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Imagine someone outside of the tech community thinking along this line... "Making high performance CPUs that are also highly power efficient should make a ton

Imagine someone outside of the tech community thinking along this line... "Making high performance CPUs that are also highly power efficient should make a ton of money. Why isn't everyone doing it?" Well, turns out that isn't exactly something that a small group of engineers can whip up in a garage anymore. Same goes for highly efficient market making systems.

rgifford 4y ago
CPUs operate due to quantified phenomenon. They're well understood. They've been refined over nearly 100 years. HFTs came into their own over the past decade or so -- during a time of falling interest rates, unprecedented growth, and notable lack of regulation in financial markets. One of these things is not like the other. I'd be entirely unsurprised to see most HFTs turn out like Lehman Brothers, Enron, or AIG. They all lasted more than a decade or so. But their gains were fraudulent and they failed spectacularly.
- noitpmeder 4y ago
  {x} came into their own over the past decade or so, during a time of falling interest rates, unprecedented growth, and notable lack of regulation in {x's field}. You can say this about a lot of companies today.
  - rgifford 4y ago
    Context matters. We were speaking in the the context of financial services. In that context, the past decade has been shooting fish in a barrel. You had to be an idiot to lose money with how index funds performed. Point me to three funds that have maintained greater than 20% YoY profits for more than 20 years. I would be floored if you could do it. Apple, arguably the best and most profitable business in the world, manages between 20-30% YoY profit. They're the largest contributor to world financial markets rather than operating only on derivatives. I can not imagine a world in which the largest trading firms can outperform that without fraud of some kind. In my mind, it's like gravity. Little rocks rotate around bigger rocks.
- carnitine 4y ago
  How exactly would this fraud work? Most HFT firms only trade their own capital and distribute gains internally, there’s no one to defraud. Also it’s been going on a lot longer than a decade.
  - rgifford 4y ago
    Market coercion, regulatory capture, negligence, or any other plain old market manipulation like pump and dump or insider trading or bear raiding, etc. Enron straight up lied to regulators, many of their employees were also plain negligent. HFTs will probably find their own flavor of fraud given a few more years, if they haven't already.
    - robertlagrant 4y ago
      > HFTs will probably find their own flavor of fraud given a few more years, if they haven't already. This is what psychics call a "cold reading" - a statement that is bound to be true eventually! At some point in the future HFTs will "find" (?) something approximating fraud. That almost can't not be true. But I don't see how it relates to your statement that Jane Street's reported profits are fraudulent.
      - rgifford 4y ago
        Sure, that statement is a bit of a non sequitur. Here's one that isn't: Highly profitable, speculative, and complicated US financial firms have consistently grown to threaten the stability of US financial systems before collapsing. As such, these types of firms have a high burden of proof for legitimacy. If that hasn't been met, betting on fraudulence is pretty safe given historical context.
        robertlagrant 4y ago
        Fair. I disagree with "consistent". Some highly profitable, speculative, and complicated US financial firms have done this, but others haven't. E.g. insurance firms.
- vecter 4y ago
  HFT does nothing illegal. If you’re going to make strong claims like that, it would be good to provide some evidence.
  - rgifford 4y ago
    A recounting of the recent history of US financial markets suggests, at least to me, that these firms have the burden of proof. If they haven't proven legitimacy and societal benefit, assuming fraud is a pretty safe bet. I honestly can't name any investment firm with double digit returns YoY for more than a decade or two that doesn't have bodies in the closet. Even Berkshire Hathaway pretty much tracks the S&P500 these days. And as for hand wavy platitudes about price discovery, I don't understand them in the least. Occam's razor is all I'm saying: What's the simplest answer to the question, why aren't large HFTs with high overheads being eaten alive as technology decentralizes access to trading? Wouldn't we expect types like Burry -- self-driven, confident financial geniuses -- to be equally decentralized? Wouldn't we expect returns to become equally decentralized? Fraud is the simplest answer. Maybe that comes in the form of market coercion, regulatory capture, negligence, or any other plain old market manipulation. Look back at Enron: The Smartest Guys in the Room. It's all much too similar for my tastes. Time will tell.
    - vecter 4y ago
      > If they haven't proven legitimacy and societal benefit, assuming fraud is a pretty safe bet. This is absurd reasoning. It's like saying Apple has such large profit margins on their iPhones that they must be either cooking their books or in cahoots with someone somewhere. It's just a phone! How hard is it for a competitor to make a comparable phone?! They've had 15 years to copy them! > I honestly can't name any investment firm with double digit returns YoY for more than a decade or two that doesn't have bodies in the closet. It's clear you have literally zero idea what HFT actually does, yet you don't hesitate to call them frauds. HFT firms do not "invest" like traditional investment firms or hedge funds. They provide liquidity and sometimes take liquidity but only tend to hold those positions for seconds or minutes. At the end of every day, most HFT firms have zero position (some might hold some spreads or hedged positions overnight but those are generally less risky). > why aren't large HFTs with high overheads being eaten alive as technology decentralizes access to trading? HFT firms don't compete against each other on pure "technology", but more so on mathematical models or what you could call intelligence. Intelligence is not simply arbitraged away over time, although it does happen to some extent. My comment earlier discusses some of this [0]. Technology has little to do with their success. By the same reasoning, why hasn't Apple's margins been eaten over time? > Fraud is the simplest answer. The ancient Greeks thought that Zeus was the simplest answer for lightning, but clearly we know that not to be the case. > Time will tell. We do not need time. We already know. That you personally don't know doesn't change the fact that nothing illegal or wrong is going on. [0] https://news.ycombinator.com/item?id=32315419 https://news.ycombinator.com/item?id=32315419

rgifford 4y ago

CPUs operate due to quantified phenomenon. They're well understood. They've been refined over nearly 100 years. HFTs came into their own over the past decade or so -- during a time of falling interest rates, unprecedented growth, and notable lack of regulation in financial markets. One of these things is not like the other. I'd be entirely unsurprised to see most HFTs turn out like Lehman Brothers, Enron, or AIG. They all lasted more than a decade or so. But their gains were fraudulent and they failed spectacularly.

