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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 fr

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
    Maybe I'm biased, but I say that anyone who uses stops has voluntarily left the "average investor" realm and entered the "amateur day trader" arena
- pcr0 8y ago
  HFT firms perform a different kind of front running. If I'm an HFT firm and I see a large buy order on the books at exchange A, I can use my low-latency links to exchanges B, C to execute my own buy orders there before the rest of the market reacts. It's not illegal, but it is still front-running the rest of the market due to latency arbitrage. Check out Flash Boys by Michael Lewis for more on the topic.
  - growse 8y ago
    This isn't a definition of front running that anyone in the industry uses. As you say, this is just arbitrage on public information. Latency arbitrage has been occurring for the last 200 years at least, it's an inevitable outcome of any system with multiple, geographicly separated markets. P.S. I read Flash Boys. It's not very good.
  - QuackingJimbo 8y ago
    This hypothetical HFT firm is part of "the rest of the market reacting" They just happen to be the first among all participants to react. Why is that bad? Somebody has to be first
  - jm__87 8y ago
    Perhaps I have misunderstood what front running is, but I have always thought it is really only applicable when you have an obligation to your clients to give them good execution. You can't front run a market, just your clients. An HFT has no clients on behalf of which they are executing trades, they are just trading for their own account.

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
  Maybe I'm biased, but I say that anyone who uses stops has voluntarily left the "average investor" realm and entered the "amateur day trader" arena
pcr0 8y ago
HFT firms perform a different kind of front running. If I'm an HFT firm and I see a large buy order on the books at exchange A, I can use my low-latency links to exchanges B, C to execute my own buy orders there before the rest of the market reacts. It's not illegal, but it is still front-running the rest of the market due to latency arbitrage. Check out Flash Boys by Michael Lewis for more on the topic.
- growse 8y ago
  This isn't a definition of front running that anyone in the industry uses. As you say, this is just arbitrage on public information. Latency arbitrage has been occurring for the last 200 years at least, it's an inevitable outcome of any system with multiple, geographicly separated markets. P.S. I read Flash Boys. It's not very good.
- QuackingJimbo 8y ago
  This hypothetical HFT firm is part of "the rest of the market reacting" They just happen to be the first among all participants to react. Why is that bad? Somebody has to be first
- jm__87 8y ago
  Perhaps I have misunderstood what front running is, but I have always thought it is really only applicable when you have an obligation to your clients to give them good execution. You can't front run a market, just your clients. An HFT has no clients on behalf of which they are executing trades, they are just trading for their own account.