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I'd say you don't really understand what you're critiquing; you think those things are bad because you heard they were, from someone else who likely doesn't und

I'd say you don't really understand what you're critiquing; you think those things are bad because you heard they were, from someone else who likely doesn't understand it either. There's absolutely nothing wrong with short selling or high frequency trading. Short sellers help keep prices fair and companies honest, HFT makes trading cheaper for everyone. The markets are worse without them, the market was worse before HFT which is the only thing new here, trades used to cost way more due to wall street middle men taking a big cut of every trade, far far bigger than HFT's take now. The only people who have a logically valid reason to hate HFT are the old school manual traders who were displaced by them and can no long make a living trading chart patterns. As late as the 70's and 80's there were people getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low. Those people hate HFT, it took away their cash cow. HFT is a sign of a healthy free market, better traders came in and offered to take your trades for far less money than the manual traders could, and took over; that's healthy competition, and they competed with each other driving the prices lower and lower until they hit the penny. Now they all fight over that penny to see who can be fastest because congress won't let them compete on price anymore (the sub penny rule) so they compete on speed instead.

tnone 9y ago
Healthy competition optimizes for value, HFT is just optimizing for profit. These are not the same. It's paperclip maximizing, using an economic Maxwell's demon.
- prostoalex 9y ago
  > HFT is just optimizing for profit And low-frequency trading isn't?
- gnaritas 9y ago
  > Healthy competition optimizes for value, HFT is just optimizing for profit. Value is measured by profit, if what the HFT's were offering was of no value, there would be no profit in it as no one would buy their liquidity. HFT sell liquidity, that there are willing buyers proves their value. Quite simply, you do not know what you are talking about.
the_mitsuhiko 9y ago
There are plenty of people that have legitimate concerns about HFT or rather the mechanics they promote (frontrunning trades in particular).
- gnaritas 9y ago
  HFT doesn't front run trades, that's a misconception and really just a way to slander HFT as evil. Calling their misconceptions legitimate is an abuse of language. Front-running is a crime, it has an actual meaning and you are misusing the term. Front-running is when a broker buys or sells using advanced knowledge of trades they're making on behalf of their clients, i.e. it is risk free and is theft. HFT does not front run their clients, they attempt to trade faster than their competition at risk, these are vastly different things and to call HFT front-running is dishonest slander. There are no legitimate complaints against HFT trading that aren't simply misconceptions about what they do or how markets work.
  - the_mitsuhiko 9y ago
    Then call it what you want. It's running in front of other trades just that you do it on arbitrary trades and not the ones of your customer.
    - gnaritas 9y ago
      No, front running is risk free because it uses inside information, that's why it's illegal. Trying to trade faster than someone else is not risk free, requires guessing, is gambling, and is not illegal, and is thus not front running. What you're claiming is simply wrong. So please do explain why you think HFT is doing something wrong. It doesn't matter what we call it, you're claiming HFT is doing something they are not doing, they are making educated guesses and trading on that guess, same as any other legitimate trader.
      - the_mitsuhiko 9y ago
        There is no risk involved in HFT frontrunning. There is however an investment cost for having lower latency connections than others. There are no guesses. And not sure how what I'm claiming is wrong. This has been the entire reason why IEX exists.
pdkl95 9y ago
> I'd say you don't really understand what you're critiquing I'd say that you are assuming that optimizing for price is good, and presupposing how a market should be judged. Cheaper is good when it represents new innovation, less energy waste, and similar improvements. Cheaper can also mean cuts to wages and jobs, or a reduction in quality. > There's absolutely nothing wrong with short selling Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk. > trades used to cost way more due to wall street middle men taking a big cut of every trade Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency. You're seeing effects of technological improvements and better regulations. The same improvements also benefit "slow" trading. > chart patterns > getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low "Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed. > HFT is a sign of a healthy free market It tells you little about the health of the market; HFT is a sign of a market uses short-term transaction ordering heavily when reconciling trades. It's entirely possible to have a healthy market batched trades that all execute at the same unified price.
- rsync 9y ago
  "Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk." What critics of short selling are often unaware of is the role that short holdings play in dampening a market crash. The act of unwinding your short position involves buying the stock which means that for every tick downward in stock price there is new upward pressure on the price as buyers step in to cover their short position. Were these constant, ready buyers not extant, market downturns can turn into precipitous crashes very quickly.
  - pdkl95 9y ago
    I should have used more specific language; I'm not trying to argue that short selling is "bad". The benefits - such as dampening a crashing market - are large enough to accommodate some risk. I'm primarily addressing the claim that, "There's absolutely nothing wrong with short selling". Ignoring small, acceptable risks is normalizing deviance[1]. [1] https://www.youtube.com/watch?v=PGLYEDpNu60 https://www.youtube.com/watch?v=PGLYEDpNu60

