8 ms·

This is the thing when I see wall street, and specifically high frequency trading vilified. Income inequality, the plight of the middle class, etc has almost n

This is the thing when I see wall street, and specifically high frequency trading vilified. Income inequality, the plight of the middle class, etc has almost nothing to do with that kind of financial maneuvering. Getting rid of high speed trading won't affect the average person really at all - but yet it's constantly vilified.

lbotos 10y ago
I think it's vilified because for some reason people think that the HFTraders are "stealing" from them in the form of tax avoidance and their exorbitant incomes.
- mmodahl 10y ago
  Nerds making money and people gunna hate.
  - patio11 10y ago
    I'm not generally a fan of viewing the world in terms of an extended version of the social struggle from high school, but given that this actually does do a reasonably accurate caricature of human market makers versus HFT firms, this has always confused me regarding HN's reaction to HFT. In one corner, we have sweaty alpha male jocks [+]. In the other corner, we have geeks with computers. The geeks ran the table on the jocks primarily because the geeks can do math faster. The jocks complain that the geeks are cheating, because how can they be expected to out-math a computer and, also, isn't math just a little suspicious? And HN sides with the jocks? [+] People might think I'm exaggerating. Videos exist of the daily life of a market maker. Here's a representative day at the office, circa 2000, in Chicago's open outcry options pit: https://www.youtube.com/watch?v=mvx3xM02iUs https://www.youtube.com/watch?v=mvx3xM02iUs In stocks and bonds, you generally got to be sweaty in your own office (open plan, frequently) and yell at someone over the telephone rather than straight to their face.
    - harryh 10y ago
      I thought about your question on my walk home from work today. I decided that as much as jocks vs geeks is a powerful force, a more powerful force is people's distrust of middlemen. People don't really understand that liquidity provisioning is a service that needs to be paid for. They think that if we could just wipe all middlemen off the face of the planet that buyers could just trade with sellers and we'd all save a little bit of money on trading fees. So it's not so much that HN has sided with the jocks over the geeks. It's that (some portion of) HN dislikes both of them. And since the geeks killed the jocks the geeks are all there is left to dislike.
      - prodigal_erik 10y ago
        We're paying entirely too much for liquidity that value investors don't need. If my holding period was less than a day, that's a buyer and seller who would have found each other without my "help", and I didn't contribute any insight about the company's value, just about flaws in the marketplace.
        harryh 10y ago
        Thank you for demonstrating my point!
        heptathorp 10y ago
        Feel free to place a limit order for the price you want instead of taking the liquidity from the HFT.
      - deleted 10y ago
        [deleted]
      - ycombobreaker 10y ago
        I agree about distrust of middlemen. The analogy that i would go with is that the biggest HFT firms are like big-box retailers. Not glamorous at all (despite the math), and most of the hard work is in automation/process to manage the storefronts and inventory at scale. HFT becomes comparable to walmart, which does not engender much love.
- tedunangst 10y ago
  What's "exorbitant"?
  - lbotos 10y ago
    For the "average" 30 something American, probably anything over 150k.
    - tedunangst 10y ago
      Man, wait until people find out what Google employees get paid.
- tptacek 10y ago
  HFT firms make something like an order of magnitude less than their prey, the major investment banks.
  - davidmr 10y ago
    Even more than that. Going by their 2015 reports, KCG made $885M in revenue, and Virtu made $757M. JPMorgan made $93,543M. If you look at net income, it's even more dramatic since HFT firms generally run on tighter margins. I've never quite understood the amount of HFT hate here. God's work it ain't, but it's a bunch of nerds using bleeding-edge technology and machine learning to break into and (dare I say) disrupt an industry whose avarice and sense of entitlement is perhaps unparalleled in modern history. It's tailor-made for this crowd, but somehow still gets a bad rap. I truly fail to see how that's less exciting than anything else anyone here gets worked up about.
modoc 10y ago
As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impacted by HFT. That may not be accurate, but that's why I personally feel uncomfortable with HFT.
- harryh 10y ago
  Rather than seeing HFTs as competing against you, a more accurate model is to see various firms competing against each other to service your needs at the lowest possible cost. These firms used to be staffed with expensive and slow humans, but by automating they are able to deliver a service to you at a much lower cost than was previously possible. The story of automation in the financial markets is similar to the story of automation in many other businesses.
  - modoc 10y ago
    How does that really help me if I'm buying/selling a specific stock (vs. being in a larger fund, etc...)? My, again very lay, understanding is that the HFT is likely to push my buy price up slightly and make money in the middle of me a non-HFT seller, and push down the price slightly on the sale side, again making money as a very fast middleman. I may have that completely wrong though.
