6 ms·

I don't know why HFT exists at all. I would just pass a law that forces a bit of random latency/noice in the market data, in the order of seconds (in a similar

by Kenji 9y ago

I don't know why HFT exists at all. I would just pass a law that forces a bit of random latency/noice in the market data, in the order of seconds (in a similar way as GPS has artificial inaccuracy). Normal people are not gonna notice and all this HFT garbage is completely eliminated. Win win.

sfeng 9y ago
People who are pro-HFT see it as a way of increasing the 'liquidity' of the market. In their eyes it makes it easier to move volume of stock, and moves the bid price of the stock closer to the ask price of the stock.
- jandrese 9y ago
  That argument still makes no sense to me. How does skimming off of the top of trades make the market more liquid? It's not like they're offering any new product for sale. If a market is moving slowly all they do is artificially inflate the number of transactions without increasing liquidity. HFT is just abusing an information advantage to skim off of the market. Because they have a slightly more accurate view of the market, they can front run trades and make money. That's all it is. There is no benefit to the seller, to the buyer, or to the market. It's pure parasitism.
  - airza 9y ago
    before HFT these transactions were run by human market makers from giant banks who skimmed hundreds of times more profit off of them (this is the reason that you hear about it in the news all of the time) Someone's job is going to be to sit between the people who just want to sell and those who want to buy- when we talk about liquidity it's just this. The fact that you're directing your anger towards some robots who are ruthlessly driving each other to the minimum possible gap between the buy price and the sell price on this is bizarre
    - vostok 9y ago
      I have a pet theory that anti-HFT sentiment is stoked by banks and other entities that aren't able to compete.
      - SimbaOnSteroids 9y ago
        Unless you're a bank or have similar means you can't compete.
        vostok 9y ago
        I'm not sure I understand the argument. The publicly traded top trading firms are much smaller than the banks. They're in the $1-2 billion range. Of course you need money to compete. You need money to compete with Facebook too.
      - anigbrowl 9y ago
        Heaven forfend that people should form their own opinions on first principles, even though those opinions might be mistaken.
    - lobster_johnson 9y ago
      Does HFT only hurt "other bots"? My understanding was that HFT could take advantage of faster feeds to front-run human traders.
      - jandrese 9y ago
        It hurts anybody who sells a stock. You sell a stock at a certain price, someone else looks up the price of the stock and sees that it is slightly higher than what you listed, because your information is still propagating through the network. That person offers to buy the stock at the higher price. The market matches your offers up. Then the HFT steps in and buys your stock and resells it to the buyer at the price he asked. There is no value to the seller or buyer. Zero risk to the HFT firm. No improvement in market conditions--the HFT firm doesn't sit on positions, they can't increase liquidty. Just free money from abusing a latency advantage on their view of the market.
  - SEJeff 9y ago
    aka pure capitalism, which is very darwinistic, by design.
  - robrenaud 9y ago
    The CEO of Vanguard likes HFTs. 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... "We actually have a really good perspective on this, and there's no question in our mind that the cost to investors through funds has come down," he said.
  - marcosdumay 9y ago
    I can't help but to think the problem is being intentionally framed in an unhelpful way. The problem is their ability to front-run people. They shouldn't be able to get a more accurate view of the market than anybody else, and they certainly shouldn't have the chance to roll-back their actions after they get a glance of the results. Frequency of trading is irrelevant.
    - MichaelGG 9y ago
      If an HFT firm was "front running" as you put it, and you know about it, why doesn't the SEC? Front running is not legal. Or are you using the Flash Boys definition of front run which is "anyone that trades better than me" or "anytime I try to buy 50,000 shares but move the price"?
      - anigbrowl 9y ago
        The SEC doesn't have infinite resources, but has to enforce somewhat selectively. It's possible that they disapprove of some kinds of HFT activities but doubt their own ability to persuade a jury sufficiently well to justify the cost of prosecution. I don't mean this as a comment on HFT or the law, I really don't know. I'm just pointing out that the SEC is bound by budgetary constraints and that litigation is very expensive, so they have to do cost/benefit analysis and prioritize the cases that are more likely to win. And this is before political considerations come into the picture. News articles described the 'resident's SEC pick as being more interested in capital formation than enforcement; that seems a pretty reasonable assessment to me, given that S&C was representing Goldman Sachs during the epic CDO litigation, the cabinet is stuffed with GS alumni, and the administration's general attitude seems to be less regulation for more muscular and dynamic capitalism. http://www.reuters.com/article/us-usa-trump-sec-idUSKBN14N1Y9 http://www.reuters.com/article/us-usa-trump-sec-idUSKBN14N1Y...
    - jasonmunro 9y ago
