5 ms·

Absolutely, and all traders should be required to use rotary dial phones to even the playing field further. While we're at it, speaking into the phone at faste

Absolutely, and all traders should be required to use rotary dial phones to even the playing field further. While we're at it, speaking into the phone at faster than 200 words per minute should also be banned.

dasil003 16y ago
This is some kind of reverse slippery slope argument that just doesn't hold up to common sense.
- grandalf 16y ago
  Care to explain or should I just take your word for it?
  - deleted 16y ago
    [deleted]
  - nooneelse 16y ago
    If a group was proposing that residential areas have a speed limit, and you came back with "ah, and only horse-drawn-buggies should be allowed", that would seem rather irrelevant remark, yes? It would be rather beside the point and couldn't really defeat the proposal due to not actually talking about it. Said another way, the first comment appears to be an attempt at a reductio ad absurdum on banning HFT, however, it does not establish that the absurd conclusion is a clear, logical extension of the position advanced by the other side. Said more in line with how I interpret the previous criticism, you wanted it to be obvious that the other side is on a slippery slope. However no such slope exists; common sense allows for at least one clear stopping point between the actual proposal and your "we've slipped down into absurdity" zone.
    - grandalf 16y ago
      Suppose someone claimed that residential broadband speeds should be capped at 14.4 kilobits per second b/c some teenagers download songs songs with inappropriate lyrics. The reader is supposed to believe that lowering the speed is a good thing just because the reader is assumed to believe that inappropriate lyrics are a bad thing. Prices are not "good" or "bad". Most of the people who oppose HFT are very much in the habit of attributing aesthetic descriptions to prices and to trading patterns. In my opinion, this is a naive view of markets and complex systems that leads to the false expectation of stability, etc.
      - nooneelse 16y ago
        I interpret this comment to be an entirely new line of criticism of the HFT ban. This one is based on an assessment of the applicability of the motivations behind the ban, the previous one was an attempted reductio. The polite thing for you to do would be to admit that your first criticism failed, or mark in some other way that you are starting a new line, not for you to speak as if you are simply backing that first criticism up with new information. As for the new point, your example of absurdity includes a solution that is obviously decoupled from the problem it is stated to be addressing (download speed and lyrical content), that is why it is absurd. However you have not shown that the HFT ban is similarly unrelated to the problem(s) that it is intended to be addressing. The length of delays on feedback loops in control systems is very related to the performance of those control systems. Thus, the absurdness is not conveyed over of the HFT ban idea.
        grandalf 16y ago
        I think there is an analogy in my second comment that you have missed. Download speed and lyrical content are just as connected as the speed of subsequent trade execution and psychological market meta-phenomena. I chose the example of lyrics b/c they are purely subjective, just as most of the phenomena that HFT opponents cite as bad. It's ultimately an aesthetic argument that you're making.
        nooneelse 16y ago
        I didn't miss the analogy, I simply didn't find it a valid one. Nor did you present a reason for so considering it. You just gave the analogy, and assumed I should go along with the presuppositions that led to your thinking it is valid. If you want me to think the HFT ban is disconnected from the problems it is intended to address, you need to argue that position, not just make fun of how disconnected you think they are. > "It's ultimately an aesthetic argument that you're making." I don't think so. If you want to call something like 'signal chains should carry the information they are used to carry with an ignorably low noise floor' an aesthetic judgment, I guess you can. But it is more commonly thought of as a far more practical judgement than that. Turning up the speed up feedback signals is not radically decoupled from system performance, ergo your analogy to a situation that has such radical decoupling isn't valid.
  - erikpukinskis 16y ago
    I feel like the burden of "explaining" should be on the person who made the slippery slope argument. The linked articles give arguments why HFT is harmful. You didn't really add anything to that discussion except to mock it, so I feel like the ball is still in your court.
    - grandalf 16y ago
      In my opinion, the hand waving happens when people associate the "flash crash" with HFT in particular. Algorithms may have behaved as designed, but a lot of humans panicked. Yes, this panic led to some people losing money, so obviously any smart algorithm designer would build in some common sense controls. There is no reason to believe that it was only HFT algorithms that dealt poorly with the panic scenario.
wdewind 16y ago
I see your point, but it would be a pretty easy line to draw that traders need to hold stocks for more than a few seconds/minutes without disrupting much but the HFT aspect of the market right? edit: or even that the trades must be ordered by a human. There are really easy dichotomies to draw here.
- yummyfajitas 16y ago
