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Title is a little misleading. The article is seeking to refute a letter from Citadel opposing the establishment of IEX ('Flash Boys' exchange) on the grounds th

Title is a little misleading. The article is seeking to refute a letter from Citadel opposing the establishment of IEX ('Flash Boys' exchange) on the grounds that it is not as efficient for the smaller retail investor. Article explains how 1) many of the retirement funds and institutional investors do actually represent the little guy 2) why exchanges that encourage HFT are costing all of us with retirement funds lots of extra dollars. I for one would like to see traders compete something other than speed and hope to see the IEX up and approved as an exchange sooner rather than later.

gnaritas 11y ago
Traders have always competed on speed and "will always" compete on speed, you can't stop this, it's not possible, nor is it bad. So why exactly are you against competing on speed? > why exchanges that encourage HFT are costing all of us with retirement funds lots of extra dollars. Why do you believe this, HFT lowers the spread making entering the market cheaper for those guys.
- chuckcode 11y ago
  Both the article and the original "flash boys" book make a compelling case about how HFT can in some cases be used to virtually front run orders. I personally don't understand the system enough to prove or disprove those claims. I do think that an exchange that places less of a premium on speed like the IEX is a reasonable way to let the market itself evaluate the benefits of HFT. If the exchanges with HFT do provide a better value in terms of liquidity or price then the IEX will suffer as it provides an inferior product. If IEX flourishes then it is providing some value to investors. Let investors vote with their dollars
  - tptacek 11y ago
    Neither the article nor Flash Boys makes that case. The article doesn't make that case because Levine is semi-famous for repeatedly calling Flash Boys into question, particularly with regards to the book's claim that HFT allows "front-running". Flash Boys doesn't make that case because it's an incoherent mish-mash of different arguments that don't add up to a definition of "virtual front running", let alone an argument that it's happening.
  - kasey_junk 11y ago
    Personally, I think that IEX becoming an exchange is a done deal and have absolutely no problem with that. What causes me concern (and many of the opposition letters point to this as well) is that we don't want IEX becoming an exchange to be seen as some sort of referendum on HFT and specifically how HFT impacts individual investors. The biggest reason for that is that I believe that individual investors are dramatically better off in a world of cheap wholesale market makers than they could ever be being dumped in the shark tank of hedge funds that is IEX. I have no problem with institutional investors who want to take advantage of IEX if they think that is best, they are professionals and that is their job to figure that out (though I wouldn't want to be invested with an institutional investor who wanted to trade on IEX because I would be suspicious of their competence). What I find really scummy is the marketing ploys of IEX to try to frame this as in someway good for individual investors. [edit] Obligatory, please if you've read Flash Boys read "Flash Boys: Not So Fast". No one who understands/has worked in electronic trading that I've met believes that Flash Boys is anything but misrepresentative and bad.
  - gnaritas 11y ago
    > and the original "flash boys" book make a compelling case Except it didn't, it merely showed that the author has no understand of what HFT is. Flash boys is full of hyperbolic bullshit that may sell books but shows no real understanding of how the market works. He misuses the term front running (which is illegally using knowledge of your clients positions to trade ahead of them) and applies it to being a faster speculator, which is in no way front running. The guy quite simply doesn't know what he's talking about.
tptacek 11y ago
One problem with arguing that HFT is costing retirement funds lots of extra dollars is that it's simply not true; in fact, the opposite is true.
- deleted 11y ago
  [deleted]
- bcg1 11y ago
  This might be true on a micro level when it comes to order execution, but on a macro level the costs have yet to be determined. HFT in its current form has not really been through a market downturn, and the way in which the algorithms interact with each could turn out to be very detrimental to markets (and by extension retirement funds) as a whole.
  - smoorman1024 11y ago
    2008? Electronic Trading Firms were very active.
  - tptacek 11y ago
    What is "HFT in its current form"? If you're going to project some harm from automated electronic trading, I think you need to be specific about both the form of trading you're concerned about and the harms it might visit on the market.
    - bcg1 11y ago
      By "in its current form" I mean whatever growth & developments have been implemented in the industry since 2009, and to a lesser extent since 2011. I'm not an insider or an expert, and I'm sure there are many nuanced arguments for and against individual use cases. I'm really just trying to point out that there it is not clear what the systemic risks are, or how algorithms will behave in a market that is drastically different than the what we've seen in the last 4 years. It is impossible to test a system like this as a whole. My personal lack of knowledge about the inside baseball does not change this fact. And dismissing the macro view because of nuanced micro arguments comes off as flippant, elitist, irresponsible, and incorrect in my opinion.

