8 ms·

to me this is a perfect example of how incredibly indifferent capitalism can be to creating value. no one is bad here, per se, but its useless as far as i can t

to me this is a perfect example of how incredibly indifferent capitalism can be to creating value. no one is bad here, per se, but its useless as far as i can tell, and someone gets very very rich. nothing wrong with capitalism of course, but i feel the need to keep harping of the fact that it doesn't necessarily imply anything about value or desert. edit: every time i make a comment along these lines, its interesting to see... it seems like HN is split about 50/50 on this. is it that this point is trite? or that you disagree?

baq 9y ago
i'd say it is a bug of capitalism that HFT is a profitable line of business. it's easily fixed by taxing, but maybe it's already taxed properly, i don't know.
- vzcx 9y ago
  HFT is not necessarily a feature (nor a bug) of capitalism, although something you might recognize as capitalism is a prerequisite for the phenomenon, but of the fact that information sources and financial exchanges form a distributed system, i.e. one that is spread out across space and time. Of course, in the absence of markets altogether, we have no exchanges, no finance, and no HFT. But... Why do you see this as a problem to be fixed? Who does HFT harm besides those whose bottom lines they cut into: the big, fat, and slow dealers who wish they could drop a block anywhere and have it fill?
aaronchall 9y ago
Trading firms create value by providing liquidity. If they can buy low and sell high, they will be buying when there are relatively fewer other buyers, and sell when there are relatively few other sellers. This activity creates value for other people who want to trade in those circumstances. If no value was created, there would be no value to capture. And the prima facie evidence that they are creating value is that they are capturing value from willing market participants. This is fundamental economics.
- the_cat_kittles 9y ago
  nah. its on such a small time scale, i really dont think it does.
  - wayn3 9y ago
    If a company provided X amount of liquidity to both sides of the market, even if the company itself only entered a position for a millisecond, it still provided necessary liquidity. It did so in a very efficient manner and turned a profit on that. Saying that you dont provide liquidity just because you enter both sides of the trade is like saying that a cab going into and a cab going out of manhattan cancel each other out and provide 0 net value to their passengers.
    - the_cat_kittles 9y ago
      sorry, i guess there was an ambiguity. i didnt mean to say it didnt "provide liquidity". i meant that what it provided was pretty worthless, in the non-monetary sense.
      - wayn3 9y ago
        if you look at the market as a whole, there is a thing called the "efficient market hypothesis". It assumes that markets are perfect and you can not make money trading securities, because all information is already priced in. This is obviously not true, because HFT makes money, but you could say that HFT contributes to getting markets closer to being efficient. Having efficient markets is worthwhile for society because an efficient, liquid market provides a more accurate picture of the "actual" value of things. If you buy this argument, then HFT would be contributing to finding truth, which is inherently valuable in the eyes of many people. At the end of the day, HFT is one of those things that people just get jelly about because someone makes money on something they dont understand and gets insanely rich "doing nothing". What people get mad about is completely arbitrary. Everyone hates google because ads, but without google, their world would barely operate. Everyone hates facebook because fake news but nobody has the balls to actually not use facebook. A social network. Everyone hates uber because "scandals" and poor drivers not being paid but still uses it because comfortable. I'm not really in the stock market but when I want to sell stock, I'd rather there be some market maker who is obligated to buy it. Maybe he makes more money off of me than I ever will selling stock to him, but that one time when nobody else wants the falling stock and I potentially use a large chunk of my savings, I really need them. Consumers sit on some amazingly high horses sometimes.
rhino369 9y ago
Yes. People mistakenly think it's a meritocracy. It's not. But it is good at making the world rich.
throwaway76543 9y ago
Valuing something is itself valuable.
vostok 9y ago
I think you're confused about how HFTs create value. They create value because they're the first ones to make a market in something. They send out limit orders in every product. An investor then sends a marketable order to the exchange that fills one of the HFT's resting orders. If the HFT wasn't there then the investor's order would just fill a bank's order that would probably be wider and wouldn't respond to changing situations as quickly. The innovation is that HFTs are able to make better markets with fewer people. This means that less money ends up in the pockets of intermediaries and more money stays in real investors' pockets. Are HFTs always doing the right thing? No of course not, but HFTs are pretty clearly some of the most ethical firms out there.
- lotsoflumens 9y ago
  I think you're confused about the meaning of "value". HFTs don't provide any value, but they do extract a lot of money from what used to be called a "market".
wyager 9y ago
> but its useless as far as i can tell, That's because you, as well as 99% of people accusing financial firms of being useless, don't know what you're talking about. One of the reasons planned economies usually fail quite spectacularly is that individuals are very bad at predicting global market behavior. It's too complicated. Local stochastic optimization (free market economies) works quite well, even if it's maybe not globally optimal; doing better than free markets via central planning requires an unfeasible level of omniscience about all market actors and interactions. This refrain of "traders do nothing useful" is a great example of that; most people are too myopic and/or economically illiterate to see otherwise. Here's what traders do; they communicate price information (extremely important) and charge a small commission for doing so. In the absence of regulation on "Wall Street" (or whatever your regional synechdoche), there would be more competition among people communicating price information and profit margins would probably be a lot smaller. If you can do a better job communicating price information (possibly by predicting future prices), you can make more money. Another auxiliary job that traders do is provide liquidity, which is very important but (in my opinion) less important than the first. My apologies for being a bit blunt, but I think people deserve a bit of admonition for attacking that which they clearly don't understand enough to even criticize coherently.