  This would probably increase transaction costs for the rest of the market. If I can liquidate a position whenever I feel like it, I'm happy to provide liquidity even with a $0.01 spread. If you impose restrictions like "you must hold this stock at least 60 seconds even if it tanks", you have considerably increased my risk. Now I'll hold out for a $0.05-0.10 spread before I bother to offer liquidity. This raises the cost for others to trade from $0.01/share to $0.05-0.10/share.
- grandalf 16y ago
  What good would that do? Suppose we're looking at a world with one stock. Suppose I have 100 hypotheses about that stock, each of which is relevant to some time frame. Some are hypotheses about the next few seconds, some are hypotheses about the next few minutes, hours, days, etc. What is the harm of trying to execute trades to profit from those hypotheses? If there is no counterparty, none of the trades will go through regardless of their timeframe. If there is a counterparty who decides (for example) to participate in several transactions with me over the span of several minutes (or seconds), we should assume that counterparty is self-interested and is making trades that satisfy its goals. If on the other hand the counterparty is a firm whose algorithms and trading infrastructure was build in the 1990s and is somehow tripped up by my strategy, how is that any different from a lay investor being tripped up by a misinterpretation of (say) a low end of day closing price? All market participants are either speculative or based on fundamentals. If you're the latter, you don't care much about the ultra short-term. If you're the former, then you have some strategy for speculation, which may take as input the behavior of other market participants. In my view, since there is no reason why a rational strategy creator would prefer long term strategies to short term ones (expected risk adjusted returns being equal), there is no reason why HFT should be viewed with disdain. Much as computers replaced rotary phones on the trading floor, HFT is the next iteration of technological improvement in trading. HFT happens to be a specialty area at present, but there's no reason that any adept speculator would avoid high frequency trades if she had sufficient algorithmic and tech sophistication to make them.
tzs 16y ago
I'm leery of HFT, but not out of concern of a level playing field. Consider a market for some commodity. Start with the simplest market--people who produce the commodity sell directly to those who use it. Let's also assume external factors that affect the supply and demand for the commodity are stable over a long period of time. After a number of transactions have been done, and the information about these has spread among the buyers and sellers, the market should converge on some price for that commodity, which will then be stable. When some real world event happens that affects supply (a late snow wipes out newly planted crops, for instance) or demand (Justin Bieber turns vegetarian causing millions of teen girls to give up meat), the market will adjust to a new price. A key thing to note here is that the price depends on real world events and the knowledge the actual produces and consumers of the good have of those events. Now introduce intermediaries who trade in the commodity, but do not product it or consume it. They speed up the rate of transactions, and help the flow of price information, and so arguable help the market settle on the correct and stable price--basically the price you'd have in the direct market adjusted to take into account the increased transaction cost of having an intermediary. Since the correct price economically ultimately depends on the factors that affect supply and demand (the weather, Justin Bieber, and so on), my concern is that if trading by intermediaries becomes too fast you can get to a point where the price is not being driven by the real world factors, but rather by traders reacting to other traders. In other words, could HFT make the feedback loops that allows a market to set prices too strong? Feedback as a control mechanism in general is a good and useful thing, but too much feedback and it can become self sustaining, and the output of the system depends less on external inputs than it should (or even not at all). Until there's solid analysis showing that HFT can't lead to the bad kind of feedback, I'd rather see it approached cautiously.
- grandalf 16y ago
  I think your argument is essentially an argument against speculation. All of the fears you cite apply equally to any form of speculation. The problem is, many things count as speculation -- a farmer who produces a commodity buying insurance against a poor crop is ultimately a futures contract. The way I think of HFT is that it's like increasing the fidelity of a recording from 11 kilohertz to 44.1 kilohertz. There are a lot more intermediate data points, but the underlying rationality (or irrationality) of pricing trends will be the same. Before HFT, it was more likely that a bid/ask spread would be higher ... reflecting the risk aversion of the market making firm... With HFT, that spread decreases b/c the liquidity is offered as part of a small timeframe strategy which may or may not pay off. If you weren't concerned with that short timeframe, then it makes no difference to you whether your order was filled by one party (a traditional market maker) or 100 parties (each a different HFT algorithm). I think to assuage your fear I'd probably just say that it's very difficult to move large numbers of shares at a price that's all that different from the previous price... So any HFT algorithm will necessarily be dealing either with largely uncontroversial prices or very small share volumes. Considering that, I think the overall risk of rogue algorithms leading to a harmful feedback loop is not significantly increased by HFT, and HFT was mostly a scapegoat in the recent crash.

