3 ms·

> HFT mocks the true essence of trading HFT is the true essence of trading--predicting short-term changes in supply and demand and acting accordingly. > This

by ctlby 11y ago

> HFT mocks the true essence of trading HFT is the true essence of trading--predicting short-term changes in supply and demand and acting accordingly. > This used to give us a real picture of the public sentiment for those companies or commodities. Can you pinpoint some moment when it stopped? > Stocks are bought and sold in micro seconds Most HFT strategies don't actually do this. Buying and selling in such a short period implies a pure arbitrage, of which there are very few. The ones that do exist are generally fully exploited by the single fastest participant. > creating an unsustainable and unlevel playing field for the real humans in markets. Depends on your investment horizon. The statement is nonsense for all but the shortest timeframes. In particular, the fundamental finance guys (the "investors") are in no danger from the machines. > The current ecosystem is just unsustainable. Why? Automated market-makers are a middle-man that temporally bridge supply and demand between "real" buyers and sellers. Kind of like a grocery store temporally bridges supply and demand between consumers and farmers. Kind of like a car dealer temporally bridges supply and demand between consumers and manufacturers. Kind of like... you get the idea. Why are equity markets different?

jagtesh 11y ago
> Most HFT strategies don't actually do this. Buying and selling in such a short period implies a pure arbitrage, of which there are very few. The ones that do exist are generally fully exploited by the single fastest participant. I assumed most were of that sort. I still fail to understand what does being one millionth of a second faster accomplish if you're going to hold your position longer than that. It still triggers a competition for being the fastest participant that makes the transaction right after an event. >Why? Automated market-makers are a middle-man that temporally bridge supply and demand between "real" buyers and sellers. Kind of like a grocery store temporally bridges supply and demand between consumers and farmers. Kind of like a car dealer temporally bridges supply and demand between consumers and manufacturers. Kind of like... you get the idea. Why are equity markets different? That's an interesting thought. It may just be that the subject has a lot more elements that I haven't considered yet. Here's something for you to consider and I would love to hear your POV on this. What if the regulators decided to ban all HFTs. Transactions had to rate limited by 300ms or more. In your opinion, would the markets behave any differently from now? If not, then what is being gained by all the major investments in HFT systems and platforms? If yes, then what do the markets gain?
- ctlby 11y ago
  > I still fail to understand what does being one millionth of a second faster accomplish. A simple example: suppose AAPL is currently quoted $95.00 x $96.00. A reasonable estimate for the "fair value" is the midpoint, $95.50. Now, a new sell order for $95.01 arrives at the market. AAPL is now quoted at $95.00 x $95.01. In the absence of other signals, a trader might reason that there's something wrong with the guy selling at $95.01 when everyone else thinks fair value is ~$95.50. If so, he'll rush to trade against the new order. First one to get there gets shares cheap; everyone else gets nothing. Hold the position for as long as you like. There are a lot of details to get right, but this is an actual HFT strategy, not a toy example. Note that your speed matters only insofar as it lets you trade ahead of everyone else. All the infrastructure investment is required to stay ahead of other participants, but it does not confer a durable advantage: the arms race will quickly erode the edge. The investment is best-viewed as a tax imposed by other HFT firms, paid to technology vendors and exchanges. The big winners are those who sell the equipment and fast lines that certain HFTs desperately need. > What if the regulators decided to ban all HFTs. The market would look pretty similar to how it does today. The big change would be somewhat wider spreads: market makers need to compensate for the additional risk they take on by leaving their orders out. Any other traders here have an opinion?

by ctlby 11y ago

jagtesh 11y ago

> Most HFT strategies don't actually do this. Buying and selling in such a short period implies a pure arbitrage, of which there are very few. The ones that do exist are generally fully exploited by the single fastest participant. I assumed most were of that sort. I still fail to understand what does being one millionth of a second faster accomplish if you're going to hold your position longer than that. It still triggers a competition for being the fastest participant that makes the transaction right after an event. >Why? Automated market-makers are a middle-man that temporally bridge supply and demand between "real" buyers and sellers. Kind of like a grocery store temporally bridges supply and demand between consumers and farmers. Kind of like a car dealer temporally bridges supply and demand between consumers and manufacturers. Kind of like... you get the idea. Why are equity markets different? That's an interesting thought. It may just be that the subject has a lot more elements that I haven't considered yet. Here's something for you to consider and I would love to hear your POV on this. What if the regulators decided to ban all HFTs. Transactions had to rate limited by 300ms or more. In your opinion, would the markets behave any differently from now? If not, then what is being gained by all the major investments in HFT systems and platforms? If yes, then what do the markets gain?

ctlby 11y ago
> I still fail to understand what does being one millionth of a second faster accomplish. A simple example: suppose AAPL is currently quoted $95.00 x $96.00. A reasonable estimate for the "fair value" is the midpoint, $95.50. Now, a new sell order for $95.01 arrives at the market. AAPL is now quoted at $95.00 x $95.01. In the absence of other signals, a trader might reason that there's something wrong with the guy selling at $95.01 when everyone else thinks fair value is ~$95.50. If so, he'll rush to trade against the new order. First one to get there gets shares cheap; everyone else gets nothing. Hold the position for as long as you like. There are a lot of details to get right, but this is an actual HFT strategy, not a toy example. Note that your speed matters only insofar as it lets you trade ahead of everyone else. All the infrastructure investment is required to stay ahead of other participants, but it does not confer a durable advantage: the arms race will quickly erode the edge. The investment is best-viewed as a tax imposed by other HFT firms, paid to technology vendors and exchanges. The big winners are those who sell the equipment and fast lines that certain HFTs desperately need. > What if the regulators decided to ban all HFTs. The market would look pretty similar to how it does today. The big change would be somewhat wider spreads: market makers need to compensate for the additional risk they take on by leaving their orders out. Any other traders here have an opinion?