5 ms·

But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? That's surely takin

But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? That's surely taking things a little too far. Nothing in the real economy changes that fast.

wcummings 11y ago
>But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? It's cheaper than people doing it, and the lower the latency, the faster a trader can move his position to match changes in the market. What is the social benefit of Twitter loading in 100ms instead of 150ms? Why is latency important for peoples' stupid mobile apps, but not important for financial transactions? >Nothing in the real economy changes that fast. Sure, but you don't want to have to wait for an earnings report to sell your shares when you want to buy a house or something. You want people to always be trading your stock so it's easy to buy and sell. Similarly, when a big pension fund buys or sells a lot of your stock at once you want "people" trading to reduce volatility.
- thewarrior 11y ago
  Dude its not 100 ms we're talking 100 microseconds.
Zach_the_Lizard 11y ago
> But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? This sort of HFT smooths out prices over this time frame. The thing is, as it smooths out the peaks and valleys, the value in doing so decreases as those peaks and valleys are what made it profitable in the first place. >That's surely taking things a little too far. Nothing in the real economy changes that fast. Why? Computers have changed the game. We went from mailing our brokers or visiting them in person to calling them to conducting trades over the Internet. The 'real' economy changes quite quickly.
- Retric 11y ago
  Market makers can have actual value by reducing bid/buy spread. However, I don't think reality supports the idea that HFT are adding real signals to the market. HFT software has little understanding of the 'world' so they add noise which reduces signal. Taking the markets further from reality. See: flash crashes. They don't actually have anything to do with the wider economy just feedback loops devoid from reality. PS: Some software is designed to automatically read and interpreted news, but they often get it wrong moving the market in the wrong direction.
  - chipsy 11y ago
    The crucial aspect is the "crunch per bit" of HFT. We know that an electronic system is mostly an improvement over having pit traders yell at each other all day. What we do not know and cannot prove without experimenting is whether our electronic markets benefit from following smarter, more complex rules of play instead of the same ones faster.
  - yummyfajitas 11y ago
    Flash Crashes also have no effect on the wider market. When you look at end of day prices for various stocks and indices, there is only a single symbol where you can actually see the effect of any flash crash: https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in_the_pan.html https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in... Also, HFT lowers the price for people who do have information to trade with it. In this way, while HFT adds little information of it's own, it does enable better information transmission.
    - Retric 11y ago
      In other words in the short term can and will distort the market. So, the question becomes do they discover a economically meaningful price in the short term or is the processes essentially random. As to lowering the price, arbitrarily increasing or decreasing the price is not an economically useful activity. The value of markets is price discovery, at best HFT reduce transaction costs though this is somewhat debatable as they are extracting money from somewhere.
tptacek 11y ago
There's probably not much social benefit to getting pricing resolution down below 100ms. However, there is an enormous benefit to getting pricing resolution down from the double-digit seconds level it was at when humans were able to keep up. The market driven by human intermediaries was crooked as a barrel of fishhooks. When these discussions come up, I always urge people to Google [odd eighths scandal] for an example of what things were like prior to electronic trading. Once you have electronic trading, it makes sense that there either needs to be some "figure of merit" to allow different electronic traders to compete, or else some sort of permanent monopoly for the most successful initial electronic trading firm. Better, I think, that firms compete pointlessly to price instruments at subsecond granularity than that Goldman Sachs simply buys the (thankfully nonexistent) market maker version of Google.

wcummings 11y ago

>But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? It's cheaper than people doing it, and the lower the latency, the faster a trader can move his position to match changes in the market. What is the social benefit of Twitter loading in 100ms instead of 150ms? Why is latency important for peoples' stupid mobile apps, but not important for financial transactions? >Nothing in the real economy changes that fast. Sure, but you don't want to have to wait for an earnings report to sell your shares when you want to buy a house or something. You want people to always be trading your stock so it's easy to buy and sell. Similarly, when a big pension fund buys or sells a lot of your stock at once you want "people" trading to reduce volatility.

thewarrior 11y ago
Dude its not 100 ms we're talking 100 microseconds.

Zach_the_Lizard 11y ago

> But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? This sort of HFT smooths out prices over this time frame. The thing is, as it smooths out the peaks and valleys, the value in doing so decreases as those peaks and valleys are what made it profitable in the first place. >That's surely taking things a little too far. Nothing in the real economy changes that fast. Why? Computers have changed the game. We went from mailing our brokers or visiting them in person to calling them to conducting trades over the Internet. The 'real' economy changes quite quickly.

Retric 11y ago
Market makers can have actual value by reducing bid/buy spread. However, I don't think reality supports the idea that HFT are adding real signals to the market. HFT software has little understanding of the 'world' so they add noise which reduces signal. Taking the markets further from reality. See: flash crashes. They don't actually have anything to do with the wider economy just feedback loops devoid from reality. PS: Some software is designed to automatically read and interpreted news, but they often get it wrong moving the market in the wrong direction.
- chipsy 11y ago
  The crucial aspect is the "crunch per bit" of HFT. We know that an electronic system is mostly an improvement over having pit traders yell at each other all day. What we do not know and cannot prove without experimenting is whether our electronic markets benefit from following smarter, more complex rules of play instead of the same ones faster.
- yummyfajitas 11y ago
  Flash Crashes also have no effect on the wider market. When you look at end of day prices for various stocks and indices, there is only a single symbol where you can actually see the effect of any flash crash: https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in_the_pan.html https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in... Also, HFT lowers the price for people who do have information to trade with it. In this way, while HFT adds little information of it's own, it does enable better information transmission.
  - Retric 11y ago
    In other words in the short term can and will distort the market. So, the question becomes do they discover a economically meaningful price in the short term or is the processes essentially random. As to lowering the price, arbitrarily increasing or decreasing the price is not an economically useful activity. The value of markets is price discovery, at best HFT reduce transaction costs though this is somewhat debatable as they are extracting money from somewhere.

tptacek 11y ago

There's probably not much social benefit to getting pricing resolution down below 100ms. However, there is an enormous benefit to getting pricing resolution down from the double-digit seconds level it was at when humans were able to keep up. The market driven by human intermediaries was crooked as a barrel of fishhooks. When these discussions come up, I always urge people to Google [odd eighths scandal] for an example of what things were like prior to electronic trading. Once you have electronic trading, it makes sense that there either needs to be some "figure of merit" to allow different electronic traders to compete, or else some sort of permanent monopoly for the most successful initial electronic trading firm. Better, I think, that firms compete pointlessly to price instruments at subsecond granularity than that Goldman Sachs simply buys the (thankfully nonexistent) market maker version of Google.