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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

by 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.
      - mruts 8y ago
        I'm not talking about the bid-ask spread. A bid is just someone willing to buy something for a specific price. An ask is someone willing to sell something at a specific price. The bid-ask spread is the difference between the lowest ask and the highest bid. The point I am making is that the order books of markets don't accurately reflect the real underlying demand for the securities. Let's take a hedge fund, who would buy apple at $5. It's incredibly unlikely that they will actually place a bid on the order book at $5 for apple. Instead, they will monitor the price of apple and buy it if they see a good price. The value that human traders can provide is that they can tap into this hidden sources of liquidity that isn't reflected on the order book of the exchange. They can call up some manager and say "hey I can sell you something at a good price, you interested?" Without human traders, there is no way to tap into this liquidity. This occasionally causes problems in thinly traded markets or during after-hours trading.
- reverend_gonzo 8y ago
  Zero benefit. They were not like human calculators, but more like middlemen, mainly because access to the markets was difficult. Now as everything has become more efficient, humans are replaced by algos, which are way cheaper. In turn, they also require less for upkeep, and so charge less in edge, which means you have better bid/ask prices, lower trading fees, etc.
- rb808 8y ago
  Superficially they didn't add much. On a deeper level nobody really knows. The future could be all Index funds and bots trading historical patterns and could result in poor investment choices which screw up the real economy. The dotcom boom was a great example that this happens already, nobody is sure if this new world is better or worse.

by rb808 8y ago

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.
    - mruts 8y ago
      I'm not talking about the bid-ask spread. A bid is just someone willing to buy something for a specific price. An ask is someone willing to sell something at a specific price. The bid-ask spread is the difference between the lowest ask and the highest bid. The point I am making is that the order books of markets don't accurately reflect the real underlying demand for the securities. Let's take a hedge fund, who would buy apple at $5. It's incredibly unlikely that they will actually place a bid on the order book at $5 for apple. Instead, they will monitor the price of apple and buy it if they see a good price. The value that human traders can provide is that they can tap into this hidden sources of liquidity that isn't reflected on the order book of the exchange. They can call up some manager and say "hey I can sell you something at a good price, you interested?" Without human traders, there is no way to tap into this liquidity. This occasionally causes problems in thinly traded markets or during after-hours trading.
reverend_gonzo 8y ago
Zero benefit. They were not like human calculators, but more like middlemen, mainly because access to the markets was difficult. Now as everything has become more efficient, humans are replaced by algos, which are way cheaper. In turn, they also require less for upkeep, and so charge less in edge, which means you have better bid/ask prices, lower trading fees, etc.
rb808 8y ago
Superficially they didn't add much. On a deeper level nobody really knows. The future could be all Index funds and bots trading historical patterns and could result in poor investment choices which screw up the real economy. The dotcom boom was a great example that this happens already, nobody is sure if this new world is better or worse.