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I work in HFT as a quant dev I am proud of my work and find HFT to be an interesting intersection of computer science, math, game theory, economics, and psycho

I work in HFT as a quant dev I am proud of my work and find HFT to be an interesting intersection of computer science, math, game theory, economics, and psychology As far as the societal benefit of HFT, I think that it is neutral. It doesn't hurt anybody. It might even help a little bit (liquidity and tight spreads save people a little money and maybe spur some economic growth). However, this particular aspect (the physical latency war) makes me literally sick to my stomach. I hate reading about it and I hate thinking about it. It's like -- what are we even doing here guys?

elgenie 8y ago
It's only neutral (at best) if you don't consider opportunity cost. Is the best way for the country/society/humanity to deploy a bunch of smart people with a decade and a half of education truly an attempt to try to cheat the speed of light? If trades took 2x as long to execute as they currently do, what exactly would be the harm?
- scotty79 8y ago
  Also advertising....
- integrate-this 8y ago
  Well, you would have lost out on a lot of innovation for one. I would be willing to bet that nearly half of the world's high performance computing specialists cut their teeth with a trading firm at one point or another. By your logic, there would have been no benefit to video games or going to the moon even though each of these things have helped deliver large amounts of technological advancement. IE, Facebook is a giant waste of resources but they employ many of the world's smartest engineers. Because of that they've spawned things like ReactJS which has completely changed web development for thousands of other companies.
- QuackingJimbo 8y ago
  The "brain drain" argument is fair, but you can successfully apply the brain drain argument to anything short of curing diseases or feeding the hungry I consider HFT to be no worse of a brain drain than, say, Instagram, or any similar virus
- ycombobreaker 8y ago
  People are not "deployed" into HFT, they exercise their free will. Their livelihood is not your opportunity cost.
- t1lthesky 8y ago
  Even supposing that HFT adds no value to society (which is an incorrect assumption as many commenters have already pointed out), this particular argument is pretty inane in my opinion. There are perhaps 4-8 significant players in the HFT space, all employing anywhere between a few hundred to a thousand people. Probably less than 5000 people total, and if you only include programmers and quants, maybe less than 2000. Google alone has 30000 programmers. How many of them are optimizing ads for eyeballs vs “benefiting the country/society/humanity”? What about the thousands of programmers making video games mechanics more addictive for children? I think it’s silly to focus on one tiny industry, and demand that those people should be working on things for the good of humanity, when the fact is the vast majority of humans just work for their own livelihood. I mean, what do you think 95% of the people in SV are doing? Not every company is trying to cure cancer or explore space... HFT is such a small, niche, industry, and also extremely productive per employee relative to most other industries. (the primary reason for comp being so higher). It replaced the thousands of manual traders that used to be responsible for arbitrage and market making with automated robots, dramatically increasing market efficiencies while reducing the amount of human capital required to provide those services. I find all the virterol towards hft from SV very puzzling, as it seems to exemplify all the things that SV espouses!
- vostok 8y ago
  > It's only neutral (at best) if you don't consider opportunity cost. I might be missing something, but isn't opportunity cost a good argument for HFT? HFT employs far fewer people than pre-HFT trading that came before it.
andreilys 8y ago
How can you possibly say HFT is neutral when it's been responsible for multiple flash crashes that hurt the average investor? Not to mention the practice of front-running and other shady practices that HFT's use to make profit.
- growse 8y ago
  > How can you possibly say HFT is neutral when it's been responsible for multiple flash crashes that hurt the average investor? The average investor holds onto stocks for months to years. A flash crash may last minutes, before the price is back where it was. How does a flash crash hurt the average investor? > Not to mention the practice of front-running and other shady practices that HFT's use to make profit. Front running is where a broker or other agent trades on private information given to them by their client: the broker receives a big buy order from their client and then buys the market up on their own account before executing the client order and making a massive profit. This is illegal. HFTs can't front run - they only have the same public information at the same time as everyone else. The fact they can execute on that faster than others hardly seems 'shady'.
  - scotty79 8y ago
    > How does a flash crash hurt the average investor? Maybe it can trigger "stop loss" orders?
    - growse 8y ago
      > > How does a flash crash hurt the average investor? > Maybe it can trigger "stop loss" orders? The average investor is a person who has a pension invested across a range of funds held with large fund management companies. Anyone mis-using stoplosses is not an 'average' investor.
    - kasey_junk 8y ago
      Running stops was a common pit trader game.
    - QuackingJimbo 8y ago
LfLxfxxLxfxx 8y ago
> It doesn't hurt anybody Not anybody in particular but it does hurt society as a whole. It's one of those things that make the rich richer for no reason other than them already being rich.
- QuackingJimbo 8y ago
  This is fair to say, but HFT is a very small industry. The number of people getting "rich" off of HFT is less than 100. The rest of us are just comfortably compensated tech workers, same as a Google or FB engineer
foobarbazetc 8y ago
Liquidity dries up very very quickly when the shit hits the fan though. And HFT is the first to stop buying.
- reverend_gonzo 8y ago
  And they’re the first to start buying as well. You want to see what happens without HFT. Look at the crash in 89, when human market makers would no longer answer their phones because they did not know what was going on in the market. Instead of the crash recovering in minutes, it took hours and had larger widespread effects. Furthermore, exchanges have now added automatic pauses in trading during highly volatile times, to let traders figure out what is going on. The markets are objectively more stable, more efficient, and tighter, and better for the general public now with HFTs than they were in the 80s and 90s with human market makers/brokers.
- ycombobreaker 8y ago
  When shit is hitting the fan, participants become willing to cross _very_ large spreads to trade. It can be a lucrative time for HFT market makers, as well.
- QuackingJimbo 8y ago
  Liquidity drying up when shit hits the fan is a fundamental aspect of markets that has been around forever I won't go as far as to say that it's a feature not a bug. But I will say that the problem is currently the least problematic that it has ever been. Because of HFT, stability returns within minutes, rather than hours/days/weeks (which is how long it used to take before various technological innovations)

elgenie 8y ago

It's only neutral (at best) if you don't consider opportunity cost. Is the best way for the country/society/humanity to deploy a bunch of smart people with a decade and a half of education truly an attempt to try to cheat the speed of light? If trades took 2x as long to execute as they currently do, what exactly would be the harm?