      Firms with enough money to spend _can_ get a more accurate view of the market. The issue is proprietary data feeds. A trading platform is required to disseminate information to the consolidated tape at the same rate they do for a private feed, but that only holds for the "walls" of the trading platforms network. The consolidated tape is a LOT slower than a 100MB multicast feed being slurped up by a co-located server sitting 20 feet from the trading system.
  - defgeneric 9y ago
    There's just a huge number of securities you can trade now. Most equities have monthly options (so e.g. about ~50 calls & puts * 6 months) and the indices have weekly now. And those are just the basic derivatives, the OTC stuff gets even crazier.
WideCharr 9y ago
Interesting that you "don't know" something and would immediately start passing laws about it...
21 9y ago
No they would not. Even if you introduce a 10 sec delay, there will still be someone which will be first after the 10 sec pass, and you can still create models which will be tuned to predict what the price will do 10 sec into the future. And what do you think about a law which forces all news agencies to wait 1 hour before reporting major news, so that everybody gets a chance to report it, and not only the huge agencies/papers like AFP of NYT.
- anigbrowl 9y ago
  GP specifically said "a bit of random latency". Don't change the terms of his argument to make it easier for you to refute, that's dishonest.
  - consz 9y ago
    There's no reason HFT can't or wouldn't exist even if you add random latency.
Glyptodon 9y ago
I agree that it's likely not particularly useful for the market to care about things in millisecond resolution.
- vostok 9y ago
  It is useful if you start thinking about products whose prices depend on the prices of other things. Suppose that I'm a SPY trader. I need to know where a bunch of other things are trading in order to figure out where I should be quoting SPY. If I only know those prices on a second stale basis then I can't get my hedge off and so I can't quote SPY as tightly. I lose, investors lose, and investment banks win because they're better adapted to trading where prices aren't clear.
- sidlls 9y ago
  That's a very clever comment, but I think you should include something indicating why for those who don't know how HFT works.
  - ForHackernews 9y ago
    If nothing else, it means that firms that can afford to collocate their servers in the cage next to the exchange's servers have an advantage over those that can't. It seems like something like the roundtrip time for a packet from NYC to Tokyo would be a fair "speed limit" for exchanges, and ensure that all firms, globally, are on an even footing.
    - MichaelGG 9y ago
      I think you'll find, when you try to get down into it, there's no easy way to enforce a speed limit. It's a naturally arising behaviour. You could try making a market that crosses orders every X seconds, but then you move the speed to the edge of those periods. If you wanna slow down HFT, then kill the stupid restriction that stocks be priced in pennies. With 8 digits of resolution, HFTs would then be forced to compete on price.
      - 9y ago
deleted 9y ago
[deleted]
lobster_johnson 9y ago
Because the stock exchanges are private companies that profit from every trade. It's in their interest to keep making everyone trade as much as possible. I doubt anything is going to happen unless all exchanges agree to institute the same policy, or a law is passed to that effect. I don't know why you're being downvoted. It's a legitimate concern.
- jasonmunro 9y ago
  While it's true that stock exchange operators are private companies, they are also SROs that undergo significant scrutiny from various government organizations (FINRA, SEC, etc). Most (all?) exchanges use "maker/taker" pricing, so while it is possible the trading platform might not make money on _every_ trade depending on the exact pricing rules, they do make money in the aggregate, and in general more trades equal more profits. Many of the opponents to HFT believe that the maker/taker pricing model is a big problem in the markets, and doing away with it would significantly curb HFT profits. Personally, I'm ambivalent about HFT. All stock trading seems to me far removed from the actual value of the underlying companies anyway :). Disclaimer: I was an engineer at BATS Global Markets for 5 years, but have been out of finance for the last 4, so my info may be out of date.
- Kenji 9y ago
  Idk why I'm being downvoted either. I bet in 2 years there will be a blog post which refines the idea I outlined above and it will be on top of HN and everyone will agree with it. That's how HN works.
SEJeff 9y ago
Do yourself a favor and lookup the history of the IEX exchange, and read flash boys. They do just this, but HFT traders still trade there and make money, just probably less of it.
- MichaelGG 9y ago
  Any reading of Flash Boys needs to be accompanied by Flash Boys: Not So Fast. Or just a really critical eye. Flash Boys is beyond bizarre in the silly things it implies (like some major manager's trading PC is hacked or something, but somehow that's fixed with IEX). Or how they lament some guy can't buy huge amounts of stock without moving the price. It's a nonsensical book.
  - SEJeff 9y ago
    Also fun fact for you. Flash Boys: Not So Fast, was written by Peter Kovac. I used to work with Peter @ Madison Tyler (which merged with and became Virtu ~5-6 years ago). He's literally right on with his assessment. I should have mentioned that, excellent point.
blibble 9y ago
random nearly constant periodic auctions would be how I would fix it something like the Turquoise Uncross: http://www.lseg.com/sites/default/files/content/documents/TURQUOISE_UNCROSS_FACTSHEET_2016_AW.pdf http://www.lseg.com/sites/default/files/content/documents/TU...

