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The only thing HFT changes is who the marketmaker that pockets the $200 is going to be [..] And the amount of times they step in and take that $200 out of t
by Confusion 16y ago
The only thing HFT changes is who the marketmaker
that pockets the $200 is going to be [..]
And the amount of times they step in and take that $200 out of the market. In earlier times, when there weren't many market makers yet, the 2 cent spread would often sort itself out, without someone stepping in and pocketing those $200. Market makers don't just pocket the 2 cents: they pocket them every single chance they got, even when the market would have sorted itself out. I'm sure they improve the liquidity of the market (or how do they call it?), but it's likely we are long past the optimum, where they just step in when it's necessary to improve the liquidity. Why else would hedge fund profits have skyrocketed, without any measurable improvement in the market?
- yummyfajitas 16y agoIn earlier times, the spread was considerably higher. So instead of an HFT firm earning a $0.02 bid/ask, a human on the trading floor might be earning a $0.05 bid/ask. If you don't want to pay the spread, you can place ALO orders and you will NEVER pay the spread. Your order might never be filled, however. The $0.02 spread you pay is the cost of getting filled right now. Pay it or not, it's your choice, but remember that immediacy isn't free.
- Confusion 16y agoThe $0.02 spread you pay is the cost of getting filled right now. The cost of it getting filled right now against the maximum spread they can find, even if that means executing a dozen obscure orders that cancel each other out in such a way that the spread can be reaped. If HFT's are actually creating value (or preventing value from being lost), they are immediately cashing all of it. I'm not sure that counts as something good. Inevitable perhaps.