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Exactly. This is a defensive technology to defend against other HFT players. Think of it this way: - In the past (prior to HFT), when you put in an order, yo
by Johnie 10y ago
Exactly. This is a defensive technology to defend against other HFT players.
Think of it this way:
- In the past (prior to HFT), when you put in an order, you know where the market is going to be. How you win is by building better financial models to identify which security to buy/sell.
- With HFT, traders, without sophisticated tools, can no longer trust the market because once they submit, HFT algorithms can shift the market. The focus now is to build a better HFT product to win in the marketplace.
- What Renaissance is doing here is neutralizing the effect of the HFT on their trades. Once they neutralize the "enemy", they can go back to doing what they are great at: financial modeling.
Throughout history, power has shifted with changes in weapon technology. This is just a shift of power back to traditional fund managers from HFTs.
- eru 10y agoHow did you know in the past where the market was going to be? All that was ever available was information about past trades, and perhaps open orders in the market that could have already been removed at any time?
- Johnie 10y agoSorry, I could have phrased it better. When I said "where the market is going to be" I meant that from one second to the next, you knew it wouldn't move that far. In the past, when you called up your broker to buy a stock, he could give you a quote (say 12.35) and you tell him to buy, you know that the price will be the quoted amount. (Market in finance lingo in this case means current price of the stock) If you need to sell a large batch of stock, you know the broker can sell it to multiple people and get you the best price. With HFT, trades are moving so much faster and you can get a quote from the exchange (someone want to buy 500 shares @ 12.35) and by the time your trade gets sent from your computer to the exchange, that offer is now 400 shares at $12.50. The market has moved in milliseconds. In other words, you cannot trust the market (current price) because you don't know where it will be in the milliseconds from viewing the quote to entering the trade. In Flash Boys, they talked about ghosts in the machines. This is what they were referring to. When they entered their trades, it's as if the market knew beforehand and moved against you. (For finance savvy people, apologies, I've simplified it in lieu of understanding)
- kasey_junk 10y agoThe reason that the market wouldn't move that far is that the market makers were quoting a much bigger spread. That is the price was always way worse (a quarter at the minimum). You can still get that pricing level almost everywhere by quoting through the market at that price difference.