gnaritas 11y ago

Traders have always competed on speed and "will always" compete on speed, you can't stop this, it's not possible, nor is it bad. So why exactly are you against competing on speed? > why exchanges that encourage HFT are costing all of us with retirement funds lots of extra dollars. Why do you believe this, HFT lowers the spread making entering the market cheaper for those guys.

chuckcode 11y ago
Both the article and the original "flash boys" book make a compelling case about how HFT can in some cases be used to virtually front run orders. I personally don't understand the system enough to prove or disprove those claims. I do think that an exchange that places less of a premium on speed like the IEX is a reasonable way to let the market itself evaluate the benefits of HFT. If the exchanges with HFT do provide a better value in terms of liquidity or price then the IEX will suffer as it provides an inferior product. If IEX flourishes then it is providing some value to investors. Let investors vote with their dollars
- tptacek 11y ago
  Neither the article nor Flash Boys makes that case. The article doesn't make that case because Levine is semi-famous for repeatedly calling Flash Boys into question, particularly with regards to the book's claim that HFT allows "front-running". Flash Boys doesn't make that case because it's an incoherent mish-mash of different arguments that don't add up to a definition of "virtual front running", let alone an argument that it's happening.
- kasey_junk 11y ago
  Personally, I think that IEX becoming an exchange is a done deal and have absolutely no problem with that. What causes me concern (and many of the opposition letters point to this as well) is that we don't want IEX becoming an exchange to be seen as some sort of referendum on HFT and specifically how HFT impacts individual investors. The biggest reason for that is that I believe that individual investors are dramatically better off in a world of cheap wholesale market makers than they could ever be being dumped in the shark tank of hedge funds that is IEX. I have no problem with institutional investors who want to take advantage of IEX if they think that is best, they are professionals and that is their job to figure that out (though I wouldn't want to be invested with an institutional investor who wanted to trade on IEX because I would be suspicious of their competence). What I find really scummy is the marketing ploys of IEX to try to frame this as in someway good for individual investors. [edit] Obligatory, please if you've read Flash Boys read "Flash Boys: Not So Fast". No one who understands/has worked in electronic trading that I've met believes that Flash Boys is anything but misrepresentative and bad.
- gnaritas 11y ago
  > and the original "flash boys" book make a compelling case Except it didn't, it merely showed that the author has no understand of what HFT is. Flash boys is full of hyperbolic bullshit that may sell books but shows no real understanding of how the market works. He misuses the term front running (which is illegally using knowledge of your clients positions to trade ahead of them) and applies it to being a faster speculator, which is in no way front running. The guy quite simply doesn't know what he's talking about.

tptacek 11y ago

One problem with arguing that HFT is costing retirement funds lots of extra dollars is that it's simply not true; in fact, the opposite is true.

deleted 11y ago
[deleted]
bcg1 11y ago
This might be true on a micro level when it comes to order execution, but on a macro level the costs have yet to be determined. HFT in its current form has not really been through a market downturn, and the way in which the algorithms interact with each could turn out to be very detrimental to markets (and by extension retirement funds) as a whole.
- smoorman1024 11y ago
  2008? Electronic Trading Firms were very active.
- tptacek 11y ago
  What is "HFT in its current form"? If you're going to project some harm from automated electronic trading, I think you need to be specific about both the form of trading you're concerned about and the harms it might visit on the market.
  - bcg1 11y ago
    By "in its current form" I mean whatever growth & developments have been implemented in the industry since 2009, and to a lesser extent since 2011. I'm not an insider or an expert, and I'm sure there are many nuanced arguments for and against individual use cases. I'm really just trying to point out that there it is not clear what the systemic risks are, or how algorithms will behave in a market that is drastically different than the what we've seen in the last 4 years. It is impossible to test a system like this as a whole. My personal lack of knowledge about the inside baseball does not change this fact. And dismissing the macro view because of nuanced micro arguments comes off as flippant, elitist, irresponsible, and incorrect in my opinion.