by Kenji 9y ago

sfeng 9y ago

People who are pro-HFT see it as a way of increasing the 'liquidity' of the market. In their eyes it makes it easier to move volume of stock, and moves the bid price of the stock closer to the ask price of the stock.

jandrese 9y ago
That argument still makes no sense to me. How does skimming off of the top of trades make the market more liquid? It's not like they're offering any new product for sale. If a market is moving slowly all they do is artificially inflate the number of transactions without increasing liquidity. HFT is just abusing an information advantage to skim off of the market. Because they have a slightly more accurate view of the market, they can front run trades and make money. That's all it is. There is no benefit to the seller, to the buyer, or to the market. It's pure parasitism.
- airza 9y ago
  before HFT these transactions were run by human market makers from giant banks who skimmed hundreds of times more profit off of them (this is the reason that you hear about it in the news all of the time) Someone's job is going to be to sit between the people who just want to sell and those who want to buy- when we talk about liquidity it's just this. The fact that you're directing your anger towards some robots who are ruthlessly driving each other to the minimum possible gap between the buy price and the sell price on this is bizarre
  - vostok 9y ago
    I have a pet theory that anti-HFT sentiment is stoked by banks and other entities that aren't able to compete.
    - SimbaOnSteroids 9y ago
      Unless you're a bank or have similar means you can't compete.
      - vostok 9y ago
        I'm not sure I understand the argument. The publicly traded top trading firms are much smaller than the banks. They're in the $1-2 billion range. Of course you need money to compete. You need money to compete with Facebook too.
    - anigbrowl 9y ago
      Heaven forfend that people should form their own opinions on first principles, even though those opinions might be mistaken.
  - lobster_johnson 9y ago
    Does HFT only hurt "other bots"? My understanding was that HFT could take advantage of faster feeds to front-run human traders.
    - jandrese 9y ago
      It hurts anybody who sells a stock. You sell a stock at a certain price, someone else looks up the price of the stock and sees that it is slightly higher than what you listed, because your information is still propagating through the network. That person offers to buy the stock at the higher price. The market matches your offers up. Then the HFT steps in and buys your stock and resells it to the buyer at the price he asked. There is no value to the seller or buyer. Zero risk to the HFT firm. No improvement in market conditions--the HFT firm doesn't sit on positions, they can't increase liquidty. Just free money from abusing a latency advantage on their view of the market.
- SEJeff 9y ago
  aka pure capitalism, which is very darwinistic, by design.
- robrenaud 9y ago
  The CEO of Vanguard likes HFTs. 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... "We actually have a really good perspective on this, and there's no question in our mind that the cost to investors through funds has come down," he said.
- marcosdumay 9y ago
  I can't help but to think the problem is being intentionally framed in an unhelpful way. The problem is their ability to front-run people. They shouldn't be able to get a more accurate view of the market than anybody else, and they certainly shouldn't have the chance to roll-back their actions after they get a glance of the results. Frequency of trading is irrelevant.
  - MichaelGG 9y ago
    If an HFT firm was "front running" as you put it, and you know about it, why doesn't the SEC? Front running is not legal. Or are you using the Flash Boys definition of front run which is "anyone that trades better than me" or "anytime I try to buy 50,000 shares but move the price"?
    - anigbrowl 9y ago
      The SEC doesn't have infinite resources, but has to enforce somewhat selectively. It's possible that they disapprove of some kinds of HFT activities but doubt their own ability to persuade a jury sufficiently well to justify the cost of prosecution. I don't mean this as a comment on HFT or the law, I really don't know. I'm just pointing out that the SEC is bound by budgetary constraints and that litigation is very expensive, so they have to do cost/benefit analysis and prioritize the cases that are more likely to win. And this is before political considerations come into the picture. News articles described the 'resident's SEC pick as being more interested in capital formation than enforcement; that seems a pretty reasonable assessment to me, given that S&C was representing Goldman Sachs during the epic CDO litigation, the cabinet is stuffed with GS alumni, and the administration's general attitude seems to be less regulation for more muscular and dynamic capitalism. http://www.reuters.com/article/us-usa-trump-sec-idUSKBN14N1Y9 http://www.reuters.com/article/us-usa-trump-sec-idUSKBN14N1Y...
  - jasonmunro 9y ago
    Firms with enough money to spend _can_ get a more accurate view of the market. The issue is proprietary data feeds. A trading platform is required to disseminate information to the consolidated tape at the same rate they do for a private feed, but that only holds for the "walls" of the trading platforms network. The consolidated tape is a LOT slower than a 100MB multicast feed being slurped up by a co-located server sitting 20 feet from the trading system.
- defgeneric 9y ago
  There's just a huge number of securities you can trade now. Most equities have monthly options (so e.g. about ~50 calls & puts * 6 months) and the indices have weekly now. And those are just the basic derivatives, the OTC stuff gets even crazier.

