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As an occasional retail trader, it doesn't bother me at all that other market participants are trying to be better informed. In fact, it means that market price

by ISL 7y ago

As an occasional retail trader, it doesn't bother me at all that other market participants are trying to be better informed. In fact, it means that market prices are more likely to be properly-priced. We should not aspire to drag hedge-fund research down to the Main Street level. If there is a place for government in this context, it is to fund the education necessary to help retail investors learn a) how to take beneficial approaches to investing and risk, b) to appreciate the realities of trading against professional investors, and c) to understand how to conceive, test, and implement their own hypotheses in the real world. In general, an informed market is a healthy one.

logifail 7y ago
> As an occasional retail trader, it doesn't bother me at all that other market participants are trying to be better informed. In fact, it means that market prices are more likely to be properly-priced. What about companies that find out about your retail trade before it's even executed, and are able to act on that information to profit from your very intent to trade?
- tryptophan 7y ago
  This is called front running and is super illegal.
  - tanderson92 7y ago
    Not all front-running is illegal, see this article which discusses a few examples, including quote matching and order anticipation: https://blogs.cfainstitute.org/investor/2013/04/24/what-to-do-about-high-frequency-trading/ https://blogs.cfainstitute.org/investor/2013/04/24/what-to-d... Front-running is very common in bond trading.
    - tryptophan 7y ago
      Quote from your article: >HFT greatly reduces average trading costs for investors They are market-making, which is something else entirely than front-running.
      - logifail 7y ago
        > They are market-making... It's often claimed that HFT help make markets more liquid and efficient, "which helps everyone". It's much less than clear whether the presence of HFT helps make an entire market more efficient, or whether just the HFTs are able to benefit.
      - tanderson92 7y ago
        Source? I can quote the author's book on microstructure supporting my position that it is not something else entirely.
  - logifail 7y ago
    > This is called front running and is super illegal. Are you sure it's illegal if it's a hedge fund with access to order flow from a third party? "Front running is one of the easiest ways to make money. It's essentially insider trading, except the inside information isn't about corporate activity; the information is about client order flow. In this case, since the index investors are not their clients, it is legal for hedge funds and any independent traders to front run them. One could argue that the hedge fund managers are doing nothing wrong; it's the investors' fault for acting irresponsibly. The problem with that argument is that many of these investors don't have a clue about what is happening to them." [0] http://www.dark-bid.com/hedge-funds-front-running-investors.html http://www.dark-bid.com/hedge-funds-front-running-investors....
    - tryptophan 7y ago
      That article points out that "front running"(which it isn't) by HF may cost .2% a year. Its probably less than that. Bid/ask spreads are often around that percentage. This is just a trading cost. Nothing nefarious is happening here. The spread may go up if a large fund is buying, but this is only natural due to supply and demand. These HFs are just providing liquidity and "charging" a small fee for doing so. If nobody did this, trading costs would probably be even higher. There is extreme amounts of FUD about HFT and market making for some reason. Now about the Russel indexes - the article has a point there. They are notoriously shitty indexes. Nobody should be putting money into those. But still - nothing illegal(nor should it be). This is yes, clearly a case of "investors' fault for acting irresponsibly". Nobody is forcing them to use these indexes and this information isn't hidden anywhere. Last thing we need is 100 more regulations.
      - logifail 7y ago
        > These HFs are just providing liquidity and "charging" a small fee for doing so HF traders provide liquidity and market-making when it suits them. Doesn't that stop when it doesn't?
        tryptophan 7y ago
  - dustingetz 7y ago
    Literally Robinhood’s business model
    - harryh 7y ago
      This is not correct. Firms don't buy order flow from Robinhood in order to trade in front of those orders, they buy order flow from Robinhood to execute those orders for those customers which is a service that those customers pay for as purchasers of liquidity.
- minimax 7y ago
  You can't really "front run" a retail order. Front running means you (assuming you are an agency broker) get a big market moving order from a customer, do a trade in your own account first (in the same direction as the customer order), then execute the customer order which moves the market in your favor. Retail orders are small and generally aren't capable of moving prices. Your order for 100 shares of whatever isn't going to move the price so you can't really make money ahead of it.
- ISL 7y ago
  Front-running is fine with me. It I place a limit order that says I'll buy a pizza for $10 or less, and someone can buy that pizza for $8 and sell it to me for $10, I'm a happy buyer -- I'll expect to get at least $10 of utility out of that pizza. Without funding the market-makers, there may be no market....
eeZah7Ux 7y ago
> it doesn't bother me at all that other market participants are trying to be better informed You should stop trading now.
- jermaustin1 7y ago
  Why?
  - nvusuvu 7y ago
    He's going to lose money.
- TheCoelacanth 7y ago
  Yes, anyone who isn't a professional trader should stop actively trading.
- adamson 7y ago
  It shouldn't bother you if you have a long investment horizon, like the average retail trader.

