2 ms·

You are incorrect. Market-makers who take the other side of trades and warehouse risk for minutes or hours create liqidity (for minutes or hours). And yes, some

You are incorrect. Market-makers who take the other side of trades and warehouse risk for minutes or hours create liqidity (for minutes or hours). And yes, some algo traders are market makers and thus have social utility. HFT who play market-maker for a microsecond do not create liqidity and have no value for society. Well, strictly speaking they create liquidity for the first 100-share lot of trades that a real-money market participant needs to do, and act as costly parasites for the other hundred or thousands lots that they need to do.

kasey_junk 6y ago
Can you explain what costs the “parasites” add to the system?
chollida1 6y ago
As someone in the industry and in that particular area, it seems like its you who are mistaken. Anyone whose a market maker is playing in the HFT space, otherwise you can't cancel fast enough when the market moves otherwise. Other uses of HFT are interlisted arb that keeps companies that trade in multiple countries at the appropriate non arbitrage price. Or even inter market arb that keeps prices on each exchange in the US at a non arbitrage price. I mean the entire currency market is kept in sync due to HFT. They also do ETF arb that keeps ETF prices at, you guess it, their non arbitrage price. These are all things that were done very poorly before HFT, and well computerization in general of the market. The one thing I find when making these comments is people keep moving the goal posts. Remember: At one point HFT was being able to trade multiple times a minute with a computer. That was HFT at a time in the 80s. Then being able to trade a a second level to keep exchange prices in sync, that was at one time HFT level speed. That was HFT in the 90s. People now take that HFT behaviour for granted and try to move the goal posts to micro second timing forgetting that the above are all hft activities, its just that many more people can do them now. HFT has undeniably shrunk spreads and decreased what the average person pays to buy the market.

kasey_junk 6y ago

Can you explain what costs the “parasites” add to the system?

chollida1 6y ago

As someone in the industry and in that particular area, it seems like its you who are mistaken. Anyone whose a market maker is playing in the HFT space, otherwise you can't cancel fast enough when the market moves otherwise. Other uses of HFT are interlisted arb that keeps companies that trade in multiple countries at the appropriate non arbitrage price. Or even inter market arb that keeps prices on each exchange in the US at a non arbitrage price. I mean the entire currency market is kept in sync due to HFT. They also do ETF arb that keeps ETF prices at, you guess it, their non arbitrage price. These are all things that were done very poorly before HFT, and well computerization in general of the market. The one thing I find when making these comments is people keep moving the goal posts. Remember: At one point HFT was being able to trade multiple times a minute with a computer. That was HFT at a time in the 80s. Then being able to trade a a second level to keep exchange prices in sync, that was at one time HFT level speed. That was HFT in the 90s. People now take that HFT behaviour for granted and try to move the goal posts to micro second timing forgetting that the above are all hft activities, its just that many more people can do them now. HFT has undeniably shrunk spreads and decreased what the average person pays to buy the market.