5 ms·
I'm largely ignorant of HFT but I often wonder what the benefit of it is. It sounds like a huge zero-sum game to me. In my (probably simplistic) view, exchange
by lolc 8y ago
I'm largely ignorant of HFT but I often wonder what the benefit of it is. It sounds like a huge zero-sum game to me.
In my (probably simplistic) view, exchanges could publish and process orders at long intervals (seconds, minutes, hours?) then add a jitter of several intervals to incoming orders, with cumulating jitter for cancels. That would require traders to look beyond one interval when trading.
- shitgoose 8y agowould you rather trade on exchange that adds jitter to your order, or one that doesn't?
- lolc 8y agoDepends on my goals. If I'm buying or selling for investment, I just don't care about that jitter. Because my decision to buy or sell doesn't happen at that speed. If I'm racing other people's orders on the sub-second level then I care. But what's the point of that? Why should people spend their lifes on it? Why should we as a society bear the cost of this activity? I'd rather see people do something with external benefits.
- shitgoose 8y agoWhat is the point of adding X ms delay to your order? What does it fix? The "problem" with HFT is that participants can quickly pull out the limit orders, so your market order will be executed at the price that is worse than you expect. Jitter doesn't fix it. If anything, it will make it worse, i.e. your order will hit the market that is quite different from what you saw when you sent the order.
- lolc 8y agoNot delay, jitter. It removes the possibility of timing orders to sub-second intervals. It's supposed to prevent people from spending resources on a zero-sum game.
- kasey_junk 8y agoTraders already look beyond one interval. An order I put in yesterday that took 5 minutes to execute still beats an order I put in today in 10 nanoseconds. Being fast is important for cancels & risk management. Which answers the question on what it provides. It lowers the risk for the traders allowing them to price tighter.
- lolc 8y agoBut lowering the risk can only happen at the expense of other traders. So overall there is no lowering of risk. HFT is just increasing the cost of market participation for other traders. Because they pay the profits of the HFT traders.
- kasey_junk 8y agoNo. We can objectively show that is untrue. The risk for HFT (especially market makers who are most sensitive to latency) is priced via the bid/ask spread. That is smaller than it’s ever been and would be smaller still on many symbols if minimum price of ticks was lowered.
- lolc 8y agoI don't understand why I should care about the risk to HFT traders because I don't see why they should exist in the first place. So I don't understand your argument. For HFT traders to make a profit, somebody else must lose. In my understanding, the ones to lose are the other traders. If I want to buy shares, part of the price of buying them will go to HFT traders. And my revenue of selling them will be lower due to HFT traders on the exchange.
- kasey_junk 8y agoOne of the biggest classes of "HFT" is automated market making. These participants have long existed in trading environments and are there to bridge the gap in time (you want to buy now, but no one wants to sell) and space (you buy on exchange a, but the participant that wants to sell is on exchange b). Market makers take on the risk bridging those 2 areas. They hold positions for short periods, with the hope of making money when a new participant enters the market. They lose money when they are holding positions that the market goes against. To account for that, they price their risk into what they are offering you. The less risk they take on, the better price they can offer you. If you want to buy shares _right now_ you are going to pay someone for the privilege. Modern HFT are offering that service cheaper than any other implementation before.