4 ms·

Isn't front-running big trades just a subset of algorithms that predict price movements? i.e. They're not mutually exclusive. Admittedly I have zero special

by nsedlet 10y ago

Isn't front-running big trades just a subset of algorithms that predict price movements? i.e. They're not mutually exclusive. Admittedly I have zero special knowledge of Renaissance and what particular strategies they use.

dsl 10y ago
Front running is seeing your friend looking at a car on craigslist, buying it, and then selling it to him. Renaissance is using satellites to monitor retail store foot traffic to predict quarterly earnings. (both as hypothetical examples)
- kasey_junk 10y ago
  Actually front running is your car broker buying the car after you told them you want it... But I'm no longer willing to fight the front-running term fight anymore. It will just have to be like my fight against the mainstream use of hacker.
  - pgwhalen 10y ago
    I think dsl's understanding is pretty good actually; the metaphor breaks down a bit with car buying. It's clearly better than nsedlet's definition.
  - Dylan16807 10y ago
    With that definition of "front running" people are doing the same interception as 'true' front runners, but they happen to be third parties. People are using the best available term, and making it slightly more general. What would you rather have them call it? They can't call it nothing. Just like people will call things "insider trading" when there is trading based on insider information, whether or not it happened to be legal.
    - Lazare 10y ago
      That argument is a bit like calling all sex rape, because someone having sex is doing the same thing as a rapist does, they just happen to have consent. The reason front running is illegal is because it is a violation of a fiduciary duty. Third parties do not have a fiduciary duty, therefore it's not illegal. "It's front running, but without the violation of the fiduciary duty" is like "murder, but without the killing someone", or "fraud, but without the deception". > What would you rather have them call it? They can't call it nothing. Not everything needs a name. Since what you seem to be describing is "reacting to the public actions of other market participants", does it need a name? Alternatively, if you think something serious is going on, why don't you define it, and then we can name it?
      - Dylan16807 10y ago
        > The reason front running is illegal is because it is a violation of a fiduciary duty. And nobody is calling this kind of "front running" illegal. > like "murder, but without the killing someone", or "fraud, but without the deception". In a murder analogy, you'd keep the killing but change something else, maybe it's properly manslaughter but people will still call you a murderer. For "fraud without deception", let's look at what that entails. You lie. The victim knows you're lying, no deception involved, but they rely on your word. The victim is harmed. I think that's close enough to allow people to call it fraud, even if legally it's slightly different. > "reacting to the public actions of other market participants" The reason people dislike it is because it's not just 'reacting'. They're getting in their own action before the thing they're reacting to has finished. > why don't you define it Darawk defined this version for us. "front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives."
        Lazare 10y ago
        > The reason people dislike it is because it's not just 'reacting'. [...] Darawk defined this version for us. "front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives." Seeing a completed order on exchange A, and speculatively purchasing stock on B in the hopes that the buyer might later buy stock on B sure sound reactive to me.
- nsedlet 10y ago
  Are you saying front-running is not an HFT strategy? Because that is incorrect. In equities markets, for trades of a sufficient size it's not possible to place the order all at once. You'll hammer the order book, and take very suboptimal pricing for the latest marginal shares you buy/sell. Therefore you have to split up the order into chunks. HFT firms will try to detect when equities traders are doing this. e.g. If they see a pattern indicating that chunks of shares are being bought, they will try to buy, too. When the rest of the order comes through, the price will rise and that firm will make money. That's why "front-running" is just a special-case of an algorithm to predict price movements. I seriously doubt that a HFT fund as large as Rennaissance uses a single strategy, be it satellite images, or front-running or what-have-you.
  - pgwhalen 10y ago
    >Are you saying front-running is not an HFT strategy? Because that is incorrect. I think dsl is quite familiar with the sort of HFT strategy you describe. I think s/he is just trying to correct your use of the term front-running, which was redefined by Michael Lewis et al. from its previous definition as the objectively illegal activity by a broker-dealer. Based on comments like yours, it's a losing battle.
  - yummyfajitas 10y ago
    HFT firms will try to detect when equities traders are doing this. e.g. If they see a pattern indicating that chunks of shares are being bought, they will try to buy, too. Price discrimination against large traders - grandma gets a better price than Bill Ackman - is a valid and real HFT strategy. They do it in the manner you describe. But it's not front running. It's only front running when your agent (usually your broker) does it based on private information. Front running is just a term Michael Lewis misused in his misleading advertisement for IEX.