    - harryh 10y ago
      It helps you in 2 ways: 1) It reduces the bid/ask spread. There isn't just one price for a stock, there are two. The price at which you can buy and the price at which you can sell. The price at which you can sell is lower. So when you buy a share of stock you are immediately down a little bit. This amount is called the spread. By automating firms can reduce this spread which does the opposite of what your intuition told you. It will bring buy prices down slightly and sell prices up slightly. 2) It helps make sure that prices are as accurate and up to date as possible. When you go to buy a share of $GOOG you probably aren't really sure if it should cost 775.40 or 775.45 or 775.50. You just figure it's a good company and likely to go up in the future. But because there are all these firms working really hard and acting really fast you can be pretty confident that whatever price you buy at at any given time contains the total available knowledge currently available in the world about Google's future potential.
CyberDildonics 10y ago
> Getting rid of high speed trading won't affect the average person really at all - but yet it's constantly vilified. You could say the same thing about ebola.
- johncolanduoni 10y ago
  It affects a lot of average people in certain parts of the world terribly.
imcqueen 10y ago
You're probably correct here. The part people find a little unsavory is not that it's somehow eroding the middle class. It's the idea that HFT can act as an unnecessary intermediary, essentially taxing a transaction that otherwise didn't need to be disrupted and at scale the amount extracted becomes material. Imagine your neighbor owned a Ferrari and you told him one day you were going to buy a gallon of milk at the store. "On sale for $3.99!" you say to him. Now imagine he sped past you on your way to the store and when you arrived there he had bought all the milk at $3.99 and was selling it in the parking lot for $4.01. You wouldn't necessarily be ruined financially paying $4.01 instead of $3.99. The cost is negligible. But you would probably think he was kind of a jerk.
- harryh 10y ago
  Your intuition about financial markets does not match reality. In financial markets no one knows that you want to buy a gallon of milk (or a share of stock) until your bid has already been submitted. No matter how fast their Ferrari, there is no way for them to get in line ahead of you at the store.
  - phonon 10y ago
    Maybe you should read "Flash Boys" then. They can and do. Orders start at one place, and by regulation then can get sent to many other markets. If you can go to those next markets a little faster, you can front run the order.
    - harryh 10y ago
      Maybe you should read "Flash Boys: Not So Fast" then. It highlights a lot of errors in Flash Boys (which I have, in fact, read). https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-...
    - MichaelGG 10y ago
      Flash Boys uses a totally fabricated use of "front running". It's worse than people that call copyright infringement "theft". That book is probably one of the worst books I've read as far as accuracy goes. At least that I'm aware of. Seriously, at one point, Lewis suggests that the trading station of some big trader is hacked. That just by typing numbers without submitting an order, stuff jumps. This should send huge red flags off on anyone that's even remotely familiar with anything similar to a computer. But it's another "see how rigged it all is?" anecdote blended in with his nonsense.
Retric 10y ago
HFT costs 'everyone' that uses the stock market though an intermediary money so it really does cause income inequality. To suggest otherwise is to suggest they can somehow increase the value of stocks on average when they don't increase dividends and profit from the stock market. AKA money magically appears from nothing without costing anyone anything. Which is not to say every single person is worse off just that this does not increase the long term value created by the companies who's profit makes the stock market a positive sum game.
mmodahl 10y ago
The technology put a lot of people out of work and at the same time eliminated a loophole that wealthy people had to take advantage of the markets. That is a recipe for vilification. Think of the wrath of the unemployed truck and taxi drivers that will be aimed at the evil computer programmers and engineers who perfect self-driving cars and trucks. The headlines will be amazing.
- tptacek 10y ago
  The technology targets the wealthy people who were taking advantage of the markets.
  - prklmn 10y ago
    This is true only to a certain extent. Mutual funds have been getting squeezed and the impact, though not immense, trickles down to millions of middle class investors.
    - tptacek 10y ago
      No. The opposite is true. Vanguard, one of the largest and beyond a doubt the most trustworthy mutual fund complex, is on the record repeatedly as saying HFTs have lowered their cost of trading. Where did you get your claim from? I can source mine, if you really need me to.
      - fma 10y ago
        Then source it...
        kasey_junk 10y ago
        http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-frequency-trading-firms.html http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...
        10y ago

lbotos 10y ago

I think it's vilified because for some reason people think that the HFTraders are "stealing" from them in the form of tax avoidance and their exorbitant incomes.

