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Front running and HFT are two different things. Front running implies that you have access to the orders or other information and the ability to get your order
by Raidion 8y ago
Front running and HFT are two different things. Front running implies that you have access to the orders or other information and the ability to get your order in ahead of others. This is at worst, illegal as you're trading on non-public information (if you get an earnings report early), and at best, bad for business as front running would be a "tax" on every stock being sold on an exchange. This basically means that the exchange becomes less valuable (because you have to pay more for that exchange) and other brokers have the ability to offer "lower" prices for the same stock at the same moment in time as they can say that they're not providing advanced information. Not to say that it doesn't happen, but there is some "magic hand of the market" involved.
Front running is accomplished by HFT, but not all HFT is front running. HFT is simply the ability to execute trades quickly on new information, like earnings reports, fed meeting notes, etc. HFT back in the 17th century would simply have been having the fastest couriers and horses to carry news, now it's having the fastest software and data connections. HFT has a couple beneficial sides too, as it tightens the bid/ask spread.
Basically don't confuse a technology that can be used for bad purposes, to be the problem, blame the brokers and the regulators that allow it to happen.
- munk-a 8y agoWith the current rules in place this isn't illegal, it would be if you coerced the information through some out-of-band system i.e. "Hey bob tell me what you're going to do five minutes before you do it and there's a nickle in it for you" but currently HFT front running is taking advantage of market arbitrage anomalies and trend prediction along with quick response to news events. HFT adds nothing to the markets of value[1] and lowers the value average players are able to extract. [1] except liquidity which they usually don't add in a useful manner, they will tend to make highly liquid stocks more liquid while not adding any liquidity to stocks that are being harmed by illiquidity.
- deleted 8y ago[deleted]