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People love to rail on HFT, but at this point, its really not that profitable. It's just a reality of trading in the markets. There was a blip of time between 2

People love to rail on HFT, but at this point, its really not that profitable. It's just a reality of trading in the markets. There was a blip of time between 2008 and 2014 when HFT was extremely profitable. Those inefficiencies have been gone from the market for years. People were whooped into anger about how much money was being made, at this point its a complete non issue and needs to be removed from the highlight reels aimed at generating anger in the public. Lets move on from discussing the boogey man that is HFT, its really nothing.

H8crilA 7y ago
As always, some profit is to be made from some trading practice - the market removes it within a few years of "mass discovery". All working as intended.
nickles 7y ago
Adding to this, HFT is a product of rule 612 of Reg NMS (the sub-penny rule). Markets are not allowed to show quotes in increments of less than $0.01 for most names. Since traders cannot compete on price, they have been forced to compete exclusively on speed. The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increased to $0.05. The hope was to increase liquidity while decreasing volatility in these names. In fact, those names experienced decreased liquidity with no decrease in volatility. HFT is a result of regulation. [0] https://www.sec.gov/divisions/marketreg/subpenny612faq.htm https://www.sec.gov/divisions/marketreg/subpenny612faq.htm [1] https://www.benzinga.com/general/education/18/04/11517027/the-secs-tick-size-program-likely-to-end-heres-why-thats-a-good-thi https://www.benzinga.com/general/education/18/04/11517027/th...
- twic 7y ago
  On the other hand, the Intercontinental Exchange reduced the tick size for sterling interest rate futures towards the end of 2018, and the result was ... decreased liquidity! And resulting increased volatility. I'm not sure anyone knows for sure why this happened, but the best theory i've heard is that the reduction in tick size reduced the expected profits of market makers, because they are collecting less spread on every contract they turn around, while not affecting their potential losses, because external factors which cause the market to jump three basis points will still cause it to jump three basis points. Halved regular profits divided by constant occasional losses equals no longer worth bothering with.
  - doctorpangloss 7y ago
    Or there was adverse selection: only kooky traders go into kooky trading rules.
  - harry8 7y ago
    you have some firms that know how to quote a product and can make enough money doing it to be worthwhile. They've done a lot of research and implemented systems to do that. Change the rules on them for arbitrary reasons, the firms that were there leave. At least long enough to build new systems and trading strategies. Who replaces them, anyone? Why? Increase the tick size, liquidity drops. Decrease the tick size, liquidity drops. The moral there is know why you are changing the rules in the market, how you are doing it and the implementation details and side effects that will result in getting the result you want or just don't do it. This could be better is garbage, know it is. Change is not good for its own sake if you want people to quote.
- denormalfloat 7y ago
  Without having read the regulation, why don't institutional investor just make a private market place where they can trade for sub-penny values?
  - HolyLampshade 7y ago
    Usually it boils down to consolidation of liquidity. For the same reason there are well over 20 ATS venues but only a few are successful, ultimately new venues have difficulty naturally drawing resting order flow. Market fragmentation aside, adding more price levels to set orders to disaggregates liquidity in the book, usually resulting in lower execution quantity (which increases your overall transaction costs if you’re trying to space trades out).
- eecc 7y ago
  What’s the minimum lag for a packet to reach around the world? Multiply x2 and add an extra 10%. Make that the minimum order placement tick duration. There would be 1 single global price and no arbitrage between markets possible.
  - TomMarius 7y ago
    Now we just need the teleport
  - phildawes 7y ago
    What about order cancels - would you similarly limit those?
    - Retric 7y ago
      Yes, the ability to cancel an order now vs 1 second from now is not that meaningful. Or as the general public is concerned ‘If you’re directly placing orders on the stock market you can ware your big boy paints.’
  - hoseja 7y ago
    How is the packet traveling? Through undersea fiber? Through Starlink? Through the Earth by neutrinos?
  - ctack 7y ago
    I imagine that no one with any clout is petitioning for a more equal platform.
  - H8crilA 7y ago
    Orders are filled in the order that they arrive to the exchange (if there's more than one order at the same price). A global mis-pricing would still be subject to a race to exploit it - whoever submits first gets the fill, even if it happens in the future (in the next tick). What you're proposing is turning continuous trading into a fast series of auctions, like what happens for every ticker on every exchange at the opening. This would have the disadvantage of no clear bid/ask - how can you be sure that the parties do not withdraw their offers before the next tick? And surely you must allow for offer withdrawals.