- anigbrowl 9y ago
  This refrain of "traders do nothing useful" That was not how I read the comment at all. Maybe slow down and reconsider it in the context of a specific discussion about this specific approach to HFT, rather than assuming the GP is dismissing the whole underlying principle of market making.
- the_cat_kittles 9y ago
  wasnt attacking that. was arguing that the marginal/imperceptible improvement in liquidity isnt really doing anything for anyone except the people profiting off it.
strken 9y ago
The way I think about HFT is: - one effect of an economy is to find an approximate solution to an important problem: optimising resource allocation with regards to growth - within this paradigm, markets exist to process all publicly available information and turn it into real allocation of resources - considering the difference between trades executed once a day vs once a week, the more frequent trades will provide information that is up to date, higher resolution, and will lead to a better solution to the problem - HFT uses a huge volume of very frequent trades based on very weak correlations, meaning that the information it adds is newer than that of longer term trades, is very high resolution, and may take into account factors ignored by longer-term strategies - therefore, HFT leads to better overall resource allocation by providing greater visibility into the value of the things being traded This ties into the comments on the efficient market hypothesis. HFT brings us a little closer to the impossible ideal by making the market a little more efficient.
- the_cat_kittles 9y ago
  i dont disagree with the basic framework. but why is going from milliseconds to picoseconds important? im pretty sure its not. thats all
vzcx 9y ago
Beyond the "providing liquidity" argument, another side effect of HFT and arbitrage strategies that one might see as valuable is the promotion of global invariants across the financial network, which is rather complicated distributed system. Would it make sense if there were two very different prices for something at two nearly identical venues? If large block of a stock is dropped on one exchange, would it make sense if there were no effects on the price of the same name on adjacent exchanges? All that aside, I think I have some larger questions about your worldview: What does it mean to "create value?" By what standards is value assessed? In the absence of any direct harm to another, under what circumstances should someone be deterred from engaging in profitable activity? Is the assumption that profits accrue to those who provide value to others utterly false, or just false in this (and possibly other, isolated) case? If merely the latter, why in this case?
- the_cat_kittles 9y ago
  >> Beyond the "providing liquidity" argument, another side effect of HFT and arbitrage strategies that one might see as valuable is the promotion of global invariants across the financial network, which is rather complicated distributed system. Would it make sense if there were two very different prices for something at two nearly identical venues? If large block of a stock is dropped on one exchange, would it make sense if there were no effects on the price of the same name on adjacent exchanges? i dont disagree with arbitrage and liquidity, and a globally invariant price for goods. i just think HFT isnt really improving that in a meaningful way. i ask you- at what timescale does it stop mattering? thats really what im saying. not that liquidity and invariant prices are suspect, but that things are happening on such a minute time scale that it doesn't matter. hey, i could be wrong, but no one has argued why going from milliseconds to picoseconds is improving our lives. thats the thing i would like explained. >> What does it mean to "create value?" By what standards is value assessed? tough to pin down, but surely its more than how much money it makes you... right? of course it varies from person to person. but i think its very lazy to say that its "whatever someone will pay for it". then value changes when laws change. i think most people probably agree that some things that are able to be sold for alot are not a value to society. i think its fair to say that there are some basically invariant things that are valuable. >> In the absence of any direct harm to another, under what circumstances should someone be deterred from engaging in profitable activity probably shouldn't be deterred. my point was that it looks like this is more like a game people are playing, with no real positive externalities. didn't say it was bad prima facie. i think its weird that people are very strongly clinging to the idea that it has some wonderful benefit to society. seems like a pretty weak argument, and kind of pathetic. its ok to to just admit its a game, and its for the players. poker players dont go around claiming they are providing everyone a service. i just get the sense there is an ingrained idea in our culture that there is some nobility in "finance" that i dont think belongs there in some cases. >> Is the assumption that profits accrue to those who provide value to others utterly false, or just false in this (and possibly other, isolated) case? If merely the latter, why in this case? not utterly false, but far from universally true. very difficult, broad topic that i am, or course, not in a position to say definitively. we can all point to cases where almost everyone agrees that someone gets overpaid, or underpaid. seems like a lot of people readily accept the dual premises that success == making money, and that money is a proxy for value. i take issue with both- i think its important to think about success and value more fundamentally. it seems like a lot of people have a tautological idea that you are paid what you deserve because its what you got paid...

