4 ms·

I find it interesting how HFT apparently creates no economic value whatsoever. The value is siphoned off more traditional market trades.

by bb88 3y ago

nonethewiser 3y ago
Lots of things dont create economic value but that doesnt make them bad. Why so you find it interesting?
- Firmwarrior 3y ago
  HFT is frustrating since it creates dubious value and eats up a lot of technical talent in the process I don't think there's a reasonable way to stamp it out, though.. I guess if IEX's anti-HFT strategies were more ubiquitous it'd transform the HFT industry and maybe calm it down a little?
  - kasey_junk 3y ago
    IEX’s biggest participants are HFT market makers.
- spicebox 3y ago
  Usually things that don’t create economic value at least create some other kind of social value, which HFT doesn’t really seem to do
- barnabee 3y ago
  HFT at the extremes doesn't just create no economic value, it actually extracts value from all other participants. Frequent batch auctions are one possible solution to this problem[0] that I see as quite promising. The problem of couse is that exchanges profit from the HFT extraction via fees and the prestige generated by reporting higher trading volume. Any real solution needs to solve both the micro-structure and the macro-structure of markets and make exchanges a publicly or collectively owned (or at least incentivised) utility. [0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2388265 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2388265
  - tptacek 3y ago
    It does the literal opposite thing: it provides value to every market participant (except the inefficient human market makers and commercial brokers it replaced).
- nocoiner 3y ago
  LOL, an economic transaction that doesn’t create economic value is … not a good economic transaction. But obviously good for some people.
- geysersam 3y ago
  What kind of things are you referring to? People writing poetry? Or someone helping their elderly neighbor shopping? Or misleading advertising? Some things that don't create economic value are extremely good and valuable. Bit it's obvious that spending resources to do nothing useful is objectively bad, even if it happens to redistribute wealth to you.
yellowstuff 3y ago
On the contrary, equities markets need the liquidity HFTs provide to function well. Before HFTs there were human market makers who played a similar role in equities markets, but charged far more to do it. HFT is a story of efficient technology bringing prices down a lot and shrinking the profitability of an existing industry. I’m sympathetic to the view that a lot of resources have been poured into making trades happen in 1 nanosecond when 100 or 1000 nanoseconds would probably be fine for all practical purposes. The issue is that people keep finding that letting the fastest system get the trade actually does work better than alternative approaches.
- geysersam 3y ago
  > people keep finding that letting the fastest system get the trade actually does work better than alternative approaches. What does "work better" mean in this context? Did the exchange find it increased their profits?
  - anonymoushn 3y ago
    It means people get better prices than they otherwise would. US markets are pretty bad along many axes (e.g. brokers have an obligation to route flow to wholesalers in an effort to maximize price improvement, but this does not necessarily result in the best price on a per-order basis the way that a limit order book populated by wholesalers and other retail orders would. startup costs to get "fair access" to institutional flow and 0 captive retail flow are multiple millions of dollars because of exchange revenue models. retail maker orders will literally never interact with retail taker orders. etc.), but it's difficult to argue that retail would pay less in fees and spreads if they had to always interact with quotes manually created by humans.
    - geysersam 3y ago
      I definitely don't know enough about trading. So please forgive if this is just naive. From what I gather, the problem is matching sellers to buyers. Sellers list what they're looking to buy, and the price they're willing to pay. Buyers list what they're willing to sell, and at what price. Let's say each offer is valid for 100 ms (that's a reasonably short time span, no immense risk for the entity making the offer). But I find it difficult to understand where speed (on the level of HFT) ever becomes a factor in this game? If the HFTs looks at different exchanges and work as gel between them, making the trades between exchanges that otherwise wouldn't happen, that would make sense as a valuable business. Is that their purpose? Although, it still seems to me the slower buyer and seller would prefer to come to an agreement alone without the middle man taking part of the profit. If the trade enabled by the HFT would've happened the next 100ms clock cycle anyway after the buyer and seller noticed each other and adjusted their prices, I don't see the value of the HFT trader. Seems they're just hacking the system.
drexlspivey 3y ago
They improve the bid-ask spread so they save customers money
kasey_junk 3y ago
HFT may be the most obvious advantage of technology disrupting traditional oligarchical structures the world has ever seen. A market that was previously dominated by good old boy networks of football players was made massively more efficient and the cost of entry driven to the floor purely based on nerds with math. To the benefit of effectively every market participant besides said football players. I find it interesting that an industry that has spent the last 30 years dedicating their best and brightest to panopticon building ad driven navel gazing can continue to act high and mighty about real innovation.
- letitgo12345 3y ago
  Otoh, that ad driven navel gazing ultimately delivered Generative AI which is likely going to lead to superhuman AI. What equivalent value did HFT deliver?

