7 ms·

Can someone explain to me the purpose of HFT? Not the economic incentive, I get that, but what does it accomplish? Is it a net benefit to the system? If we arbi

Can someone explain to me the purpose of HFT? Not the economic incentive, I get that, but what does it accomplish? Is it a net benefit to the system? If we arbitrarily limited transactions to human speed would there be some kind of systemwide downside? Are there any good, human readable papers on the benefits of HFT?

18nleung 8y ago
It’s most commonly justified in terms of “liquidity” - allowing orders to be filled at as close to “perfect” market prices as possible
- tptacek 8y ago
  I'd think less about the "perfection" of the price and more about the spread. The faster everyone converges on a single understanding of the price, the less you'll have to pay to bridge that uncertainty when you want to buy or sell right now. I always mentally compare our expectations about buying and selling stocks immediately (pennies or less) to that of buying and selling houses "immediately".
BonesJustice 8y ago
The only kind of HFT I’m directly familiar with is for automated market making, so I’ll speak to that. Market making in itself provides a valuable service by keeping spreads razor thin and ensuring there’s enough liquidity to satisfy almost any trade at close to the current spot price. HFT is mostly just a way for market makers to gain an edge over each other. In general, it neither helps nor harms ‘regular’ customers. It would hardly be noteworthy if not for the insane lengths that HFT groups go to in order to gain an edge. And, of course, the possibility that a HF system with inadequate controls goes on a trading rampage that significantly moves the markets (see Knight Capital).
- MuffinFlavored 8y ago
  > market makers How many market makers are there?
  - growse 8y ago
    > > market makers > How many market makers are there? However many the market will support. How many shoe shops are there?
  - kasey_junk 8y ago
    A lot less than their used to be. The margins have been driven out of that business. Like most industries that’s led to consolidation. I’d guess Citadel/Virtuu/Jump capture the vast majority of that business.
    - mruts 8y ago
      Also Jane Street and Sasquehanna in the EFT space. Both of those firms are making great money nowadays.
      - calabin 8y ago
        Wolverine is in there somewhere as well
      - kasey_junk 8y ago
        Yeah the more I think about it there probably are lots of market makers still because of market specialization. But it’s not like before when a single person could be a market maker or even later when small prop shops could do it.
        danaur 8y ago
        Anywhere I could read about the historical context/progression you reference?
      - aldanor 8y ago
        Typo corrections: ETF and Susquehanna.
nradov 8y ago
In theory the liquidity created by HFT lowers the cost of capital and increases economic growth. Whether it creates a net benefit relative to the profits it sucks out of the system is unknown. It would be quite difficult to obtain the data necessary to make that calculation, and all of the second-order effects would be complex to model.
- themagician 8y ago
  Would this not happen if we did the trades at human speed? Wouldn’t we get to the same result, in theory, perhaps just a little slower?
  - tptacek 8y ago
    No, we ran that experiment. In addition to the fact that humans market makers actively colluded with each other to divert money from buyers and sellers into their pockets, the advent of automated trading also decimated spreads. I think maybe the problem is that even if the trades themselves are "slower", the actual underlying activity that the market is pricing isn't, and the gap between the real speed of events and the speed with which the market can price those events expresses itself in uncertainty and higher spreads.
- vasilipupkin 8y ago
  what do you mean by "the profits it sucks out of the system"? How do you "suck the profits out of the system"? First of all, taxes are paid on those profits, secondly profits are reinvested back into the economy.
- vostok 8y ago
  I think that a good way to estimate the benefit would be to compare how much less money HFT sucks out of the system than its predecessors.
  - nradov 8y ago
    Lots of other things have also changed since then. It's impossible to isolate the independent variables.
mymythisisthis 8y ago
There should be a 1penny tax on trading of stocks. This nonsense has gotten out of hand. Many startups look for money though venture capital, and not the stock market, because the stock market is so predatory. People like Elon Musk have gotten in trouble with the stock market for simple things, like thinking out-loud. I'm pretty sure he hates the stock market, and only by law was he forced to sell stocks. The stock market has transformed many times. Currently large institutional investors like pension plans buy safe stocks. Originally in the 19th century it mostly a way to buy government bonds. In the 1920s buying stocks was opened up to the 'everyman', a person could buy one share rather cheaply. Then came the depression. In the 1950s the stock-market wasn't that important, economy was doing good. Starting in the 1970s traders started inventing exotic financial tools, to make the stock-market less boring. That's how we got into several crashes, most spectacularly 2008.
- themagician 8y ago
  I found your last paragraph pretty interesting. Had not thought of this. Thank you.
- astazangasta 8y ago
