5 ms·

I'm curious why you think HFT is harmful. They do the same job that human market makers used to do, buy vastly more efficiently, leading to lower prices for "cu

I'm curious why you think HFT is harmful. They do the same job that human market makers used to do, buy vastly more efficiently, leading to lower prices for "customers" (IE lower spreads), and lower profits for the industry: > TABB Group estimates that US equity HFT revenues have declined from approximately $7.2 billion in 2009 to about $1.3 billion in 2014. https://web.archive.org/web/20140404072855/http://tabbforum.com/opinions/no-michael-lewis-the-us-equities-market-is-not-rigged https://web.archive.org/web/20140404072855/http://tabbforum.... I mostly agree that Robert Mercer has been a force for evil in the world, but subjectively my impression is that finance billionaires are more likely than people from other industries to spend their money on relatively uncontroversial philanthropy.

nwsm 6y ago
In reality I agree HFT are not any worse, but with more traditional investment you can make an argument that you are actually trying to help companies succeed and generate value. Personally I have no reason to think finance billionaires use their wealth more ethically than any other group.
atq2119 6y ago
HFT specifically is a form of largely zero-sums arms races. Is it really useful to society if there are entities that issue orders with microsecond (or less) response times rather than on the order of seconds or minutes? Yet a significant amount of brainpower and resources is essentially wasted on this problem. The story about lower spreads is also rather dubious. I can believe that going to sub-second HFT reduces spreads slightly, but what's the point? By how much, exactly, is the spread reduced by going to the extremes that HFT goes to, and how does it compare to just your regular intra-day swings? What's useful to society at large is long-term capital allocation. Regular people don't do day-trading, they place orders "at market" maybe a few times per year at most (or perhaps monthly as part of an automatic plan). The loss from intra-day variations will dwarf the measly reduction in spread that is achieved using sub-second HFT. So in that light, it's good to see that apparently HFT is becoming less profitable.
- t1lthesky 6y ago
  I think at this point the benefits of HFT to markets (lower spreads, more liquidity, faster incorporation of information into prices) is pretty undisputed. I'll let you do your own research, but just to address your point about spreads: When you participate in the market, the spread is the "price" you have to pay to transact. When this goes down, it benefits all participants in the market, and especially the ones that are doing "long-term capital allocation" you are talking about. Rather than take my word for it, here's a quote from the CEO of Vanguard: “From a data perspective, we can see what’s happened to our fund shareholders over the last 20 years, and they’ve benefited by that reduction in transaction costs.” [1]. If you're managing trillions of dollars of 401ks, pension funds, etc, and you are constantly rebalancing your assets, buying new allocations, etc, any tiny reduction in average spread is a huge savings on net. A big part of the reason why there's been an almost universal reduction in fund management fees, saving retirement savers an enormous amount of money over the last 10 years or so is this reduction in spreads. This is absolutely a huge benefit to society, and its almost entirely attributable to HFTs. You're correct that it HFT is a zero-sum arms race, and maybe you could make the argument that in an optimal allocation of society's resources, perhaps you could have less than the current number of participants. But I think you could actually make this argument about almost all lucrative & highly competitive fields. If anything, HFT is more productive per unit of labor, relative to other sectors of society - that's why the compensation is so high! The total number of programmers and quants that work in HFT, at least for the 5-10 significant players, is probably less than the number of programmers Google alone employs (last I checked, there are about 30k programmers working at google. There's almost certainly less than 30k quants and programmers working at the main HFT firms). How many programmers do you "need" to optimize ads for eyeballs? Or how many programmers do you "need" to make mobile phone games? Or work on social networks? etc etc. HFT is a small, niche, industry, and I think extremely productive per employee relative to most other industries. It replaced the tens of thousands of manual traders that used to be responsible for arbitrage and market making with automated robots, dramatically increasing market efficiencies while reducing the amount of human capital required to provide those services. It seems pretty misguided to make the argument that HFT is somehow "bad" or a "waste" of resources, given how much of an improvement it was to what there was before, and also given how small the industry really is. [1] https://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-frequency-trading-firms.html https://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-...

nwsm 6y ago

In reality I agree HFT are not any worse, but with more traditional investment you can make an argument that you are actually trying to help companies succeed and generate value. Personally I have no reason to think finance billionaires use their wealth more ethically than any other group.

atq2119 6y ago

HFT specifically is a form of largely zero-sums arms races. Is it really useful to society if there are entities that issue orders with microsecond (or less) response times rather than on the order of seconds or minutes? Yet a significant amount of brainpower and resources is essentially wasted on this problem. The story about lower spreads is also rather dubious. I can believe that going to sub-second HFT reduces spreads slightly, but what's the point? By how much, exactly, is the spread reduced by going to the extremes that HFT goes to, and how does it compare to just your regular intra-day swings? What's useful to society at large is long-term capital allocation. Regular people don't do day-trading, they place orders "at market" maybe a few times per year at most (or perhaps monthly as part of an automatic plan). The loss from intra-day variations will dwarf the measly reduction in spread that is achieved using sub-second HFT. So in that light, it's good to see that apparently HFT is becoming less profitable.

t1lthesky 6y ago
I think at this point the benefits of HFT to markets (lower spreads, more liquidity, faster incorporation of information into prices) is pretty undisputed. I'll let you do your own research, but just to address your point about spreads: When you participate in the market, the spread is the "price" you have to pay to transact. When this goes down, it benefits all participants in the market, and especially the ones that are doing "long-term capital allocation" you are talking about. Rather than take my word for it, here's a quote from the CEO of Vanguard: “From a data perspective, we can see what’s happened to our fund shareholders over the last 20 years, and they’ve benefited by that reduction in transaction costs.” [1]. If you're managing trillions of dollars of 401ks, pension funds, etc, and you are constantly rebalancing your assets, buying new allocations, etc, any tiny reduction in average spread is a huge savings on net. A big part of the reason why there's been an almost universal reduction in fund management fees, saving retirement savers an enormous amount of money over the last 10 years or so is this reduction in spreads. This is absolutely a huge benefit to society, and its almost entirely attributable to HFTs. You're correct that it HFT is a zero-sum arms race, and maybe you could make the argument that in an optimal allocation of society's resources, perhaps you could have less than the current number of participants. But I think you could actually make this argument about almost all lucrative & highly competitive fields. If anything, HFT is more productive per unit of labor, relative to other sectors of society - that's why the compensation is so high! The total number of programmers and quants that work in HFT, at least for the 5-10 significant players, is probably less than the number of programmers Google alone employs (last I checked, there are about 30k programmers working at google. There's almost certainly less than 30k quants and programmers working at the main HFT firms). How many programmers do you "need" to optimize ads for eyeballs? Or how many programmers do you "need" to make mobile phone games? Or work on social networks? etc etc. HFT is a small, niche, industry, and I think extremely productive per employee relative to most other industries. It replaced the tens of thousands of manual traders that used to be responsible for arbitrage and market making with automated robots, dramatically increasing market efficiencies while reducing the amount of human capital required to provide those services. It seems pretty misguided to make the argument that HFT is somehow "bad" or a "waste" of resources, given how much of an improvement it was to what there was before, and also given how small the industry really is. [1] https://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-frequency-trading-firms.html https://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-...