4 ms·

I'd recommend "Flash Boys: A Wall Street Revolt" for more substance

mruts 7y ago
I don’t. As someone in the industry, almost nothing in that book is actually correct. Moreover, HFT is a very small part of the industry and is not particularly profitable. Quantitative investing as a whole is becoming more and more popular, while HFT isn’t.
- chrisweekly 7y ago
  As someone in the industry, you're also unavoidably biased. This isn't snark or accusation, just a factual observation.
  - tigerBL00D 7y ago
    Someone in the industry might just have a slightly better idea of what's really going on and that's largely what HN is about.
  - onaraft 7y ago
    Another factual observation is to look at Virtu's recent earnings numbers. They're basically pivoting as hard as they can to get out of speed-based HFT and into execution services, because the profitability of the former is cratering.
    - rb808 7y ago
      Yeah Virtu's market cap is about the same as Groupon. I hardly doubt they're emptying the pockets of every American here.
brobinson 7y ago
See also (as a rebuttal): "Flash Boys: Not So Fast"
- bostik 7y ago
  A much more entertaining and informative book than it's title or pedigree would hint at. Genuinely recommended reading. One of the most surprising details in the whole book was the trading system devised by the biggest HFT-complainer, "Thor". And not even the system itself. Trading firms have to connect to practically all the exchanges, because they need the ability to send in orders directly to one of them. In trading, adverse selection is a thing - if an institutional trader sends in a big order, liquidity providers (HFT firms) can get hammered pretty badly. So when someone is buying or selling in one exchange, the HFT shops will adjust (read: pull) their quotes on other exchanges before the same executions would hit them there as well. The basic assumption of a liquidity provider can be summed up as: if someone is executing trades, they must know something more; the prices currently on offer are clearly wrong. Pull quotes before things get expensive. Thor wasn't exactly an optimisation engine, it was more a synchronisation engine. It kept track of transmission latencies across all the exchanges and could coordinate order creation times to such a degree that the orders that it wanted executed would land in all the exchanges at almost exactly the same time. This would allow it to execute its orders on all the exchanges at the prices available at that very time, without giving HFT firms the time to communicate across exchanges to pull their quotes. If I remember correctly, even the book used the term "slam" for the behaviour. Thor used a strategy that any half-decent engineer should come up with in less than 5 minutes. But it was considered unfair by all the other market participants. The book didn't tell much more about Thor, other than that its use was discontinued shortly afterwards. Rather amusing, nonetheless.
bryanwb 7y ago
that book is garbage
- mrfredward 7y ago
  As someone who enjoys a lot of Michael Lewis's books, I completely agree. The arguments and explanations throughout make no sense, because it's a lot motivated reasoning trying to justify a false narrative.
  - BubRoss 7y ago
    It all made perfect sense to me. I'm not sure why people get so upset about it. I suspect people can't tell the difference between the arbitrage that will happen no matter what (Chicago to New York, etc.) with the front running that came from seeing orders too large for one exchange and buying the rest from the other exchanges so they could sell it to the original buyer.
    - mruts 7y ago
      I mean that part is true and is exactly how markets are supposed to work, but the conclusions he draws are just bizarre. He makes the argument that HFT is the classic story of the fat cats stealing even more money from the little guys. But it couldn't be further from the truth. HFT's are helping the retail investors and actually "stealing" from the "fat cats" (institutional investors). Retail trading is now cheaper (free in a lot of cases), easier, and faster today than it has ever been, largely due to HFT firms and low-latency liquidity providing strategies. Also the ETF revolution and the massive democratization of financial asset classes and strategies is entirely predicated on HFT arbitrageurs. But Lewis realized that the idea of HFT actually helping the little guys and hurting the big guys wouldn't be as sensationalist and provocative a story, so he decided to twist the facts to suit his own narrative.
      - rapind 7y ago
        Wait so you're saying that trade sniping is good for more than just the handful doing it because side effects? I've heard this pro-HFT argument before and always assumed it was biased BS.