maximente 7y ago
not to mention risky. remember Knight Capital, the kings of HFT? on August 1 no less, their new software deployment essentially annihilated half a billion dollars, all due to - you guessed it - a refactored command line flag! can't make this stuff up.
ggm 7y ago
Yea, I was one of them. I mixed up trading ahead from side-channel knowledge which breaks insider-trading rules, with having a fast engine which can just move bits faster than the other guy. I don't "like" HFT the same way I don't "like" the market at all, but HFT is not actually stealing grannies money.
- barry-cotter 7y ago
  Side channel knowledge doesn’t break insider trading rules. You need to have a fiduciary duty to someone to betray to be doing insider trading. There needs to be someone who has the right to that knowledge, who you’re supposed to act on behalf of, who doesn’t want you trading on it. There are many types of “side channel” non public information that aren’t insider trading.
  - tomp 7y ago
    Depends. This is the case in the US, but in the EU, “insider trading” is more absolute, just “trading on non-public information” (regardless of how it was obtained) and can happen even without fiduciary duty.
ramblerman 7y ago
As an outsider with admittedly limited knowledge. What would happen if you limited movement on a stock to be on the second? Would that not prevent this never ending race for faster and closer access. Something that doesn’t really seem to be adding value to society or the market.
- alkibiades 7y ago
  who gets the priority in order fulfillment placed in that second? otherwise you have the same issue. the brokerage might also be tempted to make money by front running those trades since that have all the trades in front of them for a second before needing to be fulfilled
  - ramblerman 7y ago
    Let’s say Priority is made random. In other words It doesn’t pay to play at the second level. As for bad actors you are 100% right but assume they can be trusted or regulated to behave for now. I’m just interested if removing HFT at less than minute scope as it would have been before PCs would actually impact the world negatively.
    - alkibiades 7y ago
      would it impact it positively? why?
- arnoooooo 7y ago
  What if you limited it to be on the day ? The week ? What if stock markets where about the long term ?
habnds 7y ago
people aren't mad only because tons of money is made on hft. It's also because money is _wasterd_ on hft. That's $100 million dollars spent on something that has 0 use to society. It's just rich people playing weird games. Think about the social benefits of $100 million invested in nyc transit infrastructure. The economy's incentive structure is broken and this is a prime example.
- codyb 7y ago
  Who’s mad about HFT? 100m out of a what 40tn dollar world GDP? I get it, just seems... unlikely. Who cares?
  - habnds 7y ago
    Maybe mad is a strong word, but, it isn't just $100m, That's one investment by one company. It's billions of dollars across the world to gain arbitrary milliseconds. Restructuring financial markets, to use periodic auctions for example or by adding speed bumps rather than continuous trading would probably do away with an entire wasteful industry and benefit the actually relevant parties in the financial system, people who have money, and people who need money, at the cost of the unnecessary middlemen.
- TomMarius 7y ago
  HFT has more benefit than huge villas and cars and private jets. It can bring benefit to software and hardware. I'm okay.
  - habnds 7y ago
    What sort of benefits has it brought to software and hardware? edit: honest question :)
    - TomMarius 7y ago
      I don't know, I didn't use past tense. I imagine that investment into technology is going to bring more benefit than pointless consumption. Also - what about effective markets, that's not a benefit?
collyw 7y ago
>People love to rail on HFT probably because it's difficult to see any actual value that this provides to society.
- deleted 7y ago
  [deleted]
- reallydontask 7y ago
  > probably because it's difficult to see any actual value that this provides to society. Doesn't this apply to a majority of activities in the financial sector?
  - fooker 7y ago
    No, a large fraction of modern tech and companies would not exist without the 'activities in the financial sector'. Essentially any endeavor requiring capital beyond your means would have to be bootstrapped or required borrowing money at exorbitant rates. There is a reason the financial sector exists. It makes money by selling convenience and taking over quantified risk.
    - reallydontask 7y ago
      My point is not that the financial sector is unnecessary, it's that the majority of the activities are not of benefit to society, which admittedly is something hard to define. Following on from that line of thought, it could be argued that a lot of companies don't provide any benefit to society, so the financial sector is just enabling these firms and thus of no benefit to society.
      - kortilla 7y ago
        The sector exists because people willingly give it money in exchange for services. If you can’t imagine why that’s happening, maybe read up on why people pay for financial services rather than assuming something as stupid as most of financial services not providing benefit to society.
amelius 7y ago
> People love to rail on HFT, but at this point, its really not that profitable. But it is a huge barrier to entry now; it also is a waste of resources.

