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>the actual offense of front-running... Sure. That's why I wrote "essentially" front-running. Perhaps I should have written "effectively" to better clarify? I

>the actual offense of front-running... Sure. That's why I wrote "essentially" front-running. Perhaps I should have written "effectively" to better clarify? In any case, I am referring less to the tort and more to the common complaint that people have about HFT: WRT how it disadvantages small investors. >People believe all sorts of weird things Indeed. But, I don't believe that to be an esoteric complaint. In fact, it seems to be one of the chief complaints where HFT is concerned.

tptacek 8y ago
I don't know if "esoteric" is the word. You're saying, lots of people seem to believe that the advantage fast electronic market making has over "conventional" trading is a form of front-running. That is true. But: it is not. Lots of people also believe that high-end market research (for instance, targeted research and maybe even electronic surveillance about how many widgets a company has sold) is a form of insider trading. But: it is not, even though lots of people say that, and for the same reason. In both cases, people believe there is something shady about people going to extraordinary lengths to obtain a trading advantage. And, in both cases, not only is the market resilient to those efforts to gain advantage, but the markets are theoretically improved by them. The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price for something, and to make it efficient for people to buy and sell at that price.
- unclebucknasty 8y ago
  I am aware that people believing a thing doesn't make it true. I am also aware of the arguments in favor of HFT. As you stated, the oft-made claim that the market is improved is theoretical as well; hence, is also a product of "belief". It's not a settled question. [0] >The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price Yes. [0] https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp https://www.investopedia.com/ask/answers/09/high-frequency-t...
  - tptacek 8y ago
    The improvement I'm talking about is objective: in the former case, by competing down spreads and minimizing the cost to execute any given trade, and in both by expediting price discovery. You can disagree that these are things worth optimizing (though if you weren't careful you'd risk arguing in some sense against the premise of a market), but it's less clear to me how you'd argue that the causality is other than what my argument says it is.
    - unclebucknasty 8y ago
      I don't dispute that HFT can reduce spreads. The question is whether that benefit may come at some expense to smaller investors. See the previous link I posted. Also, of course, "Flash Boys" by Michael Lewis. There is no shortage of discussion around this question.
      - tptacek 8y ago
        How does that question even make sense? By definition, the spread is a tax investors --- including small investors --- pay to buy or sell a holding. In what way could they possibly benefit from wider spreads? Regarding Flash Boys: I don't know of a single person who works in trading who has stuck up for that book. I strongly recommend "Flash Boys: Not So Fast", which debunks it but is also much more interesting from a technical perspective than Lewis's book.
        unclebucknasty 8y ago
        >in what way could they possibly benefit from wider spreads? Never said that. We seem to be having trouble communicating. It happens. Thanks for the discussion.

tptacek 8y ago

I don't know if "esoteric" is the word. You're saying, lots of people seem to believe that the advantage fast electronic market making has over "conventional" trading is a form of front-running. That is true. But: it is not. Lots of people also believe that high-end market research (for instance, targeted research and maybe even electronic surveillance about how many widgets a company has sold) is a form of insider trading. But: it is not, even though lots of people say that, and for the same reason. In both cases, people believe there is something shady about people going to extraordinary lengths to obtain a trading advantage. And, in both cases, not only is the market resilient to those efforts to gain advantage, but the markets are theoretically improved by them. The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price for something, and to make it efficient for people to buy and sell at that price.

unclebucknasty 8y ago
I am aware that people believing a thing doesn't make it true. I am also aware of the arguments in favor of HFT. As you stated, the oft-made claim that the market is improved is theoretical as well; hence, is also a product of "belief". It's not a settled question. [0] >The point of a market is to expediently arrive at the best (as in, most reflective of intrinsic value) price Yes. [0] https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp https://www.investopedia.com/ask/answers/09/high-frequency-t...
- tptacek 8y ago
  The improvement I'm talking about is objective: in the former case, by competing down spreads and minimizing the cost to execute any given trade, and in both by expediting price discovery. You can disagree that these are things worth optimizing (though if you weren't careful you'd risk arguing in some sense against the premise of a market), but it's less clear to me how you'd argue that the causality is other than what my argument says it is.
  - unclebucknasty 8y ago
    I don't dispute that HFT can reduce spreads. The question is whether that benefit may come at some expense to smaller investors. See the previous link I posted. Also, of course, "Flash Boys" by Michael Lewis. There is no shortage of discussion around this question.
    - tptacek 8y ago
      How does that question even make sense? By definition, the spread is a tax investors --- including small investors --- pay to buy or sell a holding. In what way could they possibly benefit from wider spreads? Regarding Flash Boys: I don't know of a single person who works in trading who has stuck up for that book. I strongly recommend "Flash Boys: Not So Fast", which debunks it but is also much more interesting from a technical perspective than Lewis's book.
      - unclebucknasty 8y ago
        >in what way could they possibly benefit from wider spreads? Never said that. We seem to be having trouble communicating. It happens. Thanks for the discussion.