  >People like Elon Musk have gotten in trouble with the stock market for simple things, like thinking out-loud. I'm pretty sure he hates the stock market, and only by law was he forced to sell stocks. Since this is how his company has been kept afloat for the last decade I'm pretty sure he doesn't hate the stock market, he just hates the agencies that regulate it. You're alone in this thread, but no one here has given any real defense of HFT other than "providing liquidity", which is sheer garbage in a world where we have giant speculative bubbles forming and bursting and taking out huge portions of the economy all the time - it requires a real fanatic devotion to efficient markets to be trying to race against the speed of light. This is bunk; prices are just wrong anyway, and markets don't need to be that good as a result. What we do need is less financialization of the economy. Transaction tax all the way.
- mruts 8y ago
  Well then you'll be happy to hear that the era of exotic derivatives is mostly over. People nowadays just want to trade standard products (vanilla options, stocks, futures, etc) very quickly. And the reason startups like VC vs public markets is because they can easily get money on the secondary markets. Going public is a lot of work and comes with a lot of rules. The only reason people did it during the dotcom boom was there was a lot less secondary market capital sloshing around. It wasn't because the stock markets were somehow less "predatory" (whatever that means) back then.
tybit 8y ago
Yeah I’d love to know what the effects of limiting trades, to say, one second granularity would be. I see the importance of market making etc in general, but I don’t see it for millisecond latencies.
- reverend_gonzo 8y ago
  What happens is, first, speed is still an issue because life and news do not happen on 1-second intervals. So readers will wait til as late as possible to make sure they have up to date info and then send their orders as late as possible. Second is the risks to market makers goes up, which means they need to acquire more edge to cover that risk, which in turn widens the bid-ask spread, which makes prices for retail traders worse and will likely reduce liquidity as well.
rb808 8y ago
The HFT systems are replacing the people who did this manually. eg > At its height back in 2000, the U.S. cash equities trading desk at Goldman Sachs’s New York headquarters employed 600 traders, buying and selling stock on the orders of the investment bank’s large clients. Today there are just two equity traders left. https://www.technologyreview.com/s/603431/as-goldman-embraces-automation-even-the-masters-of-the-universe-are-threatened/ https://www.technologyreview.com/s/603431/as-goldman-embrace... It makes the markets more efficient which is good for everyone.
- themagician 8y ago
  Interesting. I did not know this. Thank you! Do you think there was any benefit from having humans do this work? Was there any subjective analysis used, or were these 600 people just human calculators?
  - tptacek 8y ago
    There was objectively not a benefit. In addition to the fact that trades took longer, in material amounts of time, they also cost orders of magnitude more.
    - mruts 8y ago
      I don’t think that is true. bid and asks aren’t a true/total reflection of the msrket. There’s not going to be many people with a bid of $5 for Apple, even though any rational being would buy Apple for $5. Human traders can access this hidden liquidity by picking up a phone or messaging someone on the terminal.
      - tptacek 8y ago
        I'm sorry, I'm having trouble following what you're trying to say here about "bids of $5 for Apple". The bid-ask spread is the difference between the lowest available sell (asking) and the highest available buy (bidding), not the lowest buy and the highest sell.
pgwhalen 8y ago
>If we arbitrarily limited transactions to human speed would there be some kind of systemwide downside? It's worth asking what that artificial limitation would actually be, and how it would result in changing the game for market makers. Continuous limit order book trading (how essentially all exchanges primarily work) is a fairly straightforward concept, and speed is an obvious differentiator for a successful market maker. In general, when complexity is introduced into trading, that creates more ways to exploit the rules for "unfair" gain. Assuming you believe market makers are necessary for a healthy market, you'd have to think of how some other system (like frequent batched auctions) would change the differentiators for successful market makers, and whether those changes are "good" or "fair."
- mjevans 8y ago
  What if we flip the question: How fast do trades really need to be? Lets start with a hypothetical 'human speed' similar to how things used to be in the pre-electric world. What if there were only one trade made per day? If every day buyers and sellers (with price limits in place) were resolved similar to a dutch auction (or some other 'fair' process). What if that happened every hour? 30 min, 20 min? 10 min? I think maybe every 10 min could be a good cycle. That would give a human duration of time for a buy/sell blackout (about 60 seconds), plenty of time for everything submitted to be tabulated, signed, and then published, and 9 full min to figure out what you want to do in the next order period.
  - tptacek 8y ago