by nsedlet 10y ago

dsl 10y ago

Front running is seeing your friend looking at a car on craigslist, buying it, and then selling it to him. Renaissance is using satellites to monitor retail store foot traffic to predict quarterly earnings. (both as hypothetical examples)

kasey_junk 10y ago
Actually front running is your car broker buying the car after you told them you want it... But I'm no longer willing to fight the front-running term fight anymore. It will just have to be like my fight against the mainstream use of hacker.
- pgwhalen 10y ago
  I think dsl's understanding is pretty good actually; the metaphor breaks down a bit with car buying. It's clearly better than nsedlet's definition.
- Dylan16807 10y ago
  With that definition of "front running" people are doing the same interception as 'true' front runners, but they happen to be third parties. People are using the best available term, and making it slightly more general. What would you rather have them call it? They can't call it nothing. Just like people will call things "insider trading" when there is trading based on insider information, whether or not it happened to be legal.
  - Lazare 10y ago
    That argument is a bit like calling all sex rape, because someone having sex is doing the same thing as a rapist does, they just happen to have consent. The reason front running is illegal is because it is a violation of a fiduciary duty. Third parties do not have a fiduciary duty, therefore it's not illegal. "It's front running, but without the violation of the fiduciary duty" is like "murder, but without the killing someone", or "fraud, but without the deception". > What would you rather have them call it? They can't call it nothing. Not everything needs a name. Since what you seem to be describing is "reacting to the public actions of other market participants", does it need a name? Alternatively, if you think something serious is going on, why don't you define it, and then we can name it?
    - Dylan16807 10y ago
      > The reason front running is illegal is because it is a violation of a fiduciary duty. And nobody is calling this kind of "front running" illegal. > like "murder, but without the killing someone", or "fraud, but without the deception". In a murder analogy, you'd keep the killing but change something else, maybe it's properly manslaughter but people will still call you a murderer. For "fraud without deception", let's look at what that entails. You lie. The victim knows you're lying, no deception involved, but they rely on your word. The victim is harmed. I think that's close enough to allow people to call it fraud, even if legally it's slightly different. > "reacting to the public actions of other market participants" The reason people dislike it is because it's not just 'reacting'. They're getting in their own action before the thing they're reacting to has finished. > why don't you define it Darawk defined this version for us. "front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives."
      - Lazare 10y ago
        > The reason people dislike it is because it's not just 'reacting'. [...] Darawk defined this version for us. "front-running. Which is me seeing your order on exchange A and buying ahead of you on exchange B before your order arrives." Seeing a completed order on exchange A, and speculatively purchasing stock on B in the hopes that the buyer might later buy stock on B sure sound reactive to me.
nsedlet 10y ago
Are you saying front-running is not an HFT strategy? Because that is incorrect. In equities markets, for trades of a sufficient size it's not possible to place the order all at once. You'll hammer the order book, and take very suboptimal pricing for the latest marginal shares you buy/sell. Therefore you have to split up the order into chunks. HFT firms will try to detect when equities traders are doing this. e.g. If they see a pattern indicating that chunks of shares are being bought, they will try to buy, too. When the rest of the order comes through, the price will rise and that firm will make money. That's why "front-running" is just a special-case of an algorithm to predict price movements. I seriously doubt that a HFT fund as large as Rennaissance uses a single strategy, be it satellite images, or front-running or what-have-you.
- pgwhalen 10y ago
  >Are you saying front-running is not an HFT strategy? Because that is incorrect. I think dsl is quite familiar with the sort of HFT strategy you describe. I think s/he is just trying to correct your use of the term front-running, which was redefined by Michael Lewis et al. from its previous definition as the objectively illegal activity by a broker-dealer. Based on comments like yours, it's a losing battle.
- yummyfajitas 10y ago
  HFT firms will try to detect when equities traders are doing this. e.g. If they see a pattern indicating that chunks of shares are being bought, they will try to buy, too. Price discrimination against large traders - grandma gets a better price than Bill Ackman - is a valid and real HFT strategy. They do it in the manner you describe. But it's not front running. It's only front running when your agent (usually your broker) does it based on private information. Front running is just a term Michael Lewis misused in his misleading advertisement for IEX.