scotty79 8y ago
Also advertising....
integrate-this 8y ago
Well, you would have lost out on a lot of innovation for one. I would be willing to bet that nearly half of the world's high performance computing specialists cut their teeth with a trading firm at one point or another. By your logic, there would have been no benefit to video games or going to the moon even though each of these things have helped deliver large amounts of technological advancement. IE, Facebook is a giant waste of resources but they employ many of the world's smartest engineers. Because of that they've spawned things like ReactJS which has completely changed web development for thousands of other companies.
QuackingJimbo 8y ago
The "brain drain" argument is fair, but you can successfully apply the brain drain argument to anything short of curing diseases or feeding the hungry I consider HFT to be no worse of a brain drain than, say, Instagram, or any similar virus
ycombobreaker 8y ago
People are not "deployed" into HFT, they exercise their free will. Their livelihood is not your opportunity cost.
t1lthesky 8y ago
Even supposing that HFT adds no value to society (which is an incorrect assumption as many commenters have already pointed out), this particular argument is pretty inane in my opinion. There are perhaps 4-8 significant players in the HFT space, all employing anywhere between a few hundred to a thousand people. Probably less than 5000 people total, and if you only include programmers and quants, maybe less than 2000. Google alone has 30000 programmers. How many of them are optimizing ads for eyeballs vs “benefiting the country/society/humanity”? What about the thousands of programmers making video games mechanics more addictive for children? I think it’s silly to focus on one tiny industry, and demand that those people should be working on things for the good of humanity, when the fact is the vast majority of humans just work for their own livelihood. I mean, what do you think 95% of the people in SV are doing? Not every company is trying to cure cancer or explore space... HFT is such a small, niche, industry, and also extremely productive per employee relative to most other industries. (the primary reason for comp being so higher). It replaced the thousands of manual traders that used to be responsible for arbitrage and market making with automated robots, dramatically increasing market efficiencies while reducing the amount of human capital required to provide those services. I find all the virterol towards hft from SV very puzzling, as it seems to exemplify all the things that SV espouses!
vostok 8y ago
> It's only neutral (at best) if you don't consider opportunity cost. I might be missing something, but isn't opportunity cost a good argument for HFT? HFT employs far fewer people than pre-HFT trading that came before it.

andreilys 8y ago

How can you possibly say HFT is neutral when it's been responsible for multiple flash crashes that hurt the average investor? Not to mention the practice of front-running and other shady practices that HFT's use to make profit.

growse 8y ago
> How can you possibly say HFT is neutral when it's been responsible for multiple flash crashes that hurt the average investor? The average investor holds onto stocks for months to years. A flash crash may last minutes, before the price is back where it was. How does a flash crash hurt the average investor? > Not to mention the practice of front-running and other shady practices that HFT's use to make profit. Front running is where a broker or other agent trades on private information given to them by their client: the broker receives a big buy order from their client and then buys the market up on their own account before executing the client order and making a massive profit. This is illegal. HFTs can't front run - they only have the same public information at the same time as everyone else. The fact they can execute on that faster than others hardly seems 'shady'.
- scotty79 8y ago
  > How does a flash crash hurt the average investor? Maybe it can trigger "stop loss" orders?
  - growse 8y ago
    > > How does a flash crash hurt the average investor? > Maybe it can trigger "stop loss" orders? The average investor is a person who has a pension invested across a range of funds held with large fund management companies. Anyone mis-using stoplosses is not an 'average' investor.
  - kasey_junk 8y ago
    Running stops was a common pit trader game.
  - QuackingJimbo 8y ago

LfLxfxxLxfxx 8y ago

> It doesn't hurt anybody Not anybody in particular but it does hurt society as a whole. It's one of those things that make the rich richer for no reason other than them already being rich.

QuackingJimbo 8y ago
This is fair to say, but HFT is a very small industry. The number of people getting "rich" off of HFT is less than 100. The rest of us are just comfortably compensated tech workers, same as a Google or FB engineer

foobarbazetc 8y ago

Liquidity dries up very very quickly when the shit hits the fan though. And HFT is the first to stop buying.

reverend_gonzo 8y ago
And they’re the first to start buying as well. You want to see what happens without HFT. Look at the crash in 89, when human market makers would no longer answer their phones because they did not know what was going on in the market. Instead of the crash recovering in minutes, it took hours and had larger widespread effects. Furthermore, exchanges have now added automatic pauses in trading during highly volatile times, to let traders figure out what is going on. The markets are objectively more stable, more efficient, and tighter, and better for the general public now with HFTs than they were in the 80s and 90s with human market makers/brokers.
ycombobreaker 8y ago
When shit is hitting the fan, participants become willing to cross _very_ large spreads to trade. It can be a lucrative time for HFT market makers, as well.
QuackingJimbo 8y ago
Liquidity drying up when shit hits the fan is a fundamental aspect of markets that has been around forever I won't go as far as to say that it's a feature not a bug. But I will say that the problem is currently the least problematic that it has ever been. Because of HFT, stability returns within minutes, rather than hours/days/weeks (which is how long it used to take before various technological innovations)