    This concept already exists: it's a batch auction dark pool. One big problem with batch auctions as a global solution is that conceptually, trades span multiple markets. You have to figure out how your 500ms futures batch auction is going to interact with the unrelated market for the underlying instrument. Probably the biggest problem is the problem itself, which, in the case of HFT, probably just isn't enough of a problem to reengineer all of market microstructure to fix. The biggest pure HFT firms are worth just a fraction of the biggest investment firms. Major purchasers of liquidity (pension funds, Vanguard) are happy with the execution they're getting. None of this stuff hurts retail traders (on the contrary, it probably helps them on the whole).
rocqua 8y ago
There are at least 2 benefits: * They are always willing to trade, so if someone wants to sell/buy a stock, they can get it from an HFT rather than needing to wait for someone who wants it long-term. (The HFT aims to sell it later to someone who wants it, they don't want to keep it). This is called 'providing liquidity' * They ensure prices remain 'in sync'. If prices don't match in some sense, then people need to worry about where to get a stock, rather than just what stock to get. The same goes for e.g. keeping stocks in sync with options. This way, someone who buys a stock gets an accurate price. This is called 'arbitrage' There is more to these concepts, especially arbitrage. But these are the core benefits of HFT.
- patrec 8y ago
  Your first point is literally just market making, which requires absolutely no HFT. Your second point (arbitrage to keep prices in line) also doesn't require HFT and I find it awfully difficult to imagine that (actual) people would need to worry about where to get their stock if arbitrage would occur at less than microsecond frequencies, because otherwise there might be significantly out of line prices at timescales people care about (many orders of magnitude slower).
  - integrate-this 8y ago
    Market makers need to be able to close arbitrage opportunities or they won't participate in the market. Speed matters just as much to them as it does to the prop traders.
    - patrec 8y ago
      Of course market makers wouldn't want to compete in a market where they are forced to make much slower trades than anyone else. But market making existed long before HFT, so it can't possibly be a unique benefit of it. You can argue that market making has become better because of HFT, but not that it requires HFT.
      - ycombobreaker 8y ago
TuringNYC 8y ago
HFT contributes to making the market. Making the market contributes to liquidity and the ability to get in and out of things quickly without taking major hits. This seems abstract until you think of cases other than stocks where you desperately rely on a market -- 1. Think homes. Consider buying/selling a house and how painful it is to keep something on the market hoping to find a seller (often at a hit if you want to unload quickly.) Or a buyer desiring to purchase something only to have a handful of homes come on the market. 2. Imagine if for every book you read, you could quickly unload the book (or buy new ones) without fire-selling and paying an absurd shipping cost. HFT and market making reduce friction. They are market lubricants. 3. Imagine looking for an apartment to rent and there were a perfect curve of apartments a dollar apart available all the time!
sgeisler 8y ago
From an outsider's point of view (still a CS student): If you are a CS/Physics/Math person who loves to optimize systems then this is a good way to get paid for doing exactly that I guess. Many other problems/industries just require good enough solutions, with HFT it seems that most optimizations are worth it, which makes it so much more interesting.
- mruts 8y ago
  All the remaining HFT firms (there's not that many left) have moved into FPGAs and ASICs as well. HFT is interesting because it's not really that finance related at all. The kind of people that work at HFT firms (at least the ones I've met) are exactly people like you're talking about: hardcore CS/EE guys. Some of them don't even care about financial markets at all, they just know how to program some blazing fast C++. I personally find HFT kind of a snooze and not especially intellectually gratifying. Most of the work is just wading through bullshit (write in interface to some random exchange , figure out how to remove an instruction here or there). Imo, things aren't looking so good for HFT. The profits are very slim at this point, and staying competitive is becoming exponentially more expensive. The golden years of super-normal profits and fat bonuses are over.
BurningFrog 8y ago
Good question! Note that any answers should be HFT specific. That is, if they apply equally well to trades on a second or minute scale as on a millisecond scale, they probably don't answer the question.
raviolo 8y ago
1. HFT market makers creating liquid markets that won’t otherwise exist. 2. Dramatic lowering of bid-offer spreads and, thus, transaction costs to liquidity takers (eg retail investors). 3. No-arbitrage pricing: safe to assume that virtually any easily-tradable instument is fairly priced, otherwise would’ve been quickly arbitraged. Has not always been this way. 4. Driving innovation by paying for technologies/solutions that nobody except HFTs would buy at the time.
known 8y ago
HFT = https://en.m.wikipedia.org/wiki/Front_running https://en.m.wikipedia.org/wiki/Front_running + https://en.m.wikipedia.org/wiki/Algorithmic_trading https://en.m.wikipedia.org/wiki/Algorithmic_trading
vagab0nd 8y ago
I learned recently (after getting into day trading) that out of the 6k stocks traded, quite a lot of them are actually very thinly traded. That means it's pretty hard to get into a trade with a reasonable price, because the spread is so big. I guess HFT helps with that.

