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> It seems to me that the field contributes nothing to society, and has only negative externalities like raising barriers of entry to markets and using insane a
by alasdair_ 6y ago
> It seems to me that the field contributes nothing to society, and has only negative externalities like raising barriers of entry to markets and using insane amount of resources.
I thought the same way for a long time.
HFT helps make markets more liquid and (somewhat) may aid price discovery.
Now, assuming you buy that, the standard response is “sure, but how does pouring all these resources into shaving picoseconds off of a transaction help the world?” Fair point.
In my mind, the markets are really just a giant computer running a resource optimization problem whose inputs change constantly. Improving the latency of getting a result back can open up completely new applications.
This is a bit hazy, but think of what is possible with todays computers versus those of fifty years ago. Both can perform the same calculations, one is just faster, yet just making calculations faster has changed the world.
HFT means speeding up the computations for the allocations of resources for the entire world. This is a really important set of calculations- it affects, indirectly, almost every human on the planet. Making this faster by just a tiny fraction can make it more efficient and when that efficiency is multiplied by the trillions of dollars involved, that can mean huge savings for humanity as a whole.
Or, you know, the benefits could all be spent on hookers and cocaine, your choice.
- yellowstuff 6y agoI'm generally supportive of HFT, I think the massive reduction in total profits to market makers relative to 20 years ago is proof of a positive-sum efficiency gain. But I'm not sure I buy your argument for why the nanosecond arms race is good. Computers getting faster has allowed us to do more and different stuff with computers. What are the actual benefits of HFT "efficiency"? If stocks had an auction every millisecond wouldn't that still be plenty fast enough for any practical purpose? Only other HFTs will notice or care that AAPL's price got updated in 1 nanosecond instead of 2. Or to go the other way, how would we be better off if stocks ticked every femtosecond? Every attosecond? Is there some limit where the benefits of this "efficiency" aren't worth the resources to pursue it?
- xmot7 6y agoBut faster price discovery doesn't actually do anything. Outside of other HFT firms, efficient pricing only matters for large events that happen on a macro timescale - share issuance, buybacks, dividends, etc. Unless one of those macro events occurs, knowing whether a stock is worth $10 or $11 doesn't actually matter - there's no efficiency gained or resources allocated based on that difference. Resources aren't allocated on a nanosecond timeframe, no matter how fast your trades are. Actual resource allocation happens on a weeks to months timeframe.