3 ms·

Let me explain what I think the parent is getting at. Say there is a $20/share sell order registered on the exchange. Then another investor submits a $30/share

by orborde 17y ago

Let me explain what I think the parent is getting at. Say there is a $20/share sell order registered on the exchange. Then another investor submits a $30/share buy order. As I understand it, at this point HFTs jump in, buy out the sell order at $20/share, and then resell the shares to fill the buy order at $30/share, pocketing a $10/share profit. The question is, why can't the buy and sell orders be matched directly, allowing the buyer to pocket the discount off the price he was willing to pay, instead of the difference going to an HFT with access to the incoming order stream? What possible benefit is provided to the market by skimming off the difference like this? The behavior I talked about above is one of the objections to HFT as it's currently practiced, and I'd like to know whether it reflects a misunderstanding.

yummyfajitas 17y ago
The buy and sell orders are matched directly. Orders are filled in order of price (best first) and time (first to place order, if price is equal).
ad 17y ago
Obviously in this kind of pure arbitrage situation, the world would be a better place If seller A and buyer B are matched up directly. But rarely would this kind of situation come up. There was this nytimes article a while back that describe something similar to the above scenario in context of a 'flash order', and I think everyone thinks this is what HFT is. For a normal retail order this should not happen. But for the flash order described in the nytimes article, the truth is a little more complicated. The buyers and sellers were not immediately matched up in that case. Why? The buyer was trying to hide the fact that they were trying to buy, by using a flash order. The gamble is they could find another pocket of liquidity before sending it to the open market. But in this case the gamble failed-- they would've been better off sending it directly. There are many controversies about flash trading and how it skirts Reg NMS. If you read the flash trading page in wikipedia there's some good info by the BATS people in the Forbes link.

by orborde 17y ago

yummyfajitas 17y ago

The buy and sell orders are matched directly. Orders are filled in order of price (best first) and time (first to place order, if price is equal).

ad 17y ago

Obviously in this kind of pure arbitrage situation, the world would be a better place If seller A and buyer B are matched up directly. But rarely would this kind of situation come up. There was this nytimes article a while back that describe something similar to the above scenario in context of a 'flash order', and I think everyone thinks this is what HFT is. For a normal retail order this should not happen. But for the flash order described in the nytimes article, the truth is a little more complicated. The buyers and sellers were not immediately matched up in that case. Why? The buyer was trying to hide the fact that they were trying to buy, by using a flash order. The gamble is they could find another pocket of liquidity before sending it to the open market. But in this case the gamble failed-- they would've been better off sending it directly. There are many controversies about flash trading and how it skirts Reg NMS. If you read the flash trading page in wikipedia there's some good info by the BATS people in the Forbes link.