18nleung 8y ago

It’s most commonly justified in terms of “liquidity” - allowing orders to be filled at as close to “perfect” market prices as possible

tptacek 8y ago
I'd think less about the "perfection" of the price and more about the spread. The faster everyone converges on a single understanding of the price, the less you'll have to pay to bridge that uncertainty when you want to buy or sell right now. I always mentally compare our expectations about buying and selling stocks immediately (pennies or less) to that of buying and selling houses "immediately".

BonesJustice 8y ago

The only kind of HFT I’m directly familiar with is for automated market making, so I’ll speak to that. Market making in itself provides a valuable service by keeping spreads razor thin and ensuring there’s enough liquidity to satisfy almost any trade at close to the current spot price. HFT is mostly just a way for market makers to gain an edge over each other. In general, it neither helps nor harms ‘regular’ customers. It would hardly be noteworthy if not for the insane lengths that HFT groups go to in order to gain an edge. And, of course, the possibility that a HF system with inadequate controls goes on a trading rampage that significantly moves the markets (see Knight Capital).

MuffinFlavored 8y ago
> market makers How many market makers are there?
- growse 8y ago
  > > market makers > How many market makers are there? However many the market will support. How many shoe shops are there?
- kasey_junk 8y ago
  A lot less than their used to be. The margins have been driven out of that business. Like most industries that’s led to consolidation. I’d guess Citadel/Virtuu/Jump capture the vast majority of that business.
  - mruts 8y ago
    Also Jane Street and Sasquehanna in the EFT space. Both of those firms are making great money nowadays.
    - calabin 8y ago
      Wolverine is in there somewhere as well
    - kasey_junk 8y ago
      Yeah the more I think about it there probably are lots of market makers still because of market specialization. But it’s not like before when a single person could be a market maker or even later when small prop shops could do it.
      - danaur 8y ago
        Anywhere I could read about the historical context/progression you reference?
    - aldanor 8y ago
      Typo corrections: ETF and Susquehanna.

