8 ms·

At what cost are they providing this service though? They make a ridiculous amount of money doing so. Shouldn't the exchanges have offered the best price, and

At what cost are they providing this service though? They make a ridiculous amount of money doing so. Shouldn't the exchanges have offered the best price, and provided liquidity, in the first place? Flash Boys: A Wall Street Revolt by Michael Lewis painted HFT in a pretty bad way. I have read criticisms of the book, but it's hard to separate out bias from the criticism. There's also all the heat on Robinhood about selling order flow, which I'm surprised was even news to regular investors. It's great they eliminated fees for normal trades, and I also understand most major brokerages sell order flow as well (and still charged for trades for a long time). I read that Fidelity is the only major player that doesn't sell order flow. Do you have some sources that someone could learn more about this, ones that don't have a vested interest in painting it in a positive way? Also, I'm still wondering, considering dark pools [1], and the inside information that would come along with that, since those trades wouldn't hit public markets, how the stock markets can be considered a fair place to trade? [1] https://www.investopedia.com/articles/markets/050614/introduction-dark-pools.asp https://www.investopedia.com/articles/markets/050614/introdu...

eu90h 5y ago
I'd like to recommend the book "trading at the speed of light". It's an in depth look at the world of high frequency trading based on first hand interviews with traders, court documents, etc. It would appear based on what little information is actually available that HFT firms net only modest profits after taxes and fees on trades. Historically, it appears most firms fail to turn a profit and shut down. A paper of Laughlin (2014) suggests virtu, a hft firm that now executes Robinhood orders, earns an estimate profit of 0.24 cents per trade, with 0.05 to 0.1 cents per share traded being a respectable profit. I highly recommend this book though if your into this topic
- w4llstr33t 5y ago
  Thanks. I'm going to check this book out.
pgwhalen 5y ago
> They make a ridiculous amount of money doing so. I suppose it depends on how you define ridiculous, but HFTs actually make a surprisingly small amount of money these days. Probably single digit billions across the entire industry (https://quant.stackexchange.com/questions/34856/how-much-profit-do-hft-firms-generate https://quant.stackexchange.com/questions/34856/how-much-pro...), though 2020 was an exceptional year for many firms. > Shouldn't the exchanges have offered the best price, and provided liquidity, in the first place? Either your wording is a little funny, or this question indicates great ignorance about how trading works. Exchanges do not provide liquidity, market makers do. In 2021, "HFT" ~= "market maker".
- w4llstr33t 5y ago
  I don't know that much about this, so you could chalk it up to "great ignorance", I suppose. I'm a software engineer, interested in crypto, and not that involved in traditional markets (except for holding an S&P 500 index fund). I do think the exchanges in traditional finance shouldn't have required HFTs in the first place (i.e. it's an antiquated technology). I also think hedge funds and the ultra rich have privileged info, that retail investors don't have. Anyway, I appreciate the clarification. I like learning about all this.
  - IncRnd 5y ago
    Today's crypto has the same issues: the fastest decision-making computer with the shortest time to the network makes the block. Just like cutting inches off mainframe cables, manufacturers of ASICs purpose-build computer chips for crypto. GPU operators tune their cards and even download new code to get every last bit of processing capability from their devices. Crypto in these ways is just like HFT.
    - w4llstr33t 5y ago
      I still like the distribution of power to those who wouldn't have had a chance otherwise.

eu90h 5y ago

I'd like to recommend the book "trading at the speed of light". It's an in depth look at the world of high frequency trading based on first hand interviews with traders, court documents, etc. It would appear based on what little information is actually available that HFT firms net only modest profits after taxes and fees on trades. Historically, it appears most firms fail to turn a profit and shut down. A paper of Laughlin (2014) suggests virtu, a hft firm that now executes Robinhood orders, earns an estimate profit of 0.24 cents per trade, with 0.05 to 0.1 cents per share traded being a respectable profit. I highly recommend this book though if your into this topic

w4llstr33t 5y ago
Thanks. I'm going to check this book out.

pgwhalen 5y ago

> They make a ridiculous amount of money doing so. I suppose it depends on how you define ridiculous, but HFTs actually make a surprisingly small amount of money these days. Probably single digit billions across the entire industry (https://quant.stackexchange.com/questions/34856/how-much-profit-do-hft-firms-generate https://quant.stackexchange.com/questions/34856/how-much-pro...), though 2020 was an exceptional year for many firms. > Shouldn't the exchanges have offered the best price, and provided liquidity, in the first place? Either your wording is a little funny, or this question indicates great ignorance about how trading works. Exchanges do not provide liquidity, market makers do. In 2021, "HFT" ~= "market maker".

w4llstr33t 5y ago
I don't know that much about this, so you could chalk it up to "great ignorance", I suppose. I'm a software engineer, interested in crypto, and not that involved in traditional markets (except for holding an S&P 500 index fund). I do think the exchanges in traditional finance shouldn't have required HFTs in the first place (i.e. it's an antiquated technology). I also think hedge funds and the ultra rich have privileged info, that retail investors don't have. Anyway, I appreciate the clarification. I like learning about all this.
- IncRnd 5y ago
  Today's crypto has the same issues: the fastest decision-making computer with the shortest time to the network makes the block. Just like cutting inches off mainframe cables, manufacturers of ASICs purpose-build computer chips for crypto. GPU operators tune their cards and even download new code to get every last bit of processing capability from their devices. Crypto in these ways is just like HFT.
  - w4llstr33t 5y ago
    I still like the distribution of power to those who wouldn't have had a chance otherwise.