4 ms·

In general, HFT charges a lot less tax than the market makers of old. And for retail investors, HFT helps them a lot.

by smabie 6y ago

tqi 6y ago
How do HFT help retail investors? While I understand that HFT are not technically front running, it seems to me (as someone who is not that involved with finance) that functionally it's more or less the same outcome?
- andreareina 6y ago
  Smaller spreads. Plus I imagine that most retail investors don't make orders large enough that they need to be fulfilled at multiple exchanges, so HFT won't have the chance to get in front of retail.
  - btilly 6y ago
    Actually, HFT is willing to pay retail brokerages like Robinhood to get access to orders from retail investors BEFORE they hit the exchanges. This is how trades are offered for free. Why? Because they know that they can buy those shares at some reported price then trade them on their own books then sell them at a price sufficiently different from the reported price that they make a profit. This means that HFT is explicitly getting "in front of retail" and is actually trading at a price different from what retail hears about. That difference goes where? Oh right. Right into the pockets of HFT and out of the pockets of retail investors.
    - andreareina 6y ago
      Matt Levine claims that payment for order flow still benefits the retail trader: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-icahn-wants-to-fight-dell-again https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i....
      - btilly 6y ago
        I'm not willing to pay Bloomberg to read that. But on a reasonable assumption what he is arguing is that the competition in the marketplace means that they are paying competitive prices for that order flow. They are making money but not much considering what they are doing. And it is massively better than what used to exist. I know this and agree with it. But as I said above, "The fact that it is better than what existed before doesn't change the fact that we can do better yet." The first point is that Robinhood is the one that they negotiate with. So the extra profits go there, and not directly to consumers. Secondly the HFT middlemen are still playing market makers, which means that they still are being paid for. There are cheaper ways to make a market work than HFT, and I outlined one above. Third, automated algorithms as market makers have the potential for some pretty dramatic events - such as the flash crash. Alternatives can avoid that.
btilly 6y ago
What part of The fact that it is better than what existed before doesn't change the fact that we can do better yet. did you fail to understand? Yes, HFT manages to do better than the old market makers that had humans doing the same job that HFT does now in the same way with bigger margins. But that doesn't change the fact that for retail investors, I believe that my suggestion in https://news.ycombinator.com/item?id=24760841 https://news.ycombinator.com/item?id=24760841 would help them even more.

In general, HFT charges a lot less tax than the market makers of old. And for retail investors, HFT helps them a lot.

by smabie 6y ago

In general, HFT charges a lot less tax than the market makers of old. And for retail investors, HFT helps them a lot.

tqi 6y ago

How do HFT help retail investors? While I understand that HFT are not technically front running, it seems to me (as someone who is not that involved with finance) that functionally it's more or less the same outcome?

andreareina 6y ago
Smaller spreads. Plus I imagine that most retail investors don't make orders large enough that they need to be fulfilled at multiple exchanges, so HFT won't have the chance to get in front of retail.
- btilly 6y ago
  Actually, HFT is willing to pay retail brokerages like Robinhood to get access to orders from retail investors BEFORE they hit the exchanges. This is how trades are offered for free. Why? Because they know that they can buy those shares at some reported price then trade them on their own books then sell them at a price sufficiently different from the reported price that they make a profit. This means that HFT is explicitly getting "in front of retail" and is actually trading at a price different from what retail hears about. That difference goes where? Oh right. Right into the pockets of HFT and out of the pockets of retail investors.
  - andreareina 6y ago
    Matt Levine claims that payment for order flow still benefits the retail trader: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-icahn-wants-to-fight-dell-again https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i....
    - btilly 6y ago
      I'm not willing to pay Bloomberg to read that. But on a reasonable assumption what he is arguing is that the competition in the marketplace means that they are paying competitive prices for that order flow. They are making money but not much considering what they are doing. And it is massively better than what used to exist. I know this and agree with it. But as I said above, "The fact that it is better than what existed before doesn't change the fact that we can do better yet." The first point is that Robinhood is the one that they negotiate with. So the extra profits go there, and not directly to consumers. Secondly the HFT middlemen are still playing market makers, which means that they still are being paid for. There are cheaper ways to make a market work than HFT, and I outlined one above. Third, automated algorithms as market makers have the potential for some pretty dramatic events - such as the flash crash. Alternatives can avoid that.

btilly 6y ago

What part of The fact that it is better than what existed before doesn't change the fact that we can do better yet. did you fail to understand? Yes, HFT manages to do better than the old market makers that had humans doing the same job that HFT does now in the same way with bigger margins. But that doesn't change the fact that for retail investors, I believe that my suggestion in https://news.ycombinator.com/item?id=24760841 https://news.ycombinator.com/item?id=24760841 would help them even more.