nradov 8y ago

In theory the liquidity created by HFT lowers the cost of capital and increases economic growth. Whether it creates a net benefit relative to the profits it sucks out of the system is unknown. It would be quite difficult to obtain the data necessary to make that calculation, and all of the second-order effects would be complex to model.

themagician 8y ago
Would this not happen if we did the trades at human speed? Wouldn’t we get to the same result, in theory, perhaps just a little slower?
- tptacek 8y ago
  No, we ran that experiment. In addition to the fact that humans market makers actively colluded with each other to divert money from buyers and sellers into their pockets, the advent of automated trading also decimated spreads. I think maybe the problem is that even if the trades themselves are "slower", the actual underlying activity that the market is pricing isn't, and the gap between the real speed of events and the speed with which the market can price those events expresses itself in uncertainty and higher spreads.
vasilipupkin 8y ago
what do you mean by "the profits it sucks out of the system"? How do you "suck the profits out of the system"? First of all, taxes are paid on those profits, secondly profits are reinvested back into the economy.
vostok 8y ago
I think that a good way to estimate the benefit would be to compare how much less money HFT sucks out of the system than its predecessors.
- nradov 8y ago
  Lots of other things have also changed since then. It's impossible to isolate the independent variables.

mymythisisthis 8y ago

There should be a 1penny tax on trading of stocks. This nonsense has gotten out of hand. Many startups look for money though venture capital, and not the stock market, because the stock market is so predatory. People like Elon Musk have gotten in trouble with the stock market for simple things, like thinking out-loud. I'm pretty sure he hates the stock market, and only by law was he forced to sell stocks. The stock market has transformed many times. Currently large institutional investors like pension plans buy safe stocks. Originally in the 19th century it mostly a way to buy government bonds. In the 1920s buying stocks was opened up to the 'everyman', a person could buy one share rather cheaply. Then came the depression. In the 1950s the stock-market wasn't that important, economy was doing good. Starting in the 1970s traders started inventing exotic financial tools, to make the stock-market less boring. That's how we got into several crashes, most spectacularly 2008.

themagician 8y ago
I found your last paragraph pretty interesting. Had not thought of this. Thank you.
astazangasta 8y ago
>People like Elon Musk have gotten in trouble with the stock market for simple things, like thinking out-loud. I'm pretty sure he hates the stock market, and only by law was he forced to sell stocks. Since this is how his company has been kept afloat for the last decade I'm pretty sure he doesn't hate the stock market, he just hates the agencies that regulate it. You're alone in this thread, but no one here has given any real defense of HFT other than "providing liquidity", which is sheer garbage in a world where we have giant speculative bubbles forming and bursting and taking out huge portions of the economy all the time - it requires a real fanatic devotion to efficient markets to be trying to race against the speed of light. This is bunk; prices are just wrong anyway, and markets don't need to be that good as a result. What we do need is less financialization of the economy. Transaction tax all the way.
mruts 8y ago
Well then you'll be happy to hear that the era of exotic derivatives is mostly over. People nowadays just want to trade standard products (vanilla options, stocks, futures, etc) very quickly. And the reason startups like VC vs public markets is because they can easily get money on the secondary markets. Going public is a lot of work and comes with a lot of rules. The only reason people did it during the dotcom boom was there was a lot less secondary market capital sloshing around. It wasn't because the stock markets were somehow less "predatory" (whatever that means) back then.

tybit 8y ago

Yeah I’d love to know what the effects of limiting trades, to say, one second granularity would be. I see the importance of market making etc in general, but I don’t see it for millisecond latencies.