mmodahl 10y ago
Nerds making money and people gunna hate.
- patio11 10y ago
  I'm not generally a fan of viewing the world in terms of an extended version of the social struggle from high school, but given that this actually does do a reasonably accurate caricature of human market makers versus HFT firms, this has always confused me regarding HN's reaction to HFT. In one corner, we have sweaty alpha male jocks [+]. In the other corner, we have geeks with computers. The geeks ran the table on the jocks primarily because the geeks can do math faster. The jocks complain that the geeks are cheating, because how can they be expected to out-math a computer and, also, isn't math just a little suspicious? And HN sides with the jocks? [+] People might think I'm exaggerating. Videos exist of the daily life of a market maker. Here's a representative day at the office, circa 2000, in Chicago's open outcry options pit: https://www.youtube.com/watch?v=mvx3xM02iUs https://www.youtube.com/watch?v=mvx3xM02iUs In stocks and bonds, you generally got to be sweaty in your own office (open plan, frequently) and yell at someone over the telephone rather than straight to their face.
  - harryh 10y ago
    I thought about your question on my walk home from work today. I decided that as much as jocks vs geeks is a powerful force, a more powerful force is people's distrust of middlemen. People don't really understand that liquidity provisioning is a service that needs to be paid for. They think that if we could just wipe all middlemen off the face of the planet that buyers could just trade with sellers and we'd all save a little bit of money on trading fees. So it's not so much that HN has sided with the jocks over the geeks. It's that (some portion of) HN dislikes both of them. And since the geeks killed the jocks the geeks are all there is left to dislike.
    - prodigal_erik 10y ago
      We're paying entirely too much for liquidity that value investors don't need. If my holding period was less than a day, that's a buyer and seller who would have found each other without my "help", and I didn't contribute any insight about the company's value, just about flaws in the marketplace.
      - harryh 10y ago
        Thank you for demonstrating my point!
      - heptathorp 10y ago
        Feel free to place a limit order for the price you want instead of taking the liquidity from the HFT.
    - deleted 10y ago
      [deleted]
    - ycombobreaker 10y ago
      I agree about distrust of middlemen. The analogy that i would go with is that the biggest HFT firms are like big-box retailers. Not glamorous at all (despite the math), and most of the hard work is in automation/process to manage the storefronts and inventory at scale. HFT becomes comparable to walmart, which does not engender much love.
tedunangst 10y ago
What's "exorbitant"?
- lbotos 10y ago
  For the "average" 30 something American, probably anything over 150k.
  - tedunangst 10y ago
    Man, wait until people find out what Google employees get paid.
tptacek 10y ago
HFT firms make something like an order of magnitude less than their prey, the major investment banks.
- davidmr 10y ago
  Even more than that. Going by their 2015 reports, KCG made $885M in revenue, and Virtu made $757M. JPMorgan made $93,543M. If you look at net income, it's even more dramatic since HFT firms generally run on tighter margins. I've never quite understood the amount of HFT hate here. God's work it ain't, but it's a bunch of nerds using bleeding-edge technology and machine learning to break into and (dare I say) disrupt an industry whose avarice and sense of entitlement is perhaps unparalleled in modern history. It's tailor-made for this crowd, but somehow still gets a bad rap. I truly fail to see how that's less exciting than anything else anyone here gets worked up about.

modoc 10y ago

As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impacted by HFT. That may not be accurate, but that's why I personally feel uncomfortable with HFT.

