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this seems contradictory to me. HFT is basically predicated on front-running information advantages. It wouldn't be profitable otherwise. maybe you can explain

this seems contradictory to me. HFT is basically predicated on front-running information advantages. It wouldn't be profitable otherwise. maybe you can explain in more detail?

infecto 9y ago
Apologies. What I am referring is some of the issues of the past. It has been a number of years but IIRC it was a NASDAQ data feed that cost a good chunk extra but gave you a time advantage. Thats what I am referring to, or the fact that at that same time certain exchanges were catering order types for their big clients and leaving those unpublished (also illegal).
- metaphorm 9y ago
  thank you for clarifying
tptacek 9y ago
HFT is in basically no sense predicated on front-running. Front-running is an agency problem: it occurs, for instance, when you're trading on behalf of someone else, and before you execute their orders, you submit your own orders that benefit you at the expense of your client. The whole premise of the market is that people have informational advantages. They don't work without it. The point is that they aggregate the information of all the participants. You can call that, or anything else, "front-running", but that's a meaningless definition.
- metaphorm 9y ago
  let me be more specific since I think you're misinterpreting me because I wasn't specific enough. hedge-funds that execute a strategy based entirely on leveraging HFT as a means to take advantage of information arbitrage (such as they kind that a fund taking trade orders from its clients would have) are predicated on having that information advantage "front-running". HFT in different contexts is just machine execution of trade orders and isn't what I was asking about.
  - tptacek 9y ago
    That's not how a hedge fund works. Hedge funds trade on behalf of other people, but their clients have equity stakes in the fund itself; they're not asking the hedge fund to trade their own positions in things. Hedge fund customers don't inject tradable information. The canonical example of a front-runner is a broker trading on behalf of (say) a pension fund. The pension fund wants to offload (say) all its shares in CSCO, and pays a broker to do that. That trade is complicated and will move the market. The broker front-runs by first trading CSCO for its own accounts, at the expense of its clients. An "HFT-enabled" broker could front-run its own clients, but (a) they don't need HFT to do that; they have (relatively speaking) all the time in the world to act on the confidential information that their client is offloading a large block of CSCO, and (b) they're the ones complaining about HFT and setting up new exchanges to combat it.
wglb 9y ago
> It wouldn't be profitable otherwise. This is absolutely not the case. The advantage it is predicated on is getting there first.

this seems contradictory to me. HFT is basically predicated on front-running information advantages. It wouldn't be profitable otherwise. maybe you can explain in more detail?

infecto 9y ago

Apologies. What I am referring is some of the issues of the past. It has been a number of years but IIRC it was a NASDAQ data feed that cost a good chunk extra but gave you a time advantage. Thats what I am referring to, or the fact that at that same time certain exchanges were catering order types for their big clients and leaving those unpublished (also illegal).

metaphorm 9y ago
thank you for clarifying

tptacek 9y ago

HFT is in basically no sense predicated on front-running. Front-running is an agency problem: it occurs, for instance, when you're trading on behalf of someone else, and before you execute their orders, you submit your own orders that benefit you at the expense of your client. The whole premise of the market is that people have informational advantages. They don't work without it. The point is that they aggregate the information of all the participants. You can call that, or anything else, "front-running", but that's a meaningless definition.

metaphorm 9y ago
let me be more specific since I think you're misinterpreting me because I wasn't specific enough. hedge-funds that execute a strategy based entirely on leveraging HFT as a means to take advantage of information arbitrage (such as they kind that a fund taking trade orders from its clients would have) are predicated on having that information advantage "front-running". HFT in different contexts is just machine execution of trade orders and isn't what I was asking about.
- tptacek 9y ago
  That's not how a hedge fund works. Hedge funds trade on behalf of other people, but their clients have equity stakes in the fund itself; they're not asking the hedge fund to trade their own positions in things. Hedge fund customers don't inject tradable information. The canonical example of a front-runner is a broker trading on behalf of (say) a pension fund. The pension fund wants to offload (say) all its shares in CSCO, and pays a broker to do that. That trade is complicated and will move the market. The broker front-runs by first trading CSCO for its own accounts, at the expense of its clients. An "HFT-enabled" broker could front-run its own clients, but (a) they don't need HFT to do that; they have (relatively speaking) all the time in the world to act on the confidential information that their client is offloading a large block of CSCO, and (b) they're the ones complaining about HFT and setting up new exchanges to combat it.

wglb 9y ago

> It wouldn't be profitable otherwise. This is absolutely not the case. The advantage it is predicated on is getting there first.