H8crilA 7y ago

As always, some profit is to be made from some trading practice - the market removes it within a few years of "mass discovery". All working as intended.

nickles 7y ago

Adding to this, HFT is a product of rule 612 of Reg NMS (the sub-penny rule). Markets are not allowed to show quotes in increments of less than $0.01 for most names. Since traders cannot compete on price, they have been forced to compete exclusively on speed. The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increased to $0.05. The hope was to increase liquidity while decreasing volatility in these names. In fact, those names experienced decreased liquidity with no decrease in volatility. HFT is a result of regulation. [0] https://www.sec.gov/divisions/marketreg/subpenny612faq.htm https://www.sec.gov/divisions/marketreg/subpenny612faq.htm [1] https://www.benzinga.com/general/education/18/04/11517027/the-secs-tick-size-program-likely-to-end-heres-why-thats-a-good-thi https://www.benzinga.com/general/education/18/04/11517027/th...

twic 7y ago
On the other hand, the Intercontinental Exchange reduced the tick size for sterling interest rate futures towards the end of 2018, and the result was ... decreased liquidity! And resulting increased volatility. I'm not sure anyone knows for sure why this happened, but the best theory i've heard is that the reduction in tick size reduced the expected profits of market makers, because they are collecting less spread on every contract they turn around, while not affecting their potential losses, because external factors which cause the market to jump three basis points will still cause it to jump three basis points. Halved regular profits divided by constant occasional losses equals no longer worth bothering with.
- doctorpangloss 7y ago
  Or there was adverse selection: only kooky traders go into kooky trading rules.
- harry8 7y ago
  you have some firms that know how to quote a product and can make enough money doing it to be worthwhile. They've done a lot of research and implemented systems to do that. Change the rules on them for arbitrary reasons, the firms that were there leave. At least long enough to build new systems and trading strategies. Who replaces them, anyone? Why? Increase the tick size, liquidity drops. Decrease the tick size, liquidity drops. The moral there is know why you are changing the rules in the market, how you are doing it and the implementation details and side effects that will result in getting the result you want or just don't do it. This could be better is garbage, know it is. Change is not good for its own sake if you want people to quote.
denormalfloat 7y ago
Without having read the regulation, why don't institutional investor just make a private market place where they can trade for sub-penny values?
- HolyLampshade 7y ago
  Usually it boils down to consolidation of liquidity. For the same reason there are well over 20 ATS venues but only a few are successful, ultimately new venues have difficulty naturally drawing resting order flow. Market fragmentation aside, adding more price levels to set orders to disaggregates liquidity in the book, usually resulting in lower execution quantity (which increases your overall transaction costs if you’re trying to space trades out).
eecc 7y ago
What’s the minimum lag for a packet to reach around the world? Multiply x2 and add an extra 10%. Make that the minimum order placement tick duration. There would be 1 single global price and no arbitrage between markets possible.
- TomMarius 7y ago
  Now we just need the teleport
- phildawes 7y ago
  What about order cancels - would you similarly limit those?
  - Retric 7y ago
    Yes, the ability to cancel an order now vs 1 second from now is not that meaningful. Or as the general public is concerned ‘If you’re directly placing orders on the stock market you can ware your big boy paints.’
- hoseja 7y ago
  How is the packet traveling? Through undersea fiber? Through Starlink? Through the Earth by neutrinos?
- ctack 7y ago
  I imagine that no one with any clout is petitioning for a more equal platform.
- H8crilA 7y ago
  Orders are filled in the order that they arrive to the exchange (if there's more than one order at the same price). A global mis-pricing would still be subject to a race to exploit it - whoever submits first gets the fill, even if it happens in the future (in the next tick). What you're proposing is turning continuous trading into a fast series of auctions, like what happens for every ticker on every exchange at the opening. This would have the disadvantage of no clear bid/ask - how can you be sure that the parties do not withdraw their offers before the next tick? And surely you must allow for offer withdrawals.

maximente 7y ago

not to mention risky. remember Knight Capital, the kings of HFT? on August 1 no less, their new software deployment essentially annihilated half a billion dollars, all due to - you guessed it - a refactored command line flag! can't make this stuff up.