baq 9y ago

i'd say it is a bug of capitalism that HFT is a profitable line of business. it's easily fixed by taxing, but maybe it's already taxed properly, i don't know.

vzcx 9y ago
HFT is not necessarily a feature (nor a bug) of capitalism, although something you might recognize as capitalism is a prerequisite for the phenomenon, but of the fact that information sources and financial exchanges form a distributed system, i.e. one that is spread out across space and time. Of course, in the absence of markets altogether, we have no exchanges, no finance, and no HFT. But... Why do you see this as a problem to be fixed? Who does HFT harm besides those whose bottom lines they cut into: the big, fat, and slow dealers who wish they could drop a block anywhere and have it fill?

aaronchall 9y ago

Trading firms create value by providing liquidity. If they can buy low and sell high, they will be buying when there are relatively fewer other buyers, and sell when there are relatively few other sellers. This activity creates value for other people who want to trade in those circumstances. If no value was created, there would be no value to capture. And the prima facie evidence that they are creating value is that they are capturing value from willing market participants. This is fundamental economics.

the_cat_kittles 9y ago
nah. its on such a small time scale, i really dont think it does.
- wayn3 9y ago
  If a company provided X amount of liquidity to both sides of the market, even if the company itself only entered a position for a millisecond, it still provided necessary liquidity. It did so in a very efficient manner and turned a profit on that. Saying that you dont provide liquidity just because you enter both sides of the trade is like saying that a cab going into and a cab going out of manhattan cancel each other out and provide 0 net value to their passengers.
  - the_cat_kittles 9y ago
    sorry, i guess there was an ambiguity. i didnt mean to say it didnt "provide liquidity". i meant that what it provided was pretty worthless, in the non-monetary sense.
    - wayn3 9y ago
      if you look at the market as a whole, there is a thing called the "efficient market hypothesis". It assumes that markets are perfect and you can not make money trading securities, because all information is already priced in. This is obviously not true, because HFT makes money, but you could say that HFT contributes to getting markets closer to being efficient. Having efficient markets is worthwhile for society because an efficient, liquid market provides a more accurate picture of the "actual" value of things. If you buy this argument, then HFT would be contributing to finding truth, which is inherently valuable in the eyes of many people. At the end of the day, HFT is one of those things that people just get jelly about because someone makes money on something they dont understand and gets insanely rich "doing nothing". What people get mad about is completely arbitrary. Everyone hates google because ads, but without google, their world would barely operate. Everyone hates facebook because fake news but nobody has the balls to actually not use facebook. A social network. Everyone hates uber because "scandals" and poor drivers not being paid but still uses it because comfortable. I'm not really in the stock market but when I want to sell stock, I'd rather there be some market maker who is obligated to buy it. Maybe he makes more money off of me than I ever will selling stock to him, but that one time when nobody else wants the falling stock and I potentially use a large chunk of my savings, I really need them. Consumers sit on some amazingly high horses sometimes.

rhino369 9y ago

Yes. People mistakenly think it's a meritocracy. It's not. But it is good at making the world rich.

throwaway76543 9y ago

Valuing something is itself valuable.

vostok 9y ago

I think you're confused about how HFTs create value. They create value because they're the first ones to make a market in something. They send out limit orders in every product. An investor then sends a marketable order to the exchange that fills one of the HFT's resting orders. If the HFT wasn't there then the investor's order would just fill a bank's order that would probably be wider and wouldn't respond to changing situations as quickly. The innovation is that HFTs are able to make better markets with fewer people. This means that less money ends up in the pockets of intermediaries and more money stays in real investors' pockets. Are HFTs always doing the right thing? No of course not, but HFTs are pretty clearly some of the most ethical firms out there.

lotsoflumens 9y ago
I think you're confused about the meaning of "value". HFTs don't provide any value, but they do extract a lot of money from what used to be called a "market".

wyager 9y ago

> but its useless as far as i can tell, That's because you, as well as 99% of people accusing financial firms of being useless, don't know what you're talking about. One of the reasons planned economies usually fail quite spectacularly is that individuals are very bad at predicting global market behavior. It's too complicated. Local stochastic optimization (free market economies) works quite well, even if it's maybe not globally optimal; doing better than free markets via central planning requires an unfeasible level of omniscience about all market actors and interactions. This refrain of "traders do nothing useful" is a great example of that; most people are too myopic and/or economically illiterate to see otherwise. Here's what traders do; they communicate price information (extremely important) and charge a small commission for doing so. In the absence of regulation on "Wall Street" (or whatever your regional synechdoche), there would be more competition among people communicating price information and profit margins would probably be a lot smaller. If you can do a better job communicating price information (possibly by predicting future prices), you can make more money. Another auxiliary job that traders do is provide liquidity, which is very important but (in my opinion) less important than the first. My apologies for being a bit blunt, but I think people deserve a bit of admonition for attacking that which they clearly don't understand enough to even criticize coherently.