dasil003 16y ago

This is some kind of reverse slippery slope argument that just doesn't hold up to common sense.

grandalf 16y ago
Care to explain or should I just take your word for it?
- deleted 16y ago
  [deleted]
- nooneelse 16y ago
  If a group was proposing that residential areas have a speed limit, and you came back with "ah, and only horse-drawn-buggies should be allowed", that would seem rather irrelevant remark, yes? It would be rather beside the point and couldn't really defeat the proposal due to not actually talking about it. Said another way, the first comment appears to be an attempt at a reductio ad absurdum on banning HFT, however, it does not establish that the absurd conclusion is a clear, logical extension of the position advanced by the other side. Said more in line with how I interpret the previous criticism, you wanted it to be obvious that the other side is on a slippery slope. However no such slope exists; common sense allows for at least one clear stopping point between the actual proposal and your "we've slipped down into absurdity" zone.
  - grandalf 16y ago
    Suppose someone claimed that residential broadband speeds should be capped at 14.4 kilobits per second b/c some teenagers download songs songs with inappropriate lyrics. The reader is supposed to believe that lowering the speed is a good thing just because the reader is assumed to believe that inappropriate lyrics are a bad thing. Prices are not "good" or "bad". Most of the people who oppose HFT are very much in the habit of attributing aesthetic descriptions to prices and to trading patterns. In my opinion, this is a naive view of markets and complex systems that leads to the false expectation of stability, etc.
    - nooneelse 16y ago
      I interpret this comment to be an entirely new line of criticism of the HFT ban. This one is based on an assessment of the applicability of the motivations behind the ban, the previous one was an attempted reductio. The polite thing for you to do would be to admit that your first criticism failed, or mark in some other way that you are starting a new line, not for you to speak as if you are simply backing that first criticism up with new information. As for the new point, your example of absurdity includes a solution that is obviously decoupled from the problem it is stated to be addressing (download speed and lyrical content), that is why it is absurd. However you have not shown that the HFT ban is similarly unrelated to the problem(s) that it is intended to be addressing. The length of delays on feedback loops in control systems is very related to the performance of those control systems. Thus, the absurdness is not conveyed over of the HFT ban idea.
      - grandalf 16y ago
        I think there is an analogy in my second comment that you have missed. Download speed and lyrical content are just as connected as the speed of subsequent trade execution and psychological market meta-phenomena. I chose the example of lyrics b/c they are purely subjective, just as most of the phenomena that HFT opponents cite as bad. It's ultimately an aesthetic argument that you're making.
        nooneelse 16y ago
        I didn't miss the analogy, I simply didn't find it a valid one. Nor did you present a reason for so considering it. You just gave the analogy, and assumed I should go along with the presuppositions that led to your thinking it is valid. If you want me to think the HFT ban is disconnected from the problems it is intended to address, you need to argue that position, not just make fun of how disconnected you think they are. > "It's ultimately an aesthetic argument that you're making." I don't think so. If you want to call something like 'signal chains should carry the information they are used to carry with an ignorably low noise floor' an aesthetic judgment, I guess you can. But it is more commonly thought of as a far more practical judgement than that. Turning up the speed up feedback signals is not radically decoupled from system performance, ergo your analogy to a situation that has such radical decoupling isn't valid.
- erikpukinskis 16y ago
  I feel like the burden of "explaining" should be on the person who made the slippery slope argument. The linked articles give arguments why HFT is harmful. You didn't really add anything to that discussion except to mock it, so I feel like the ball is still in your court.
  - grandalf 16y ago
    In my opinion, the hand waving happens when people associate the "flash crash" with HFT in particular. Algorithms may have behaved as designed, but a lot of humans panicked. Yes, this panic led to some people losing money, so obviously any smart algorithm designer would build in some common sense controls. There is no reason to believe that it was only HFT algorithms that dealt poorly with the panic scenario.

wdewind 16y ago

I see your point, but it would be a pretty easy line to draw that traders need to hold stocks for more than a few seconds/minutes without disrupting much but the HFT aspect of the market right? edit: or even that the trades must be ordered by a human. There are really easy dichotomies to draw here.