ggm 7y ago

Yea, I was one of them. I mixed up trading ahead from side-channel knowledge which breaks insider-trading rules, with having a fast engine which can just move bits faster than the other guy. I don't "like" HFT the same way I don't "like" the market at all, but HFT is not actually stealing grannies money.

barry-cotter 7y ago
Side channel knowledge doesn’t break insider trading rules. You need to have a fiduciary duty to someone to betray to be doing insider trading. There needs to be someone who has the right to that knowledge, who you’re supposed to act on behalf of, who doesn’t want you trading on it. There are many types of “side channel” non public information that aren’t insider trading.
- tomp 7y ago
  Depends. This is the case in the US, but in the EU, “insider trading” is more absolute, just “trading on non-public information” (regardless of how it was obtained) and can happen even without fiduciary duty.

ramblerman 7y ago

As an outsider with admittedly limited knowledge. What would happen if you limited movement on a stock to be on the second? Would that not prevent this never ending race for faster and closer access. Something that doesn’t really seem to be adding value to society or the market.

alkibiades 7y ago
who gets the priority in order fulfillment placed in that second? otherwise you have the same issue. the brokerage might also be tempted to make money by front running those trades since that have all the trades in front of them for a second before needing to be fulfilled
- ramblerman 7y ago
  Let’s say Priority is made random. In other words It doesn’t pay to play at the second level. As for bad actors you are 100% right but assume they can be trusted or regulated to behave for now. I’m just interested if removing HFT at less than minute scope as it would have been before PCs would actually impact the world negatively.
  - alkibiades 7y ago
    would it impact it positively? why?
arnoooooo 7y ago
What if you limited it to be on the day ? The week ? What if stock markets where about the long term ?

habnds 7y ago

people aren't mad only because tons of money is made on hft. It's also because money is _wasterd_ on hft. That's $100 million dollars spent on something that has 0 use to society. It's just rich people playing weird games. Think about the social benefits of $100 million invested in nyc transit infrastructure. The economy's incentive structure is broken and this is a prime example.

codyb 7y ago
Who’s mad about HFT? 100m out of a what 40tn dollar world GDP? I get it, just seems... unlikely. Who cares?
- habnds 7y ago
  Maybe mad is a strong word, but, it isn't just $100m, That's one investment by one company. It's billions of dollars across the world to gain arbitrary milliseconds. Restructuring financial markets, to use periodic auctions for example or by adding speed bumps rather than continuous trading would probably do away with an entire wasteful industry and benefit the actually relevant parties in the financial system, people who have money, and people who need money, at the cost of the unnecessary middlemen.
TomMarius 7y ago
HFT has more benefit than huge villas and cars and private jets. It can bring benefit to software and hardware. I'm okay.
- habnds 7y ago
  What sort of benefits has it brought to software and hardware? edit: honest question :)
  - TomMarius 7y ago
    I don't know, I didn't use past tense. I imagine that investment into technology is going to bring more benefit than pointless consumption. Also - what about effective markets, that's not a benefit?

collyw 7y ago

>People love to rail on HFT probably because it's difficult to see any actual value that this provides to society.

deleted 7y ago
[deleted]
reallydontask 7y ago
> probably because it's difficult to see any actual value that this provides to society. Doesn't this apply to a majority of activities in the financial sector?
- fooker 7y ago
  No, a large fraction of modern tech and companies would not exist without the 'activities in the financial sector'. Essentially any endeavor requiring capital beyond your means would have to be bootstrapped or required borrowing money at exorbitant rates. There is a reason the financial sector exists. It makes money by selling convenience and taking over quantified risk.
  - reallydontask 7y ago
    My point is not that the financial sector is unnecessary, it's that the majority of the activities are not of benefit to society, which admittedly is something hard to define. Following on from that line of thought, it could be argued that a lot of companies don't provide any benefit to society, so the financial sector is just enabling these firms and thus of no benefit to society.
    - kortilla 7y ago
      The sector exists because people willingly give it money in exchange for services. If you can’t imagine why that’s happening, maybe read up on why people pay for financial services rather than assuming something as stupid as most of financial services not providing benefit to society.

amelius 7y ago

> People love to rail on HFT, but at this point, its really not that profitable. But it is a huge barrier to entry now; it also is a waste of resources.