anigbrowl 9y ago
This refrain of "traders do nothing useful" That was not how I read the comment at all. Maybe slow down and reconsider it in the context of a specific discussion about this specific approach to HFT, rather than assuming the GP is dismissing the whole underlying principle of market making.
the_cat_kittles 9y ago
wasnt attacking that. was arguing that the marginal/imperceptible improvement in liquidity isnt really doing anything for anyone except the people profiting off it.

strken 9y ago

The way I think about HFT is: - one effect of an economy is to find an approximate solution to an important problem: optimising resource allocation with regards to growth - within this paradigm, markets exist to process all publicly available information and turn it into real allocation of resources - considering the difference between trades executed once a day vs once a week, the more frequent trades will provide information that is up to date, higher resolution, and will lead to a better solution to the problem - HFT uses a huge volume of very frequent trades based on very weak correlations, meaning that the information it adds is newer than that of longer term trades, is very high resolution, and may take into account factors ignored by longer-term strategies - therefore, HFT leads to better overall resource allocation by providing greater visibility into the value of the things being traded This ties into the comments on the efficient market hypothesis. HFT brings us a little closer to the impossible ideal by making the market a little more efficient.

the_cat_kittles 9y ago
i dont disagree with the basic framework. but why is going from milliseconds to picoseconds important? im pretty sure its not. thats all

vzcx 9y ago

Beyond the "providing liquidity" argument, another side effect of HFT and arbitrage strategies that one might see as valuable is the promotion of global invariants across the financial network, which is rather complicated distributed system. Would it make sense if there were two very different prices for something at two nearly identical venues? If large block of a stock is dropped on one exchange, would it make sense if there were no effects on the price of the same name on adjacent exchanges? All that aside, I think I have some larger questions about your worldview: What does it mean to "create value?" By what standards is value assessed? In the absence of any direct harm to another, under what circumstances should someone be deterred from engaging in profitable activity? Is the assumption that profits accrue to those who provide value to others utterly false, or just false in this (and possibly other, isolated) case? If merely the latter, why in this case?

the_cat_kittles 9y ago
>> Beyond the "providing liquidity" argument, another side effect of HFT and arbitrage strategies that one might see as valuable is the promotion of global invariants across the financial network, which is rather complicated distributed system. Would it make sense if there were two very different prices for something at two nearly identical venues? If large block of a stock is dropped on one exchange, would it make sense if there were no effects on the price of the same name on adjacent exchanges? i dont disagree with arbitrage and liquidity, and a globally invariant price for goods. i just think HFT isnt really improving that in a meaningful way. i ask you- at what timescale does it stop mattering? thats really what im saying. not that liquidity and invariant prices are suspect, but that things are happening on such a minute time scale that it doesn't matter. hey, i could be wrong, but no one has argued why going from milliseconds to picoseconds is improving our lives. thats the thing i would like explained. >> What does it mean to "create value?" By what standards is value assessed? tough to pin down, but surely its more than how much money it makes you... right? of course it varies from person to person. but i think its very lazy to say that its "whatever someone will pay for it". then value changes when laws change. i think most people probably agree that some things that are able to be sold for alot are not a value to society. i think its fair to say that there are some basically invariant things that are valuable. >> In the absence of any direct harm to another, under what circumstances should someone be deterred from engaging in profitable activity probably shouldn't be deterred. my point was that it looks like this is more like a game people are playing, with no real positive externalities. didn't say it was bad prima facie. i think its weird that people are very strongly clinging to the idea that it has some wonderful benefit to society. seems like a pretty weak argument, and kind of pathetic. its ok to to just admit its a game, and its for the players. poker players dont go around claiming they are providing everyone a service. i just get the sense there is an ingrained idea in our culture that there is some nobility in "finance" that i dont think belongs there in some cases. >> Is the assumption that profits accrue to those who provide value to others utterly false, or just false in this (and possibly other, isolated) case? If merely the latter, why in this case? not utterly false, but far from universally true. very difficult, broad topic that i am, or course, not in a position to say definitively. we can all point to cases where almost everyone agrees that someone gets overpaid, or underpaid. seems like a lot of people readily accept the dual premises that success == making money, and that money is a proxy for value. i take issue with both- i think its important to think about success and value more fundamentally. it seems like a lot of people have a tautological idea that you are paid what you deserve because its what you got paid...