I don’t. As someone in the industry, almost nothing in that book is actually correct. Moreover, HFT is a very small part of the industry and is not particularly profitable. Quantitative investing as a whole is becoming more and more popular, while HFT isn’t.

chrisweekly 7y ago
As someone in the industry, you're also unavoidably biased. This isn't snark or accusation, just a factual observation.
- tigerBL00D 7y ago
  Someone in the industry might just have a slightly better idea of what's really going on and that's largely what HN is about.
- onaraft 7y ago
  Another factual observation is to look at Virtu's recent earnings numbers. They're basically pivoting as hard as they can to get out of speed-based HFT and into execution services, because the profitability of the former is cratering.
  - rb808 7y ago
    Yeah Virtu's market cap is about the same as Groupon. I hardly doubt they're emptying the pockets of every American here.

brobinson 7y ago

See also (as a rebuttal): "Flash Boys: Not So Fast"

bostik 7y ago
A much more entertaining and informative book than it's title or pedigree would hint at. Genuinely recommended reading. One of the most surprising details in the whole book was the trading system devised by the biggest HFT-complainer, "Thor". And not even the system itself. Trading firms have to connect to practically all the exchanges, because they need the ability to send in orders directly to one of them. In trading, adverse selection is a thing - if an institutional trader sends in a big order, liquidity providers (HFT firms) can get hammered pretty badly. So when someone is buying or selling in one exchange, the HFT shops will adjust (read: pull) their quotes on other exchanges before the same executions would hit them there as well. The basic assumption of a liquidity provider can be summed up as: if someone is executing trades, they must know something more; the prices currently on offer are clearly wrong. Pull quotes before things get expensive. Thor wasn't exactly an optimisation engine, it was more a synchronisation engine. It kept track of transmission latencies across all the exchanges and could coordinate order creation times to such a degree that the orders that it wanted executed would land in all the exchanges at almost exactly the same time. This would allow it to execute its orders on all the exchanges at the prices available at that very time, without giving HFT firms the time to communicate across exchanges to pull their quotes. If I remember correctly, even the book used the term "slam" for the behaviour. Thor used a strategy that any half-decent engineer should come up with in less than 5 minutes. But it was considered unfair by all the other market participants. The book didn't tell much more about Thor, other than that its use was discontinued shortly afterwards. Rather amusing, nonetheless.

bryanwb 7y ago

that book is garbage

mrfredward 7y ago
As someone who enjoys a lot of Michael Lewis's books, I completely agree. The arguments and explanations throughout make no sense, because it's a lot motivated reasoning trying to justify a false narrative.
- BubRoss 7y ago
  It all made perfect sense to me. I'm not sure why people get so upset about it. I suspect people can't tell the difference between the arbitrage that will happen no matter what (Chicago to New York, etc.) with the front running that came from seeing orders too large for one exchange and buying the rest from the other exchanges so they could sell it to the original buyer.
  - mruts 7y ago
    I mean that part is true and is exactly how markets are supposed to work, but the conclusions he draws are just bizarre. He makes the argument that HFT is the classic story of the fat cats stealing even more money from the little guys. But it couldn't be further from the truth. HFT's are helping the retail investors and actually "stealing" from the "fat cats" (institutional investors). Retail trading is now cheaper (free in a lot of cases), easier, and faster today than it has ever been, largely due to HFT firms and low-latency liquidity providing strategies. Also the ETF revolution and the massive democratization of financial asset classes and strategies is entirely predicated on HFT arbitrageurs. But Lewis realized that the idea of HFT actually helping the little guys and hurting the big guys wouldn't be as sensationalist and provocative a story, so he decided to twist the facts to suit his own narrative.
    - rapind 7y ago
      Wait so you're saying that trade sniping is good for more than just the handful doing it because side effects? I've heard this pro-HFT argument before and always assumed it was biased BS.