4 ms·

In context, I mean that the fastest trader takes all of the profit associated with the price correction in response to new information. Your example isn't relev

by allenz 8y ago

In context, I mean that the fastest trader takes all of the profit associated with the price correction in response to new information. Your example isn't relevant since you placed your order without access to the new information. In fact, after seeing the new information, you may realize that your order is now a losing trade--but too late, HFT has already arbitraged away your inefficiency.

tptacek 8y ago
No, that's false. He put a standing limit order on the market weeks ago in anticipation of the market correction you're stipulating. It doesn't matter how quickly you can respond to the news; his order beats yours.
kasey_junk 8y ago
You as another market participant (HFT or otherwise) , have no idea if I have access to the new information or not. In fact, the vast majority of the new information that HFT participants are getting is the order itself. My order goes in and that itself is the information that causes reactions. And thats the crux of the reason 'smart' money hates it. They want to take advantage of liquidity without it being priced correctly. Meanwhile liquidity providers (HFT) want to price it based on that order information. But note, the built in information asymmetry actually works against the HFT in that case. By the time the smart money order hits the HFT, the smart money already gotten their desires in at least part of the market. For me as 'dumb' money its largely all upside. I can get execution right now for as cheap as its ever been if that is important to me, or I can set the price I actually want to pay without being impacted by this at all. [edited for clarity]
- allenz 8y ago
  > You ... have no idea if I have access to the new information or not You assume that you can obtain on information before HFT, possibly because you're talking about a different type of HFT than I am. Can we use a clearer example? Let's say that we submit a limit order to buy 10 shares of AA (American Airlines). Before the order is fulfilled, two AA planes collide (the new information). In response to the new information, any trader would agree that the stock price should drop significantly, and it does. HFT will quickly sell to our previous uninformed trade, which we are not able to cancel in time--that's the unfair advantage. Please explain to me how this is not "fastest trader takes all".
  - kasey_junk 8y ago
    I'm happy to discuss this using your clearer example supposing you agree to a couple of ground rules: - your example has never happened. Its a thought experiment that is worth exactly that. - you stipulate that the actual information that HFT systems take advantage of is the market microstructure itself. I'm going to demand that you do this because of my experience in the HFT space and my lack of experience in the 2 plains colliding in mid air space Even given those stipulations, HFT is not the issue. If I am on the ground observing the crash. I have a unique and privileged access to the information. If I am a air traffic controller observing their flight plans before they hit, I have a unique and privileged access to the information. If I am a hedge fund that have been detailing the long history of AA job boards and notice that they spend waaay less on QA engineering than their competitors, I have unique and privileged access to the information. It is not the point of the markets to penalize those participants. It is the point of the markets to reward them. We want that information incorporated into the price as soon as possible and the markets are how we incentivize that. That is, having data that other market participants don't is a fundamental state of the markets that generates the outcomes we want. Any external manipulation of that information need have a sufficient justification. In the cases we've said are out of bounds, the sufficient justification comes from an issue of agency. We have said that brokers can't take advantage of your order flow because it will destroy the markets if they did. Insider trading represents one party stealing from another (1 set of shareholders who are beholden to another set). HFT does not represent any of those things. Quite the opposite. They are placing honest bets on their predictive ability, just like every other market participant, the only difference is their information flows and timeframes. Frankly, the markets hold HFT to a higher standard than other participants. No one bailed out Knight when their advantage became their undoing and no one cares now when they are providing liquidity for basically free and the entire industry is a non-event. If an investment bank or an automotive company succumbed to market pressures like HFT did, a president would step in.
    - allenz 8y ago
      > your example has never happened My example would apply whenever an analyst comments on AA or whenever any polarized headlines is published about AA. > It is the point of the markets to reward [information] But that's exactly what we're debating: why is updating information a couple microseconds earlier something that is valuable? Conversely, if it doesn't make the market more efficient, it shouldn't be rewarded. Since you mainly want to talk about market microstructure, how do you think a switch to batch auctions would affect the market?

by allenz 8y ago

tptacek 8y ago

No, that's false. He put a standing limit order on the market weeks ago in anticipation of the market correction you're stipulating. It doesn't matter how quickly you can respond to the news; his order beats yours.

kasey_junk 8y ago

You as another market participant (HFT or otherwise) , have no idea if I have access to the new information or not. In fact, the vast majority of the new information that HFT participants are getting is the order itself. My order goes in and that itself is the information that causes reactions. And thats the crux of the reason 'smart' money hates it. They want to take advantage of liquidity without it being priced correctly. Meanwhile liquidity providers (HFT) want to price it based on that order information. But note, the built in information asymmetry actually works against the HFT in that case. By the time the smart money order hits the HFT, the smart money already gotten their desires in at least part of the market. For me as 'dumb' money its largely all upside. I can get execution right now for as cheap as its ever been if that is important to me, or I can set the price I actually want to pay without being impacted by this at all. [edited for clarity]

allenz 8y ago
> You ... have no idea if I have access to the new information or not You assume that you can obtain on information before HFT, possibly because you're talking about a different type of HFT than I am. Can we use a clearer example? Let's say that we submit a limit order to buy 10 shares of AA (American Airlines). Before the order is fulfilled, two AA planes collide (the new information). In response to the new information, any trader would agree that the stock price should drop significantly, and it does. HFT will quickly sell to our previous uninformed trade, which we are not able to cancel in time--that's the unfair advantage. Please explain to me how this is not "fastest trader takes all".
- kasey_junk 8y ago
  I'm happy to discuss this using your clearer example supposing you agree to a couple of ground rules: - your example has never happened. Its a thought experiment that is worth exactly that. - you stipulate that the actual information that HFT systems take advantage of is the market microstructure itself. I'm going to demand that you do this because of my experience in the HFT space and my lack of experience in the 2 plains colliding in mid air space Even given those stipulations, HFT is not the issue. If I am on the ground observing the crash. I have a unique and privileged access to the information. If I am a air traffic controller observing their flight plans before they hit, I have a unique and privileged access to the information. If I am a hedge fund that have been detailing the long history of AA job boards and notice that they spend waaay less on QA engineering than their competitors, I have unique and privileged access to the information. It is not the point of the markets to penalize those participants. It is the point of the markets to reward them. We want that information incorporated into the price as soon as possible and the markets are how we incentivize that. That is, having data that other market participants don't is a fundamental state of the markets that generates the outcomes we want. Any external manipulation of that information need have a sufficient justification. In the cases we've said are out of bounds, the sufficient justification comes from an issue of agency. We have said that brokers can't take advantage of your order flow because it will destroy the markets if they did. Insider trading represents one party stealing from another (1 set of shareholders who are beholden to another set). HFT does not represent any of those things. Quite the opposite. They are placing honest bets on their predictive ability, just like every other market participant, the only difference is their information flows and timeframes. Frankly, the markets hold HFT to a higher standard than other participants. No one bailed out Knight when their advantage became their undoing and no one cares now when they are providing liquidity for basically free and the entire industry is a non-event. If an investment bank or an automotive company succumbed to market pressures like HFT did, a president would step in.
  - allenz 8y ago
    > your example has never happened My example would apply whenever an analyst comments on AA or whenever any polarized headlines is published about AA. > It is the point of the markets to reward [information] But that's exactly what we're debating: why is updating information a couple microseconds earlier something that is valuable? Conversely, if it doesn't make the market more efficient, it shouldn't be rewarded. Since you mainly want to talk about market microstructure, how do you think a switch to batch auctions would affect the market?