by ISL 7y ago

logifail 7y ago

> As an occasional retail trader, it doesn't bother me at all that other market participants are trying to be better informed. In fact, it means that market prices are more likely to be properly-priced. What about companies that find out about your retail trade before it's even executed, and are able to act on that information to profit from your very intent to trade?

tryptophan 7y ago
This is called front running and is super illegal.
- tanderson92 7y ago
  Not all front-running is illegal, see this article which discusses a few examples, including quote matching and order anticipation: https://blogs.cfainstitute.org/investor/2013/04/24/what-to-do-about-high-frequency-trading/ https://blogs.cfainstitute.org/investor/2013/04/24/what-to-d... Front-running is very common in bond trading.
  - tryptophan 7y ago
    Quote from your article: >HFT greatly reduces average trading costs for investors They are market-making, which is something else entirely than front-running.
    - logifail 7y ago
      > They are market-making... It's often claimed that HFT help make markets more liquid and efficient, "which helps everyone". It's much less than clear whether the presence of HFT helps make an entire market more efficient, or whether just the HFTs are able to benefit.
    - tanderson92 7y ago
      Source? I can quote the author's book on microstructure supporting my position that it is not something else entirely.
- logifail 7y ago
  > This is called front running and is super illegal. Are you sure it's illegal if it's a hedge fund with access to order flow from a third party? "Front running is one of the easiest ways to make money. It's essentially insider trading, except the inside information isn't about corporate activity; the information is about client order flow. In this case, since the index investors are not their clients, it is legal for hedge funds and any independent traders to front run them. One could argue that the hedge fund managers are doing nothing wrong; it's the investors' fault for acting irresponsibly. The problem with that argument is that many of these investors don't have a clue about what is happening to them." [0] http://www.dark-bid.com/hedge-funds-front-running-investors.html http://www.dark-bid.com/hedge-funds-front-running-investors....
  - tryptophan 7y ago
    That article points out that "front running"(which it isn't) by HF may cost .2% a year. Its probably less than that. Bid/ask spreads are often around that percentage. This is just a trading cost. Nothing nefarious is happening here. The spread may go up if a large fund is buying, but this is only natural due to supply and demand. These HFs are just providing liquidity and "charging" a small fee for doing so. If nobody did this, trading costs would probably be even higher. There is extreme amounts of FUD about HFT and market making for some reason. Now about the Russel indexes - the article has a point there. They are notoriously shitty indexes. Nobody should be putting money into those. But still - nothing illegal(nor should it be). This is yes, clearly a case of "investors' fault for acting irresponsibly". Nobody is forcing them to use these indexes and this information isn't hidden anywhere. Last thing we need is 100 more regulations.
    - logifail 7y ago
      > These HFs are just providing liquidity and "charging" a small fee for doing so HF traders provide liquidity and market-making when it suits them. Doesn't that stop when it doesn't?
      - tryptophan 7y ago
- dustingetz 7y ago
  Literally Robinhood’s business model
  - harryh 7y ago
    This is not correct. Firms don't buy order flow from Robinhood in order to trade in front of those orders, they buy order flow from Robinhood to execute those orders for those customers which is a service that those customers pay for as purchasers of liquidity.
minimax 7y ago
You can't really "front run" a retail order. Front running means you (assuming you are an agency broker) get a big market moving order from a customer, do a trade in your own account first (in the same direction as the customer order), then execute the customer order which moves the market in your favor. Retail orders are small and generally aren't capable of moving prices. Your order for 100 shares of whatever isn't going to move the price so you can't really make money ahead of it.
ISL 7y ago
Front-running is fine with me. It I place a limit order that says I'll buy a pizza for $10 or less, and someone can buy that pizza for $8 and sell it to me for $10, I'm a happy buyer -- I'll expect to get at least $10 of utility out of that pizza. Without funding the market-makers, there may be no market....

eeZah7Ux 7y ago

> it doesn't bother me at all that other market participants are trying to be better informed You should stop trading now.

jermaustin1 7y ago
Why?
- nvusuvu 7y ago
  He's going to lose money.
TheCoelacanth 7y ago
Yes, anyone who isn't a professional trader should stop actively trading.
adamson 7y ago
It shouldn't bother you if you have a long investment horizon, like the average retail trader.