4 ms·

HFT isn't relevant in this context, you need a better example of an active fund that you think reliably makes money by holding, or at least making big trades ov

HFT isn't relevant in this context, you need a better example of an active fund that you think reliably makes money by holding, or at least making big trades over longer time periods. HFTs don't normally move the market, they're effectively just frontrunning, you're thinking of something like CTAs/long-short quants

throwawaymath 7y ago
High frequency trading is not frontrunning. Neither the standard legal definition of frontrunning nor its conceptual underpinnings are applicable to high frequency trading. It's also common for market makers to move the market.
benj111 7y ago
"HFTs don't normally move the market" HFTs make their money on the difference between the bid and ask prices. They can only exist because you're willing to sell at 10c, and I'm willing to buy at 11c. Hypothetically we could have traded directly lets say at 10.5c. So the HFTer has literally moved the market. Buying at a higher price would tend to a higher price anchor. If I paid 11c, I wouldn't want to sell at a loss, so your 10.9c offer would be rejected, where it might have been accepted if I'd paid 10.5c. But then ultra rational me would never buy above 12c and ultra rational you would never sell below 9c, based on current info, so irrespective of middlemen, the price would be bounded by those 2 figures. And there isn't net buying or selling pressure so you could treat the spread as a fee in return for providing liquidity. But yeah in practice, I think you're basically correct.
- aaronblohowiak 7y ago
  Your description of HFT sounded a lot like a market maker to me — how would you describe the difference?
  - ycombobreaker 7y ago
    much HFT is market-making, they are labels on different axes. HFT is about system latencies and holding times. Market making is about an approach to trading.

4 ms·

HFT isn't relevant in this context, you need a better example of an active fund that you think reliably makes money by holding, or at least making big trades ov

by zimablue 7y ago

throwawaymath 7y ago
High frequency trading is not frontrunning. Neither the standard legal definition of frontrunning nor its conceptual underpinnings are applicable to high frequency trading. It's also common for market makers to move the market.
benj111 7y ago
"HFTs don't normally move the market" HFTs make their money on the difference between the bid and ask prices. They can only exist because you're willing to sell at 10c, and I'm willing to buy at 11c. Hypothetically we could have traded directly lets say at 10.5c. So the HFTer has literally moved the market. Buying at a higher price would tend to a higher price anchor. If I paid 11c, I wouldn't want to sell at a loss, so your 10.9c offer would be rejected, where it might have been accepted if I'd paid 10.5c. But then ultra rational me would never buy above 12c and ultra rational you would never sell below 9c, based on current info, so irrespective of middlemen, the price would be bounded by those 2 figures. And there isn't net buying or selling pressure so you could treat the spread as a fee in return for providing liquidity. But yeah in practice, I think you're basically correct.
- aaronblohowiak 7y ago
  Your description of HFT sounded a lot like a market maker to me — how would you describe the difference?
  - ycombobreaker 7y ago
    much HFT is market-making, they are labels on different axes. HFT is about system latencies and holding times. Market making is about an approach to trading.