5 ms·

> That would save a lot of people a lot of time and money... Who, exactly?

by dsacco 9y ago

d--b 9y ago
For non HFT: it would help them not being front runned by the HFT guys, which means they would trade at fairer price and not have to worry about investigating when they're being screwed. (see flash boys) For HFT: they wouldn't have to spend all that time and energy trying to be as close to the market as possible.
- dsacco 9y ago
  > For non HFT: it would help them not being front runned by the HFT guys, which means they would trade at fairer price and not have to worry about investigating when they're being screwed. (see flash boys) Can you describe, in your own words (i.e. not pointing me to an article or book), why HFT constitutes front-running?
  - d--b 9y ago
    HFT does not constitute front running in itself, it's just the simplest example of a HFT strategy that screws the market. I've seen it happen with my own eyes. So, since you seem to think I'm just a BSer, here goes what I saw: A trader is looking to buy X futures at a certain price P. There is nothing happening on that market, the order book has been stable for minutes. The trader clicks to buy the futures at market price (which the trader assume is P). Immediately, the price goes up by 1 tick (P+dP), and the trader gets filled at P+dP. Immediately after that, the price goes back down to P. The whole thing last ed 1 ms. What happened is that the order got sent to multiple exchanges at the same time. And on it arrived first on an exchange where it has not been executed. But HFT traders saw the change in the order book on that exchange and "front ran" the order to all the other exchanges, buying everything lying around at P to make the price go up by dP, and selling to the trader at P+dP. So that is annoying (and illegal). Strategies used by HFT are usually legal, but all tend to use the same mechanism: - look at what's happening with the price / order book - guess what kind of operations are happening - execute operations that benefit from the operations that should happen afterwards.
    - idohft 9y ago
      This doesn't sound right. Some points: - A trader looking to buy futures is almost certainly not going to send their order to several exchanges. The main exchanges list distinct contracts (with, I believe, some cross-exchange listings that are just cross-continent). A person sending an order is not going to get it routed to several different exchanges. - Your example itself would result in a losing trade for whomever was doing this trading. Let's call this HFT guy, "HFT", and pretend like you were talking about equities(which does have the multiple exchange property). In order to accomplish what your trader was doing, HFT has to: 1 - buy up all existing shares at P 2 - probably buy up all the shares at P+dP as well (because all US markets have price-time priority) 3 - place sell orders at P+dP that would fill this guy's X contracts 4 - According to your story, they (or someone else) then try selling at price P again. This means they: 1 - Took a large long position 2 - Took an even larger long position at a worse price, paying commission for this 3 - Managed to sell some of their position at the same price as (2) 4 - Are now trying to sell back their position at P. If you look through these steps, you just end up losing money, while taking on unnecessary market risk.
      - d--b 9y ago
        The size of the position only depends on the order book. You assume that the position should be large, but in markets that are not very liquid that's not necessarily the case.
    - d--b 9y ago
      can't reply to idohft, so I'll do it here. 1. perhaps it was not a future, I don't recall exactly 2. ??? If HFT guy buys N lots at P, sells N-X at P+dP, sells X at P, he still makes X*dP as profit. The risk he takes only depends on the size of N.
      - idohft 9y ago
        (1) -- ok, sure (2). That is not what I said. To sell at P+dP, you need to buy up all the shares at P+dP as well. That's because of price-time priority, which almost all the major markets have (with some exceptions, most notably NYSE -- and even then, their book is mostly price-time priority). This is the idea that a person who placed their order first, has priority over those who placed their orders after. A strategy that makes the trade that you are proposing must then also take out all of P+dP and sell against the incoming order. In a usual case, you pay commission when trading into that position, and (maybe) earn commission when you sell it back (as the liquidity provider). In no market is the commission earned greater than the commission paid. The shares you buy-and-sell at P+dP are straight up loss, and that's before figuring out if X (the incoming shares that you are supposedly front-running) is greater than the #shares at P+dP anyway. "The risk he takes only depends on the size of N" -- that is true -- that is always true, if you are making an unhedged trade.