WideCharr 9y ago

Interesting that you "don't know" something and would immediately start passing laws about it...

21 9y ago

No they would not. Even if you introduce a 10 sec delay, there will still be someone which will be first after the 10 sec pass, and you can still create models which will be tuned to predict what the price will do 10 sec into the future. And what do you think about a law which forces all news agencies to wait 1 hour before reporting major news, so that everybody gets a chance to report it, and not only the huge agencies/papers like AFP of NYT.

anigbrowl 9y ago
GP specifically said "a bit of random latency". Don't change the terms of his argument to make it easier for you to refute, that's dishonest.
- consz 9y ago
  There's no reason HFT can't or wouldn't exist even if you add random latency.

Glyptodon 9y ago

I agree that it's likely not particularly useful for the market to care about things in millisecond resolution.

vostok 9y ago
It is useful if you start thinking about products whose prices depend on the prices of other things. Suppose that I'm a SPY trader. I need to know where a bunch of other things are trading in order to figure out where I should be quoting SPY. If I only know those prices on a second stale basis then I can't get my hedge off and so I can't quote SPY as tightly. I lose, investors lose, and investment banks win because they're better adapted to trading where prices aren't clear.
sidlls 9y ago
That's a very clever comment, but I think you should include something indicating why for those who don't know how HFT works.
- ForHackernews 9y ago
  If nothing else, it means that firms that can afford to collocate their servers in the cage next to the exchange's servers have an advantage over those that can't. It seems like something like the roundtrip time for a packet from NYC to Tokyo would be a fair "speed limit" for exchanges, and ensure that all firms, globally, are on an even footing.
  - MichaelGG 9y ago
    I think you'll find, when you try to get down into it, there's no easy way to enforce a speed limit. It's a naturally arising behaviour. You could try making a market that crosses orders every X seconds, but then you move the speed to the edge of those periods. If you wanna slow down HFT, then kill the stupid restriction that stocks be priced in pennies. With 8 digits of resolution, HFTs would then be forced to compete on price.
    - 9y ago

deleted 9y ago

[deleted]

lobster_johnson 9y ago

Because the stock exchanges are private companies that profit from every trade. It's in their interest to keep making everyone trade as much as possible. I doubt anything is going to happen unless all exchanges agree to institute the same policy, or a law is passed to that effect. I don't know why you're being downvoted. It's a legitimate concern.

jasonmunro 9y ago
While it's true that stock exchange operators are private companies, they are also SROs that undergo significant scrutiny from various government organizations (FINRA, SEC, etc). Most (all?) exchanges use "maker/taker" pricing, so while it is possible the trading platform might not make money on _every_ trade depending on the exact pricing rules, they do make money in the aggregate, and in general more trades equal more profits. Many of the opponents to HFT believe that the maker/taker pricing model is a big problem in the markets, and doing away with it would significantly curb HFT profits. Personally, I'm ambivalent about HFT. All stock trading seems to me far removed from the actual value of the underlying companies anyway :). Disclaimer: I was an engineer at BATS Global Markets for 5 years, but have been out of finance for the last 4, so my info may be out of date.
Kenji 9y ago
Idk why I'm being downvoted either. I bet in 2 years there will be a blog post which refines the idea I outlined above and it will be on top of HN and everyone will agree with it. That's how HN works.

SEJeff 9y ago

Do yourself a favor and lookup the history of the IEX exchange, and read flash boys. They do just this, but HFT traders still trade there and make money, just probably less of it.

MichaelGG 9y ago
Any reading of Flash Boys needs to be accompanied by Flash Boys: Not So Fast. Or just a really critical eye. Flash Boys is beyond bizarre in the silly things it implies (like some major manager's trading PC is hacked or something, but somehow that's fixed with IEX). Or how they lament some guy can't buy huge amounts of stock without moving the price. It's a nonsensical book.
- SEJeff 9y ago
  Also fun fact for you. Flash Boys: Not So Fast, was written by Peter Kovac. I used to work with Peter @ Madison Tyler (which merged with and became Virtu ~5-6 years ago). He's literally right on with his assessment. I should have mentioned that, excellent point.

blibble 9y ago

random nearly constant periodic auctions would be how I would fix it something like the Turquoise Uncross: http://www.lseg.com/sites/default/files/content/documents/TURQUOISE_UNCROSS_FACTSHEET_2016_AW.pdf http://www.lseg.com/sites/default/files/content/documents/TU...