tnone 9y ago

Healthy competition optimizes for value, HFT is just optimizing for profit. These are not the same. It's paperclip maximizing, using an economic Maxwell's demon.

prostoalex 9y ago
> HFT is just optimizing for profit And low-frequency trading isn't?
gnaritas 9y ago
> Healthy competition optimizes for value, HFT is just optimizing for profit. Value is measured by profit, if what the HFT's were offering was of no value, there would be no profit in it as no one would buy their liquidity. HFT sell liquidity, that there are willing buyers proves their value. Quite simply, you do not know what you are talking about.

the_mitsuhiko 9y ago

There are plenty of people that have legitimate concerns about HFT or rather the mechanics they promote (frontrunning trades in particular).

gnaritas 9y ago
HFT doesn't front run trades, that's a misconception and really just a way to slander HFT as evil. Calling their misconceptions legitimate is an abuse of language. Front-running is a crime, it has an actual meaning and you are misusing the term. Front-running is when a broker buys or sells using advanced knowledge of trades they're making on behalf of their clients, i.e. it is risk free and is theft. HFT does not front run their clients, they attempt to trade faster than their competition at risk, these are vastly different things and to call HFT front-running is dishonest slander. There are no legitimate complaints against HFT trading that aren't simply misconceptions about what they do or how markets work.
- the_mitsuhiko 9y ago
  Then call it what you want. It's running in front of other trades just that you do it on arbitrary trades and not the ones of your customer.
  - gnaritas 9y ago
    No, front running is risk free because it uses inside information, that's why it's illegal. Trying to trade faster than someone else is not risk free, requires guessing, is gambling, and is not illegal, and is thus not front running. What you're claiming is simply wrong. So please do explain why you think HFT is doing something wrong. It doesn't matter what we call it, you're claiming HFT is doing something they are not doing, they are making educated guesses and trading on that guess, same as any other legitimate trader.
    - the_mitsuhiko 9y ago
      There is no risk involved in HFT frontrunning. There is however an investment cost for having lower latency connections than others. There are no guesses. And not sure how what I'm claiming is wrong. This has been the entire reason why IEX exists.

pdkl95 9y ago

> I'd say you don't really understand what you're critiquing I'd say that you are assuming that optimizing for price is good, and presupposing how a market should be judged. Cheaper is good when it represents new innovation, less energy waste, and similar improvements. Cheaper can also mean cuts to wages and jobs, or a reduction in quality. > There's absolutely nothing wrong with short selling Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk. > trades used to cost way more due to wall street middle men taking a big cut of every trade Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency. You're seeing effects of technological improvements and better regulations. The same improvements also benefit "slow" trading. > chart patterns > getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low "Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed. > HFT is a sign of a healthy free market It tells you little about the health of the market; HFT is a sign of a market uses short-term transaction ordering heavily when reconciling trades. It's entirely possible to have a healthy market batched trades that all execute at the same unified price.

rsync 9y ago
"Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk." What critics of short selling are often unaware of is the role that short holdings play in dampening a market crash. The act of unwinding your short position involves buying the stock which means that for every tick downward in stock price there is new upward pressure on the price as buyers step in to cover their short position. Were these constant, ready buyers not extant, market downturns can turn into precipitous crashes very quickly.
- pdkl95 9y ago
  I should have used more specific language; I'm not trying to argue that short selling is "bad". The benefits - such as dampening a crashing market - are large enough to accommodate some risk. I'm primarily addressing the claim that, "There's absolutely nothing wrong with short selling". Ignoring small, acceptable risks is normalizing deviance[1]. [1] https://www.youtube.com/watch?v=PGLYEDpNu60 https://www.youtube.com/watch?v=PGLYEDpNu60