> That would save a lot of people a lot of time and money... Who, exactly?

by dsacco 9y ago

> That would save a lot of people a lot of time and money... Who, exactly?

d--b 9y ago

For non HFT: it would help them not being front runned by the HFT guys, which means they would trade at fairer price and not have to worry about investigating when they're being screwed. (see flash boys) For HFT: they wouldn't have to spend all that time and energy trying to be as close to the market as possible.

dsacco 9y ago
> For non HFT: it would help them not being front runned by the HFT guys, which means they would trade at fairer price and not have to worry about investigating when they're being screwed. (see flash boys) Can you describe, in your own words (i.e. not pointing me to an article or book), why HFT constitutes front-running?
- d--b 9y ago
  HFT does not constitute front running in itself, it's just the simplest example of a HFT strategy that screws the market. I've seen it happen with my own eyes. So, since you seem to think I'm just a BSer, here goes what I saw: A trader is looking to buy X futures at a certain price P. There is nothing happening on that market, the order book has been stable for minutes. The trader clicks to buy the futures at market price (which the trader assume is P). Immediately, the price goes up by 1 tick (P+dP), and the trader gets filled at P+dP. Immediately after that, the price goes back down to P. The whole thing last ed 1 ms. What happened is that the order got sent to multiple exchanges at the same time. And on it arrived first on an exchange where it has not been executed. But HFT traders saw the change in the order book on that exchange and "front ran" the order to all the other exchanges, buying everything lying around at P to make the price go up by dP, and selling to the trader at P+dP. So that is annoying (and illegal). Strategies used by HFT are usually legal, but all tend to use the same mechanism: - look at what's happening with the price / order book - guess what kind of operations are happening - execute operations that benefit from the operations that should happen afterwards.
  - idohft 9y ago
    This doesn't sound right. Some points: - A trader looking to buy futures is almost certainly not going to send their order to several exchanges. The main exchanges list distinct contracts (with, I believe, some cross-exchange listings that are just cross-continent). A person sending an order is not going to get it routed to several different exchanges. - Your example itself would result in a losing trade for whomever was doing this trading. Let's call this HFT guy, "HFT", and pretend like you were talking about equities(which does have the multiple exchange property). In order to accomplish what your trader was doing, HFT has to: 1 - buy up all existing shares at P 2 - probably buy up all the shares at P+dP as well (because all US markets have price-time priority) 3 - place sell orders at P+dP that would fill this guy's X contracts 4 - According to your story, they (or someone else) then try selling at price P again. This means they: 1 - Took a large long position 2 - Took an even larger long position at a worse price, paying commission for this 3 - Managed to sell some of their position at the same price as (2) 4 - Are now trying to sell back their position at P. If you look through these steps, you just end up losing money, while taking on unnecessary market risk.
    - d--b 9y ago
      The size of the position only depends on the order book. You assume that the position should be large, but in markets that are not very liquid that's not necessarily the case.
  - d--b 9y ago
    can't reply to idohft, so I'll do it here. 1. perhaps it was not a future, I don't recall exactly 2. ??? If HFT guy buys N lots at P, sells N-X at P+dP, sells X at P, he still makes X*dP as profit. The risk he takes only depends on the size of N.
    - idohft 9y ago
      (1) -- ok, sure (2). That is not what I said. To sell at P+dP, you need to buy up all the shares at P+dP as well. That's because of price-time priority, which almost all the major markets have (with some exceptions, most notably NYSE -- and even then, their book is mostly price-time priority). This is the idea that a person who placed their order first, has priority over those who placed their orders after. A strategy that makes the trade that you are proposing must then also take out all of P+dP and sell against the incoming order. In a usual case, you pay commission when trading into that position, and (maybe) earn commission when you sell it back (as the liquidity provider). In no market is the commission earned greater than the commission paid. The shares you buy-and-sell at P+dP are straight up loss, and that's before figuring out if X (the incoming shares that you are supposedly front-running) is greater than the #shares at P+dP anyway. "The risk he takes only depends on the size of N" -- that is true -- that is always true, if you are making an unhedged trade.