reverend_gonzo 8y ago
What happens is, first, speed is still an issue because life and news do not happen on 1-second intervals. So readers will wait til as late as possible to make sure they have up to date info and then send their orders as late as possible. Second is the risks to market makers goes up, which means they need to acquire more edge to cover that risk, which in turn widens the bid-ask spread, which makes prices for retail traders worse and will likely reduce liquidity as well.

rb808 8y ago

The HFT systems are replacing the people who did this manually. eg > At its height back in 2000, the U.S. cash equities trading desk at Goldman Sachs’s New York headquarters employed 600 traders, buying and selling stock on the orders of the investment bank’s large clients. Today there are just two equity traders left. https://www.technologyreview.com/s/603431/as-goldman-embraces-automation-even-the-masters-of-the-universe-are-threatened/ https://www.technologyreview.com/s/603431/as-goldman-embrace... It makes the markets more efficient which is good for everyone.

themagician 8y ago
Interesting. I did not know this. Thank you! Do you think there was any benefit from having humans do this work? Was there any subjective analysis used, or were these 600 people just human calculators?
- tptacek 8y ago
  There was objectively not a benefit. In addition to the fact that trades took longer, in material amounts of time, they also cost orders of magnitude more.
  - mruts 8y ago
    I don’t think that is true. bid and asks aren’t a true/total reflection of the msrket. There’s not going to be many people with a bid of $5 for Apple, even though any rational being would buy Apple for $5. Human traders can access this hidden liquidity by picking up a phone or messaging someone on the terminal.
    - tptacek 8y ago
      I'm sorry, I'm having trouble following what you're trying to say here about "bids of $5 for Apple". The bid-ask spread is the difference between the lowest available sell (asking) and the highest available buy (bidding), not the lowest buy and the highest sell.

pgwhalen 8y ago

>If we arbitrarily limited transactions to human speed would there be some kind of systemwide downside? It's worth asking what that artificial limitation would actually be, and how it would result in changing the game for market makers. Continuous limit order book trading (how essentially all exchanges primarily work) is a fairly straightforward concept, and speed is an obvious differentiator for a successful market maker. In general, when complexity is introduced into trading, that creates more ways to exploit the rules for "unfair" gain. Assuming you believe market makers are necessary for a healthy market, you'd have to think of how some other system (like frequent batched auctions) would change the differentiators for successful market makers, and whether those changes are "good" or "fair."

mjevans 8y ago
What if we flip the question: How fast do trades really need to be? Lets start with a hypothetical 'human speed' similar to how things used to be in the pre-electric world. What if there were only one trade made per day? If every day buyers and sellers (with price limits in place) were resolved similar to a dutch auction (or some other 'fair' process). What if that happened every hour? 30 min, 20 min? 10 min? I think maybe every 10 min could be a good cycle. That would give a human duration of time for a buy/sell blackout (about 60 seconds), plenty of time for everything submitted to be tabulated, signed, and then published, and 9 full min to figure out what you want to do in the next order period.
- tptacek 8y ago
  This concept already exists: it's a batch auction dark pool. One big problem with batch auctions as a global solution is that conceptually, trades span multiple markets. You have to figure out how your 500ms futures batch auction is going to interact with the unrelated market for the underlying instrument. Probably the biggest problem is the problem itself, which, in the case of HFT, probably just isn't enough of a problem to reengineer all of market microstructure to fix. The biggest pure HFT firms are worth just a fraction of the biggest investment firms. Major purchasers of liquidity (pension funds, Vanguard) are happy with the execution they're getting. None of this stuff hurts retail traders (on the contrary, it probably helps them on the whole).

rocqua 8y ago

There are at least 2 benefits: * They are always willing to trade, so if someone wants to sell/buy a stock, they can get it from an HFT rather than needing to wait for someone who wants it long-term. (The HFT aims to sell it later to someone who wants it, they don't want to keep it). This is called 'providing liquidity' * They ensure prices remain 'in sync'. If prices don't match in some sense, then people need to worry about where to get a stock, rather than just what stock to get. The same goes for e.g. keeping stocks in sync with options. This way, someone who buys a stock gets an accurate price. This is called 'arbitrage' There is more to these concepts, especially arbitrage. But these are the core benefits of HFT.