harryh 10y ago
Rather than seeing HFTs as competing against you, a more accurate model is to see various firms competing against each other to service your needs at the lowest possible cost. These firms used to be staffed with expensive and slow humans, but by automating they are able to deliver a service to you at a much lower cost than was previously possible. The story of automation in the financial markets is similar to the story of automation in many other businesses.
- modoc 10y ago
  How does that really help me if I'm buying/selling a specific stock (vs. being in a larger fund, etc...)? My, again very lay, understanding is that the HFT is likely to push my buy price up slightly and make money in the middle of me a non-HFT seller, and push down the price slightly on the sale side, again making money as a very fast middleman. I may have that completely wrong though.
  - harryh 10y ago
    It helps you in 2 ways: 1) It reduces the bid/ask spread. There isn't just one price for a stock, there are two. The price at which you can buy and the price at which you can sell. The price at which you can sell is lower. So when you buy a share of stock you are immediately down a little bit. This amount is called the spread. By automating firms can reduce this spread which does the opposite of what your intuition told you. It will bring buy prices down slightly and sell prices up slightly. 2) It helps make sure that prices are as accurate and up to date as possible. When you go to buy a share of $GOOG you probably aren't really sure if it should cost 775.40 or 775.45 or 775.50. You just figure it's a good company and likely to go up in the future. But because there are all these firms working really hard and acting really fast you can be pretty confident that whatever price you buy at at any given time contains the total available knowledge currently available in the world about Google's future potential.

CyberDildonics 10y ago

> Getting rid of high speed trading won't affect the average person really at all - but yet it's constantly vilified. You could say the same thing about ebola.

johncolanduoni 10y ago
It affects a lot of average people in certain parts of the world terribly.

imcqueen 10y ago

You're probably correct here. The part people find a little unsavory is not that it's somehow eroding the middle class. It's the idea that HFT can act as an unnecessary intermediary, essentially taxing a transaction that otherwise didn't need to be disrupted and at scale the amount extracted becomes material. Imagine your neighbor owned a Ferrari and you told him one day you were going to buy a gallon of milk at the store. "On sale for $3.99!" you say to him. Now imagine he sped past you on your way to the store and when you arrived there he had bought all the milk at $3.99 and was selling it in the parking lot for $4.01. You wouldn't necessarily be ruined financially paying $4.01 instead of $3.99. The cost is negligible. But you would probably think he was kind of a jerk.

harryh 10y ago
Your intuition about financial markets does not match reality. In financial markets no one knows that you want to buy a gallon of milk (or a share of stock) until your bid has already been submitted. No matter how fast their Ferrari, there is no way for them to get in line ahead of you at the store.
- phonon 10y ago
  Maybe you should read "Flash Boys" then. They can and do. Orders start at one place, and by regulation then can get sent to many other markets. If you can go to those next markets a little faster, you can front run the order.
  - harryh 10y ago
    Maybe you should read "Flash Boys: Not So Fast" then. It highlights a lot of errors in Flash Boys (which I have, in fact, read). https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-...
  - MichaelGG 10y ago
    Flash Boys uses a totally fabricated use of "front running". It's worse than people that call copyright infringement "theft". That book is probably one of the worst books I've read as far as accuracy goes. At least that I'm aware of. Seriously, at one point, Lewis suggests that the trading station of some big trader is hacked. That just by typing numbers without submitting an order, stuff jumps. This should send huge red flags off on anyone that's even remotely familiar with anything similar to a computer. But it's another "see how rigged it all is?" anecdote blended in with his nonsense.

Retric 10y ago

HFT costs 'everyone' that uses the stock market though an intermediary money so it really does cause income inequality. To suggest otherwise is to suggest they can somehow increase the value of stocks on average when they don't increase dividends and profit from the stock market. AKA money magically appears from nothing without costing anyone anything. Which is not to say every single person is worse off just that this does not increase the long term value created by the companies who's profit makes the stock market a positive sum game.

mmodahl 10y ago

The technology put a lot of people out of work and at the same time eliminated a loophole that wealthy people had to take advantage of the markets. That is a recipe for vilification. Think of the wrath of the unemployed truck and taxi drivers that will be aimed at the evil computer programmers and engineers who perfect self-driving cars and trucks. The headlines will be amazing.

tptacek 10y ago
The technology targets the wealthy people who were taking advantage of the markets.
- prklmn 10y ago
  This is true only to a certain extent. Mutual funds have been getting squeezed and the impact, though not immense, trickles down to millions of middle class investors.
  - tptacek 10y ago
    No. The opposite is true. Vanguard, one of the largest and beyond a doubt the most trustworthy mutual fund complex, is on the record repeatedly as saying HFTs have lowered their cost of trading. Where did you get your claim from? I can source mine, if you really need me to.
    - fma 10y ago
      Then source it...
      - kasey_junk 10y ago
        http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-frequency-trading-firms.html http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...
        10y ago