes and quarters (and even higher as you go back further in time). Now they're pennies. Google "odd eighths scandal" for a good starting point. † "Front running" has a specific technical meaning, which very few people who throw the term around seem to know about: a front-runner violates a fiduciary duty they have to a client, trading against their clients for their own benefit. Market makers and prop trading firms aren't generally brokers for other people and don't have that duty; they can't "front-run" the people they out-trade. Your real estate agent would "front run" you if they knew you wanted to buy a particular house, knew your maximum price, bought the same house for less than that price and then sold it to you at a profit. Same with your stock broker and, say, IBM stock; they have a duty of best execution to you.
- AjithAntony 11y ago
  I only know as much as I read in Flash Boys, and it sounds like front-running is generally the right name for this, but the difference is that it is not your broker but 3rd parties who are fishing for info on potential trades that are front-running. By your analogy, the real estate agent knows you want to buy 5 houses, and suddenly after closing the first one, the price of the remaining 4 goes up.
  - tptacek 11y ago
    No. Your real estate agent has a duty to you and cannot trade against your interests. A prop trading firm (or "3rd party firm") has no such duty, and thus can't "front-run" you. If your own real estate agent bought a bunch of houses to resell them to you at a profit, they would be front running you. If another real estate firm noticed that you seemed intent on buying 5 houses and bought a bunch of them to resell to you, that would not be front-running; in fact, that would basically be a description of how the real estate market works.