noitpmeder 4y ago
{x} came into their own over the past decade or so, during a time of falling interest rates, unprecedented growth, and notable lack of regulation in {x's field}. You can say this about a lot of companies today.
- rgifford 4y ago
  Context matters. We were speaking in the the context of financial services. In that context, the past decade has been shooting fish in a barrel. You had to be an idiot to lose money with how index funds performed. Point me to three funds that have maintained greater than 20% YoY profits for more than 20 years. I would be floored if you could do it. Apple, arguably the best and most profitable business in the world, manages between 20-30% YoY profit. They're the largest contributor to world financial markets rather than operating only on derivatives. I can not imagine a world in which the largest trading firms can outperform that without fraud of some kind. In my mind, it's like gravity. Little rocks rotate around bigger rocks.
carnitine 4y ago
How exactly would this fraud work? Most HFT firms only trade their own capital and distribute gains internally, there’s no one to defraud. Also it’s been going on a lot longer than a decade.
- rgifford 4y ago
  Market coercion, regulatory capture, negligence, or any other plain old market manipulation like pump and dump or insider trading or bear raiding, etc. Enron straight up lied to regulators, many of their employees were also plain negligent. HFTs will probably find their own flavor of fraud given a few more years, if they haven't already.
  - robertlagrant 4y ago
    > HFTs will probably find their own flavor of fraud given a few more years, if they haven't already. This is what psychics call a "cold reading" - a statement that is bound to be true eventually! At some point in the future HFTs will "find" (?) something approximating fraud. That almost can't not be true. But I don't see how it relates to your statement that Jane Street's reported profits are fraudulent.
    - rgifford 4y ago
      Sure, that statement is a bit of a non sequitur. Here's one that isn't: Highly profitable, speculative, and complicated US financial firms have consistently grown to threaten the stability of US financial systems before collapsing. As such, these types of firms have a high burden of proof for legitimacy. If that hasn't been met, betting on fraudulence is pretty safe given historical context.
      - robertlagrant 4y ago
        Fair. I disagree with "consistent". Some highly profitable, speculative, and complicated US financial firms have done this, but others haven't. E.g. insurance firms.
vecter 4y ago
HFT does nothing illegal. If you’re going to make strong claims like that, it would be good to provide some evidence.
- rgifford 4y ago
  A recounting of the recent history of US financial markets suggests, at least to me, that these firms have the burden of proof. If they haven't proven legitimacy and societal benefit, assuming fraud is a pretty safe bet. I honestly can't name any investment firm with double digit returns YoY for more than a decade or two that doesn't have bodies in the closet. Even Berkshire Hathaway pretty much tracks the S&P500 these days. And as for hand wavy platitudes about price discovery, I don't understand them in the least. Occam's razor is all I'm saying: What's the simplest answer to the question, why aren't large HFTs with high overheads being eaten alive as technology decentralizes access to trading? Wouldn't we expect types like Burry -- self-driven, confident financial geniuses -- to be equally decentralized? Wouldn't we expect returns to become equally decentralized? Fraud is the simplest answer. Maybe that comes in the form of market coercion, regulatory capture, negligence, or any other plain old market manipulation. Look back at Enron: The Smartest Guys in the Room. It's all much too similar for my tastes. Time will tell.
  - vecter 4y ago
    > If they haven't proven legitimacy and societal benefit, assuming fraud is a pretty safe bet. This is absurd reasoning. It's like saying Apple has such large profit margins on their iPhones that they must be either cooking their books or in cahoots with someone somewhere. It's just a phone! How hard is it for a competitor to make a comparable phone?! They've had 15 years to copy them! > I honestly can't name any investment firm with double digit returns YoY for more than a decade or two that doesn't have bodies in the closet. It's clear you have literally zero idea what HFT actually does, yet you don't hesitate to call them frauds. HFT firms do not "invest" like traditional investment firms or hedge funds. They provide liquidity and sometimes take liquidity but only tend to hold those positions for seconds or minutes. At the end of every day, most HFT firms have zero position (some might hold some spreads or hedged positions overnight but those are generally less risky). > why aren't large HFTs with high overheads being eaten alive as technology decentralizes access to trading? HFT firms don't compete against each other on pure "technology", but more so on mathematical models or what you could call intelligence. Intelligence is not simply arbitraged away over time, although it does happen to some extent. My comment earlier discusses some of this [0]. Technology has little to do with their success. By the same reasoning, why hasn't Apple's margins been eaten over time? > Fraud is the simplest answer. The ancient Greeks thought that Zeus was the simplest answer for lightning, but clearly we know that not to be the case. > Time will tell. We do not need time. We already know. That you personally don't know doesn't change the fact that nothing illegal or wrong is going on. [0] https://news.ycombinator.com/item?id=32315419 https://news.ycombinator.com/item?id=32315419