4 ms·

I 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 argu

by lolc 8y ago

I 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 ago
One 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.
- lolc 8y ago
  Ok thanks for the explanation. I still don't see what benefit I could get from buying shares right now as opposed to a few seconds later. Why should I pay for that?
  - kasey_junk 8y ago
    If you don't cross the book (ie offer more than the lowest bid or vice versa) the you _become_ a market maker (though not much of one). You don't pay anyone to do this. But because of the HFT/Market Makers you get the benefit of dramatically lower trading fees. So you don't pay for it in that case, but you still get a benefit.

by lolc 8y ago

kasey_junk 8y ago

One 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.

lolc 8y ago
Ok thanks for the explanation. I still don't see what benefit I could get from buying shares right now as opposed to a few seconds later. Why should I pay for that?
- kasey_junk 8y ago
  If you don't cross the book (ie offer more than the lowest bid or vice versa) the you _become_ a market maker (though not much of one). You don't pay anyone to do this. But because of the HFT/Market Makers you get the benefit of dramatically lower trading fees. So you don't pay for it in that case, but you still get a benefit.