I find it interesting how HFT apparently creates no economic value whatsoever. The value is siphoned off more traditional market trades.

by bb88 3y ago

I find it interesting how HFT apparently creates no economic value whatsoever. The value is siphoned off more traditional market trades.

nonethewiser 3y ago

Lots of things dont create economic value but that doesnt make them bad. Why so you find it interesting?

Firmwarrior 3y ago
HFT is frustrating since it creates dubious value and eats up a lot of technical talent in the process I don't think there's a reasonable way to stamp it out, though.. I guess if IEX's anti-HFT strategies were more ubiquitous it'd transform the HFT industry and maybe calm it down a little?
- kasey_junk 3y ago
  IEX’s biggest participants are HFT market makers.
spicebox 3y ago
Usually things that don’t create economic value at least create some other kind of social value, which HFT doesn’t really seem to do
barnabee 3y ago
HFT at the extremes doesn't just create no economic value, it actually extracts value from all other participants. Frequent batch auctions are one possible solution to this problem[0] that I see as quite promising. The problem of couse is that exchanges profit from the HFT extraction via fees and the prestige generated by reporting higher trading volume. Any real solution needs to solve both the micro-structure and the macro-structure of markets and make exchanges a publicly or collectively owned (or at least incentivised) utility. [0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2388265 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2388265
- tptacek 3y ago
  It does the literal opposite thing: it provides value to every market participant (except the inefficient human market makers and commercial brokers it replaced).
nocoiner 3y ago
LOL, an economic transaction that doesn’t create economic value is … not a good economic transaction. But obviously good for some people.
geysersam 3y ago
What kind of things are you referring to? People writing poetry? Or someone helping their elderly neighbor shopping? Or misleading advertising? Some things that don't create economic value are extremely good and valuable. Bit it's obvious that spending resources to do nothing useful is objectively bad, even if it happens to redistribute wealth to you.

yellowstuff 3y ago

On the contrary, equities markets need the liquidity HFTs provide to function well. Before HFTs there were human market makers who played a similar role in equities markets, but charged far more to do it. HFT is a story of efficient technology bringing prices down a lot and shrinking the profitability of an existing industry. I’m sympathetic to the view that a lot of resources have been poured into making trades happen in 1 nanosecond when 100 or 1000 nanoseconds would probably be fine for all practical purposes. The issue is that people keep finding that letting the fastest system get the trade actually does work better than alternative approaches.

geysersam 3y ago
> people keep finding that letting the fastest system get the trade actually does work better than alternative approaches. What does "work better" mean in this context? Did the exchange find it increased their profits?
- anonymoushn 3y ago
  It means people get better prices than they otherwise would. US markets are pretty bad along many axes (e.g. brokers have an obligation to route flow to wholesalers in an effort to maximize price improvement, but this does not necessarily result in the best price on a per-order basis the way that a limit order book populated by wholesalers and other retail orders would. startup costs to get "fair access" to institutional flow and 0 captive retail flow are multiple millions of dollars because of exchange revenue models. retail maker orders will literally never interact with retail taker orders. etc.), but it's difficult to argue that retail would pay less in fees and spreads if they had to always interact with quotes manually created by humans.
  - geysersam 3y ago
    I definitely don't know enough about trading. So please forgive if this is just naive. From what I gather, the problem is matching sellers to buyers. Sellers list what they're looking to buy, and the price they're willing to pay. Buyers list what they're willing to sell, and at what price. Let's say each offer is valid for 100 ms (that's a reasonably short time span, no immense risk for the entity making the offer). But I find it difficult to understand where speed (on the level of HFT) ever becomes a factor in this game? If the HFTs looks at different exchanges and work as gel between them, making the trades between exchanges that otherwise wouldn't happen, that would make sense as a valuable business. Is that their purpose? Although, it still seems to me the slower buyer and seller would prefer to come to an agreement alone without the middle man taking part of the profit. If the trade enabled by the HFT would've happened the next 100ms clock cycle anyway after the buyer and seller noticed each other and adjusted their prices, I don't see the value of the HFT trader. Seems they're just hacking the system.

drexlspivey 3y ago

They improve the bid-ask spread so they save customers money

kasey_junk 3y ago

HFT may be the most obvious advantage of technology disrupting traditional oligarchical structures the world has ever seen. A market that was previously dominated by good old boy networks of football players was made massively more efficient and the cost of entry driven to the floor purely based on nerds with math. To the benefit of effectively every market participant besides said football players. I find it interesting that an industry that has spent the last 30 years dedicating their best and brightest to panopticon building ad driven navel gazing can continue to act high and mighty about real innovation.

letitgo12345 3y ago
Otoh, that ad driven navel gazing ultimately delivered Generative AI which is likely going to lead to superhuman AI. What equivalent value did HFT deliver?