3 ms·
> HFT reduces spreads. End users end up benefiting from lower prices. Is this really true? It's hard to understand how the fact that one guy can trade with a
by alimw 10y ago
> HFT reduces spreads. End users end up benefiting from lower prices.
Is this really true? It's hard to understand how the fact that one guy can trade with a delay of two microseconds instead of three will benefit the market as a whole.
I can tell you it is commonly thought that HFT's profits come at someone else's cost, and that someone else is precisely your "end user". See "front-running".
- MichaelGG 10y agoFront running is when you take your customers' orders, then use that knowledge to cheat them. For instance, your customer gives you an order to buy a stock. You then go and buy a bunch first, then sell to them at a profit. Front running has nothing to do with speed. And since HFT firms don't have customers generally, they simply cannot front run. The profits have come at the cost of other market makers - they're all HFT now. There's also the ability to adjust pricing quickly, so that when some large firm tries to buy or sell a large block, they don't get to avoid price impact as easily.
- dredmorbius 10y agoFront-running is precisely what Michael Lewis's Flash Boys is about. The trades intercepted by HFT don't constitute marterial market information which could change the behavior of the trader being front-run. They can only serve, much as with Sysiphus, to take an existing transaction opportunity from them, after having been committed to it.