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Short story: HFT is generally considered good for retail traders because spreads tend to be lower. You trade both more cheaply and more quickly. However, it's

Short story: HFT is generally considered good for retail traders because spreads tend to be lower. You trade both more cheaply and more quickly. However, it's generally not good for large institutions (which are more than just 'big evil hedge funds') because markets react very quickly to movements caused by this big firms. If they decide that something is priced wrong, they won't be able to make many trades taking advantage of that. https://www.bloomberg.com/view/articles/2016-02-25/-flash-boys-exchange-isn-t-about-the-little-guy https://www.bloomberg.com/view/articles/2016-02-25/-flash-bo...

naveen99 10y ago
I see HFT as good for everyone. Market has a hard time reacting to option spreads when the long option is executed prematurely. I don't see why big players can't use them. Also the market can't react too predictably. Because then the big player could just yank the market around and profit. Some of this is limited by regulations on large holders / insiders.
- lmm 10y ago
  It limits the ability of value investors who do fundamentals research to profit. Arguably those investors are the ones who actually ensure efficient allocation of capital (the supposed purpose of the market). There's kind of a paradox of efficient markets - the more efficient the market is, the less value can be gained selling information to it.
  - sseveran 10y ago
    It does no such thing. Market makers prefer not to interact with people that have a directional view as they may move the market. If a market maker gets caught with inventory and the price is moving they will lose money. Market makers tend to be less involved in price formation then other types of investors.
    - lmm 10y ago
      > It does no such thing. Market makers prefer not to interact with people that have a directional view as they may move the market. If a market maker gets caught with inventory and the price is moving they will lose money. Are you claiming this doesn't impact the profitability of those people with directional views?
      - sseveran 10y ago
        It depends on what you mean by impact. A market makers role is to provide market participants the instantaneous ability to buy or sell a security. They compensated a small amount for providing this service. If someone is using very poor execution techniques the price could worsen, however most large asset managers and brokers that serve them have quite advanced execution technology. The actual impact of modern market making on final execution price is typically positive relative to not having it due to competition and ultimately a tighter spread. See Vanguard on this: 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...
        lmm 10y ago
        Vanguard invests almost purely passively, and does not generally take directional views. I agree HFT benefits Vanguard but that doesn't contradict my point at all.
        sseveran 10y ago
        Buy and hold is a directional view.
        lmm 10y ago
        Let's not get into a semantic argument. The point is that Vanguard doesn't do fundamentals research or participate in capital allocation (in a meaningful sense; Vanguard does allocate capital but in proportion to existing allocation); they just invest passively and hope to earn the return of the overall market.
naveen99 10y ago
A clarification on my other sister post: options allow one to lock in a price for cheap even at large volumes. For example expiring options can be bought for nickels in premium, with each one locking in price for 100 shares.
- tedunangst 10y ago
  Expiring options are pretty thinly traded, no? If you're trying to sell 100000 shares, you may have a hard time scrounging up 1000 puts at 3:30 Friday.

naveen99 10y ago

I see HFT as good for everyone. Market has a hard time reacting to option spreads when the long option is executed prematurely. I don't see why big players can't use them. Also the market can't react too predictably. Because then the big player could just yank the market around and profit. Some of this is limited by regulations on large holders / insiders.

lmm 10y ago
It limits the ability of value investors who do fundamentals research to profit. Arguably those investors are the ones who actually ensure efficient allocation of capital (the supposed purpose of the market). There's kind of a paradox of efficient markets - the more efficient the market is, the less value can be gained selling information to it.
- sseveran 10y ago
  It does no such thing. Market makers prefer not to interact with people that have a directional view as they may move the market. If a market maker gets caught with inventory and the price is moving they will lose money. Market makers tend to be less involved in price formation then other types of investors.
  - lmm 10y ago
    > It does no such thing. Market makers prefer not to interact with people that have a directional view as they may move the market. If a market maker gets caught with inventory and the price is moving they will lose money. Are you claiming this doesn't impact the profitability of those people with directional views?
    - sseveran 10y ago
      It depends on what you mean by impact. A market makers role is to provide market participants the instantaneous ability to buy or sell a security. They compensated a small amount for providing this service. If someone is using very poor execution techniques the price could worsen, however most large asset managers and brokers that serve them have quite advanced execution technology. The actual impact of modern market making on final execution price is typically positive relative to not having it due to competition and ultimately a tighter spread. See Vanguard on this: 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...
      - lmm 10y ago
        Vanguard invests almost purely passively, and does not generally take directional views. I agree HFT benefits Vanguard but that doesn't contradict my point at all.
        sseveran 10y ago
        Buy and hold is a directional view.
        lmm 10y ago
        Let's not get into a semantic argument. The point is that Vanguard doesn't do fundamentals research or participate in capital allocation (in a meaningful sense; Vanguard does allocate capital but in proportion to existing allocation); they just invest passively and hope to earn the return of the overall market.

naveen99 10y ago

A clarification on my other sister post: options allow one to lock in a price for cheap even at large volumes. For example expiring options can be bought for nickels in premium, with each one locking in price for 100 shares.

tedunangst 10y ago
Expiring options are pretty thinly traded, no? If you're trying to sell 100000 shares, you may have a hard time scrounging up 1000 puts at 3:30 Friday.