4 ms·

Man, it'll be hard to be a grocery store, or any other intermediary, under that regime. Such a rule would slaughter credit-card processors, too. Anyone who ma

by ISL 6y ago

Man, it'll be hard to be a grocery store, or any other intermediary, under that regime. Such a rule would slaughter credit-card processors, too. Anyone who makes a market or facilitates a transaction would have a problem. To expand a bit -- an antidote to HFT front-running is the limit order. If you can buy the thing you want at a price you believe is acceptable, HFT front-runners simply get paid for providing you liquidity. Don't like the price? Set your limit lower.

ficklepickle 6y ago
I don't think grocery stores pay capital gains tax on the sundries they sell. If you sold a whole grocery store, then yes. But inventory is not considered a capital asset. https://en.wikipedia.org/wiki/Capital_asset https://en.wikipedia.org/wiki/Capital_asset
maxbond 6y ago
How are any of those operations effected by capital gains? They aren't talking about moving money around, they're talking about selling stock that has appreciated in price. With regards to frontrunning, the problem isn't that XYZ is trading at $5 and I get charged $5.05 because I put in a market order - or at least, the problI don't think you fully understand frontrunning either.em isn't _just_ that. The problem is that between when I send my limit for $5, the price drops to $4.95. But through whatever mechanism, latency arbitrage, order flashes, whatever, the HFT knows my order is coming in at $5, and they scoop up all the liquidity and sell it to me at $5. Sure, if I priced the security correctly, $5 is a fair price. But I took market risk and I deserve the reward of buying at $4.95. The HFT, entering and leaving positions only when they know someone is coming, is taking no market risk, and is stealing my gains without providing any liquidity or hazarding the market with the rest of us. This is a simplification of course, in order to place teaser orders the HFT has to endure some market risk. But they've cranked it down to a rounding error. Another problem is that the retail brokers have gone to 0 commission by selling their order flow to the same HFTs. What this really means is that commissions are variable, arbitrary, and unknowable. Try putting that in a spreadsheet.
- kstrauser 6y ago
  That's right. HFT extracts value from the market without providing any of its own. It's purely rent-seeking.
- ISL 6y ago
  I have occasionally let limit orders stand for weeks or more (keeping tabs on the news/fundamentals of the company, of course), knowing that I would be happy to buy/sell the share at the limit price. On some occasions, I've bought shares, using a limit order, at $0.95 and immediately posted the limit sell order at $1.05. Throughout, I believed that the company was worth more than $1.05, but set the limit at a price that provided a margin of safety. If someone else agreed, but was willing to pay $1.05 or more for the shares, I was happy to oblige. When the limit order hit a few weeks later, I took my 10.5% return and went home happy (to place another limit buy order at $0.95). One need not consume all of the value on the table. It is important to leave value for your counterparties, too.
  - maxbond 6y ago
    I wish all the best for my counterparties who provide me liquidity. I congratulate you on your returns. Parasitic parties who skim transactions without providing liquidity are just sucking money from pension funds to transfer to the very wealthy. They're pickpockets. Edited to add: When you executed the trade you described, you did so speculatively - you were in the market with the rest of us, you were taking a risk, and when someone wanted to get into the market you were there to sell to them. That's completely different from holding a position for microseconds when you know for a fact someone is on their way.
    - ISL 6y ago
      True -- agreed that a pure front-run that provides no liquidity would appear to have negligible value aside from generating heat. In devil's advocate-mode: The HFT trader is still providing liquidity for that person on the way. If someone else were to purchase the shares ahead of the inbound trade, the inbound buyer might not be able to acquire those shares. If the inbound trade were a limit order, rather than a market order, then the HFT trader might not have room to profit.

by ISL 6y ago

ficklepickle 6y ago

I don't think grocery stores pay capital gains tax on the sundries they sell. If you sold a whole grocery store, then yes. But inventory is not considered a capital asset. https://en.wikipedia.org/wiki/Capital_asset https://en.wikipedia.org/wiki/Capital_asset

maxbond 6y ago

How are any of those operations effected by capital gains? They aren't talking about moving money around, they're talking about selling stock that has appreciated in price. With regards to frontrunning, the problem isn't that XYZ is trading at $5 and I get charged $5.05 because I put in a market order - or at least, the problI don't think you fully understand frontrunning either.em isn't _just_ that. The problem is that between when I send my limit for $5, the price drops to $4.95. But through whatever mechanism, latency arbitrage, order flashes, whatever, the HFT knows my order is coming in at $5, and they scoop up all the liquidity and sell it to me at $5. Sure, if I priced the security correctly, $5 is a fair price. But I took market risk and I deserve the reward of buying at $4.95. The HFT, entering and leaving positions only when they know someone is coming, is taking no market risk, and is stealing my gains without providing any liquidity or hazarding the market with the rest of us. This is a simplification of course, in order to place teaser orders the HFT has to endure some market risk. But they've cranked it down to a rounding error. Another problem is that the retail brokers have gone to 0 commission by selling their order flow to the same HFTs. What this really means is that commissions are variable, arbitrary, and unknowable. Try putting that in a spreadsheet.

kstrauser 6y ago
That's right. HFT extracts value from the market without providing any of its own. It's purely rent-seeking.
ISL 6y ago
I have occasionally let limit orders stand for weeks or more (keeping tabs on the news/fundamentals of the company, of course), knowing that I would be happy to buy/sell the share at the limit price. On some occasions, I've bought shares, using a limit order, at $0.95 and immediately posted the limit sell order at $1.05. Throughout, I believed that the company was worth more than $1.05, but set the limit at a price that provided a margin of safety. If someone else agreed, but was willing to pay $1.05 or more for the shares, I was happy to oblige. When the limit order hit a few weeks later, I took my 10.5% return and went home happy (to place another limit buy order at $0.95). One need not consume all of the value on the table. It is important to leave value for your counterparties, too.
- maxbond 6y ago
  I wish all the best for my counterparties who provide me liquidity. I congratulate you on your returns. Parasitic parties who skim transactions without providing liquidity are just sucking money from pension funds to transfer to the very wealthy. They're pickpockets. Edited to add: When you executed the trade you described, you did so speculatively - you were in the market with the rest of us, you were taking a risk, and when someone wanted to get into the market you were there to sell to them. That's completely different from holding a position for microseconds when you know for a fact someone is on their way.
  - ISL 6y ago
    True -- agreed that a pure front-run that provides no liquidity would appear to have negligible value aside from generating heat. In devil's advocate-mode: The HFT trader is still providing liquidity for that person on the way. If someone else were to purchase the shares ahead of the inbound trade, the inbound buyer might not be able to acquire those shares. If the inbound trade were a limit order, rather than a market order, then the HFT trader might not have room to profit.