4 ms·

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
      Yes. But liquidity some of the time is better than liquidity none of the time. It ain't a perfect world.
    - shitgoose 7y ago
      People rarely do something that doesn't suite them:) What is the point?
      - gingabriska 7y ago
        This hangs on an assumption that people are rational, they are not.
  - rcarrigan87 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.

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
    Yes. But liquidity some of the time is better than liquidity none of the time. It ain't a perfect world.
  - shitgoose 7y ago
    People rarely do something that doesn't suite them:) What is the point?
    - gingabriska 7y ago
      This hangs on an assumption that people are rational, they are not.
- rcarrigan87 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.