patrec 8y ago
Your first point is literally just market making, which requires absolutely no HFT. Your second point (arbitrage to keep prices in line) also doesn't require HFT and I find it awfully difficult to imagine that (actual) people would need to worry about where to get their stock if arbitrage would occur at less than microsecond frequencies, because otherwise there might be significantly out of line prices at timescales people care about (many orders of magnitude slower).
- integrate-this 8y ago
  Market makers need to be able to close arbitrage opportunities or they won't participate in the market. Speed matters just as much to them as it does to the prop traders.
  - patrec 8y ago
    Of course market makers wouldn't want to compete in a market where they are forced to make much slower trades than anyone else. But market making existed long before HFT, so it can't possibly be a unique benefit of it. You can argue that market making has become better because of HFT, but not that it requires HFT.
    - ycombobreaker 8y ago

TuringNYC 8y ago

HFT contributes to making the market. Making the market contributes to liquidity and the ability to get in and out of things quickly without taking major hits. This seems abstract until you think of cases other than stocks where you desperately rely on a market -- 1. Think homes. Consider buying/selling a house and how painful it is to keep something on the market hoping to find a seller (often at a hit if you want to unload quickly.) Or a buyer desiring to purchase something only to have a handful of homes come on the market. 2. Imagine if for every book you read, you could quickly unload the book (or buy new ones) without fire-selling and paying an absurd shipping cost. HFT and market making reduce friction. They are market lubricants. 3. Imagine looking for an apartment to rent and there were a perfect curve of apartments a dollar apart available all the time!

sgeisler 8y ago

From an outsider's point of view (still a CS student): If you are a CS/Physics/Math person who loves to optimize systems then this is a good way to get paid for doing exactly that I guess. Many other problems/industries just require good enough solutions, with HFT it seems that most optimizations are worth it, which makes it so much more interesting.

mruts 8y ago
All the remaining HFT firms (there's not that many left) have moved into FPGAs and ASICs as well. HFT is interesting because it's not really that finance related at all. The kind of people that work at HFT firms (at least the ones I've met) are exactly people like you're talking about: hardcore CS/EE guys. Some of them don't even care about financial markets at all, they just know how to program some blazing fast C++. I personally find HFT kind of a snooze and not especially intellectually gratifying. Most of the work is just wading through bullshit (write in interface to some random exchange , figure out how to remove an instruction here or there). Imo, things aren't looking so good for HFT. The profits are very slim at this point, and staying competitive is becoming exponentially more expensive. The golden years of super-normal profits and fat bonuses are over.

BurningFrog 8y ago

Good question! Note that any answers should be HFT specific. That is, if they apply equally well to trades on a second or minute scale as on a millisecond scale, they probably don't answer the question.

raviolo 8y ago

1. HFT market makers creating liquid markets that won’t otherwise exist. 2. Dramatic lowering of bid-offer spreads and, thus, transaction costs to liquidity takers (eg retail investors). 3. No-arbitrage pricing: safe to assume that virtually any easily-tradable instument is fairly priced, otherwise would’ve been quickly arbitraged. Has not always been this way. 4. Driving innovation by paying for technologies/solutions that nobody except HFTs would buy at the time.

known 8y ago

HFT = https://en.m.wikipedia.org/wiki/Front_running https://en.m.wikipedia.org/wiki/Front_running + https://en.m.wikipedia.org/wiki/Algorithmic_trading https://en.m.wikipedia.org/wiki/Algorithmic_trading

vagab0nd 8y ago

I learned recently (after getting into day trading) that out of the 6k stocks traded, quite a lot of them are actually very thinly traded. That means it's pretty hard to get into a trade with a reasonable price, because the spread is so big. I guess HFT helps with that.