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> IEX has a speed bump that prevents high-frequency traders from front-running ordinary investors. Anyone care to explain, in precise terms, how a high-frequen

> IEX has a speed bump that prevents high-frequency traders from front-running ordinary investors. Anyone care to explain, in precise terms, how a high-frequency trader front-runs ordinary investors on a typical exchange and how putting a delay on all incoming orders prevents it?

physguy1123 9y ago
They don't. That term has basically become an advertising slogan for IEX. HFT is great for retail investors because you trade cheaper and faster. Usually retail investors get price improvement over the market since HFT brokerages compete for retail flow. HFT is bad for institutional investors who don't want to invest in sophisticated execution since the market reacts very quickly to large orders. Institutional investors include firms like Vanguard or firms that greatly inform price discovery, so it's worth thinking about both sides of the market and not just optimizing for best retail execution. IEX is by and for large institutional investors. IEX's delay doesn't apply to one (multiple?) of their hidden/protected order types, which allows larger orders resting on the book to avoid market impact and execution at 'bad' prices as these orders can move away from the top of the book in 'unfavorable' market conditions.
rramdin 9y ago
Michael Lewis and Brad Katsuyama misuse the term "front running," either willfully to stir people up or out out of ignorance. Front-running refers to the practice of a broker holding customer orders, but trading for their own accounts at a better price before executing their client's orders (i.e. using privileged information for their benefit). Katsuyama's uses "front running" to describe a practice where if an HFT sees a price change happening (i.e. trades are being reported or a level is going away), they quickly go and remove liquidity before others have gotten a chance to react to this new information. An HFT with faster technology will beat an institutional trader in this race (even though all market participants must always send bona fide orders that they intend to have filled). IEX solves this problem by slowing down incoming orders to give special orders on the exchange (D-pegs, which automatically change prices as the prevailing market price changes) an opportunity to reprice. The HFT has put millions of dollars into fast technology, whereas the institutional investment firms have presumably put millions of dollars into long term research. IEX allows institutional investors to outsource this technology investment to the exchange, which puts an artificial delay to give its matching engine time to reprice special orders during market moves.

physguy1123 9y ago

They don't. That term has basically become an advertising slogan for IEX. HFT is great for retail investors because you trade cheaper and faster. Usually retail investors get price improvement over the market since HFT brokerages compete for retail flow. HFT is bad for institutional investors who don't want to invest in sophisticated execution since the market reacts very quickly to large orders. Institutional investors include firms like Vanguard or firms that greatly inform price discovery, so it's worth thinking about both sides of the market and not just optimizing for best retail execution. IEX is by and for large institutional investors. IEX's delay doesn't apply to one (multiple?) of their hidden/protected order types, which allows larger orders resting on the book to avoid market impact and execution at 'bad' prices as these orders can move away from the top of the book in 'unfavorable' market conditions.

rramdin 9y ago

Michael Lewis and Brad Katsuyama misuse the term "front running," either willfully to stir people up or out out of ignorance. Front-running refers to the practice of a broker holding customer orders, but trading for their own accounts at a better price before executing their client's orders (i.e. using privileged information for their benefit). Katsuyama's uses "front running" to describe a practice where if an HFT sees a price change happening (i.e. trades are being reported or a level is going away), they quickly go and remove liquidity before others have gotten a chance to react to this new information. An HFT with faster technology will beat an institutional trader in this race (even though all market participants must always send bona fide orders that they intend to have filled). IEX solves this problem by slowing down incoming orders to give special orders on the exchange (D-pegs, which automatically change prices as the prevailing market price changes) an opportunity to reprice. The HFT has put millions of dollars into fast technology, whereas the institutional investment firms have presumably put millions of dollars into long term research. IEX allows institutional investors to outsource this technology investment to the exchange, which puts an artificial delay to give its matching engine time to reprice special orders during market moves.