yummyfajitas 16y ago
This would probably increase transaction costs for the rest of the market. If I can liquidate a position whenever I feel like it, I'm happy to provide liquidity even with a $0.01 spread. If you impose restrictions like "you must hold this stock at least 60 seconds even if it tanks", you have considerably increased my risk. Now I'll hold out for a $0.05-0.10 spread before I bother to offer liquidity. This raises the cost for others to trade from $0.01/share to $0.05-0.10/share.
grandalf 16y ago
What good would that do? Suppose we're looking at a world with one stock. Suppose I have 100 hypotheses about that stock, each of which is relevant to some time frame. Some are hypotheses about the next few seconds, some are hypotheses about the next few minutes, hours, days, etc. What is the harm of trying to execute trades to profit from those hypotheses? If there is no counterparty, none of the trades will go through regardless of their timeframe. If there is a counterparty who decides (for example) to participate in several transactions with me over the span of several minutes (or seconds), we should assume that counterparty is self-interested and is making trades that satisfy its goals. If on the other hand the counterparty is a firm whose algorithms and trading infrastructure was build in the 1990s and is somehow tripped up by my strategy, how is that any different from a lay investor being tripped up by a misinterpretation of (say) a low end of day closing price? All market participants are either speculative or based on fundamentals. If you're the latter, you don't care much about the ultra short-term. If you're the former, then you have some strategy for speculation, which may take as input the behavior of other market participants. In my view, since there is no reason why a rational strategy creator would prefer long term strategies to short term ones (expected risk adjusted returns being equal), there is no reason why HFT should be viewed with disdain. Much as computers replaced rotary phones on the trading floor, HFT is the next iteration of technological improvement in trading. HFT happens to be a specialty area at present, but there's no reason that any adept speculator would avoid high frequency trades if she had sufficient algorithmic and tech sophistication to make them.

tzs 16y ago

I'm leery of HFT, but not out of concern of a level playing field. Consider a market for some commodity. Start with the simplest market--people who produce the commodity sell directly to those who use it. Let's also assume external factors that affect the supply and demand for the commodity are stable over a long period of time. After a number of transactions have been done, and the information about these has spread among the buyers and sellers, the market should converge on some price for that commodity, which will then be stable. When some real world event happens that affects supply (a late snow wipes out newly planted crops, for instance) or demand (Justin Bieber turns vegetarian causing millions of teen girls to give up meat), the market will adjust to a new price. A key thing to note here is that the price depends on real world events and the knowledge the actual produces and consumers of the good have of those events. Now introduce intermediaries who trade in the commodity, but do not product it or consume it. They speed up the rate of transactions, and help the flow of price information, and so arguable help the market settle on the correct and stable price--basically the price you'd have in the direct market adjusted to take into account the increased transaction cost of having an intermediary. Since the correct price economically ultimately depends on the factors that affect supply and demand (the weather, Justin Bieber, and so on), my concern is that if trading by intermediaries becomes too fast you can get to a point where the price is not being driven by the real world factors, but rather by traders reacting to other traders. In other words, could HFT make the feedback loops that allows a market to set prices too strong? Feedback as a control mechanism in general is a good and useful thing, but too much feedback and it can become self sustaining, and the output of the system depends less on external inputs than it should (or even not at all). Until there's solid analysis showing that HFT can't lead to the bad kind of feedback, I'd rather see it approached cautiously.

grandalf 16y ago
I think your argument is essentially an argument against speculation. All of the fears you cite apply equally to any form of speculation. The problem is, many things count as speculation -- a farmer who produces a commodity buying insurance against a poor crop is ultimately a futures contract. The way I think of HFT is that it's like increasing the fidelity of a recording from 11 kilohertz to 44.1 kilohertz. There are a lot more intermediate data points, but the underlying rationality (or irrationality) of pricing trends will be the same. Before HFT, it was more likely that a bid/ask spread would be higher ... reflecting the risk aversion of the market making firm... With HFT, that spread decreases b/c the liquidity is offered as part of a small timeframe strategy which may or may not pay off. If you weren't concerned with that short timeframe, then it makes no difference to you whether your order was filled by one party (a traditional market maker) or 100 parties (each a different HFT algorithm). I think to assuage your fear I'd probably just say that it's very difficult to move large numbers of shares at a price that's all that different from the previous price... So any HFT algorithm will necessarily be dealing either with largely uncontroversial prices or very small share volumes. Considering that, I think the overall risk of rogue algorithms leading to a harmful feedback loop is not significantly increased by HFT, and HFT was mostly a scapegoat in the recent crash.