7 ms·

No, it's just fast algorithmic trading, aka latency arbitrage. It's still quite risky and you don't have any special information anyone else doesn't have.

nickpsecurity 10y ago
I think I see what commenter meant. You have to physically be on the inside in the sense you need a direct, short connection to the network that cost ridiculous money along with HW and SW that costs ridiculous money. A prestigious position most stock traders couldn't compete with if they wanted to. Plus, you get to preempt all of them from this position without them even knowing it.
- superuser2 10y ago
  Insider trading is a term with a specific meaning, and that is not it.
  - sheepleherd 10y ago
    Insider trading is a term with a specific meaning, and that is not it; true, but nor is the specific meaning of insider trading what most people think it is. "Trading on inside information" is a term for what many people attempt to do that is illegal. "Insider trading", on the other hand, is when insiders trade, which is totally legal, it's just regulated in certain circumstances when the size of the the trade is large or the person's role is at the executive level, an upcoming trade needs to be announced (made public) in advance as if itself it is information.
  - jandrese 10y ago
    This argument always feels like "It's not a Pyramid Scheme! It's a Triangle Opportunity!" People use the term not because it is an exact fit, but because it is the closest match we have and the intention is largely the same. HFT being a lot about using computers to gain tiny information advantages (racing the speed of light between exchanges for example) to make perfectly safe arbitrages millions of times a day and effectively skim off of the top of the market.
    - nickpsecurity 10y ago
      Exactly my intent. Well-worded. I'm not sure quite how to describe it how average person would understand. So, insider trading is one option to approximate it. Pyramid Scheme seems like another one in the rip-off aspect but doesn't fix the specifics as well. The traits to categorize are it's rigged, parasitic on others, requires enormous investment, and requires physical proximity that's fairly exclusive.
      - kbenson 10y ago
        > he traits to categorize are it's rigged, parasitic on others I'm not sure that's a good way to frame them. If you frame them as parasitic, then the argument shifts towards how we can stop them, as they don't provide any value. HFT firms do provide value in liquidity and more accurate market prices. Whether the cost them impose for these is worthwhile is an open question, but then the argument is about how to tweak incentives and rewards to best utilize this resource, not how to prevent it from working at all. The framing matters.
      - gnaritas 10y ago
        And all of those descriptions are wrong. They are not trading on inside information, it is not in any way a pyramid scheme or a rip-off, nor is it rigged or parasitic. If you think HFT is bad, you don't understand what it is. HFT improves market prices providing buyers and sellers with better prices than they had before HFT by narrowing the spread you have to pay to find liquidity. HFT is good and benefits retail traders.
    - kbenson 10y ago
      > effectively skim off of the top of the market The problem with this point of view is that it implies they are just taking, and not providing. HFT provides a more accurate market price by providing liquidity at small price differences. Whether what they provide justifies their cost is another question though.
      - nickpsecurity 10y ago
        It's algorithms guessing about something in nanoseconds with little context. Feels like that would reduce accurate pricing. Not a finance guy, though, so my intuition could be wrong.
  - sklogic 10y ago
    Getting an information ahead of the rest of the crowd sort of fits under this specific meaning.
    - cubano 10y ago
      Arbitrage has been around since the very beginnings of modern banking and provides a very important function to allow markets to accurately adjust to proper price signals.
    - gnaritas 10y ago
      No it doesn't, insider trading means using non public information; not getting information faster which is and has always been a thing long before HFT ever existed. Information takes time to impact the market and always has and there's always been and always will be traders fighting traders to know that information first.

nickpsecurity 10y ago

I think I see what commenter meant. You have to physically be on the inside in the sense you need a direct, short connection to the network that cost ridiculous money along with HW and SW that costs ridiculous money. A prestigious position most stock traders couldn't compete with if they wanted to. Plus, you get to preempt all of them from this position without them even knowing it.

superuser2 10y ago
Insider trading is a term with a specific meaning, and that is not it.
- sheepleherd 10y ago
  Insider trading is a term with a specific meaning, and that is not it; true, but nor is the specific meaning of insider trading what most people think it is. "Trading on inside information" is a term for what many people attempt to do that is illegal. "Insider trading", on the other hand, is when insiders trade, which is totally legal, it's just regulated in certain circumstances when the size of the the trade is large or the person's role is at the executive level, an upcoming trade needs to be announced (made public) in advance as if itself it is information.
- jandrese 10y ago
  This argument always feels like "It's not a Pyramid Scheme! It's a Triangle Opportunity!" People use the term not because it is an exact fit, but because it is the closest match we have and the intention is largely the same. HFT being a lot about using computers to gain tiny information advantages (racing the speed of light between exchanges for example) to make perfectly safe arbitrages millions of times a day and effectively skim off of the top of the market.
  - nickpsecurity 10y ago
    Exactly my intent. Well-worded. I'm not sure quite how to describe it how average person would understand. So, insider trading is one option to approximate it. Pyramid Scheme seems like another one in the rip-off aspect but doesn't fix the specifics as well. The traits to categorize are it's rigged, parasitic on others, requires enormous investment, and requires physical proximity that's fairly exclusive.
    - kbenson 10y ago
      > he traits to categorize are it's rigged, parasitic on others I'm not sure that's a good way to frame them. If you frame them as parasitic, then the argument shifts towards how we can stop them, as they don't provide any value. HFT firms do provide value in liquidity and more accurate market prices. Whether the cost them impose for these is worthwhile is an open question, but then the argument is about how to tweak incentives and rewards to best utilize this resource, not how to prevent it from working at all. The framing matters.
    - gnaritas 10y ago
      And all of those descriptions are wrong. They are not trading on inside information, it is not in any way a pyramid scheme or a rip-off, nor is it rigged or parasitic. If you think HFT is bad, you don't understand what it is. HFT improves market prices providing buyers and sellers with better prices than they had before HFT by narrowing the spread you have to pay to find liquidity. HFT is good and benefits retail traders.
  - kbenson 10y ago
    > effectively skim off of the top of the market The problem with this point of view is that it implies they are just taking, and not providing. HFT provides a more accurate market price by providing liquidity at small price differences. Whether what they provide justifies their cost is another question though.
    - nickpsecurity 10y ago
      It's algorithms guessing about something in nanoseconds with little context. Feels like that would reduce accurate pricing. Not a finance guy, though, so my intuition could be wrong.
- sklogic 10y ago
  Getting an information ahead of the rest of the crowd sort of fits under this specific meaning.
  - cubano 10y ago
    Arbitrage has been around since the very beginnings of modern banking and provides a very important function to allow markets to accurately adjust to proper price signals.
  - gnaritas 10y ago
    No it doesn't, insider trading means using non public information; not getting information faster which is and has always been a thing long before HFT ever existed. Information takes time to impact the market and always has and there's always been and always will be traders fighting traders to know that information first.