5 ms·

also having worked in the space: HFT should not exist. Break up the day into segments and have a single crossing. Do it every five minutes or whatever for suffi

by joshu 3y ago

also having worked in the space: HFT should not exist. Break up the day into segments and have a single crossing. Do it every five minutes or whatever for sufficient timeliness. the millisecond race does not make anything better for anybody except the people doing the trading.

alchemist1e9 3y ago
[flagged]
- grog454 3y ago
  > but overall it performs a valuable economic function Can you explain what that is? > To understand this requires understanding markets very deeply Apparently you aren't the only person on this forum who does. Are we just supposed to take your word for it?
  - mrcode007 3y ago
    He’s referring to the fact that the HFT “provides liquidity” as in getting a share off your hands and flipping it to someone else that is not you a moment later. This way you didn’t have to wait 3 seconds or 1 minute or whatever to sell your shares because someone knew they could flip them (alpha) on a short notice so they participated in a transaction with you. He’s assuming that without the HFT, the transactions wouldn’t be as frequent and you’d have to either a) wait for the fill on your trade , or b) lower your ask price if selling under time deadline. Analogously for buy orders. The only parties with semi-global visibility are prime brokers by definition; they see every position of everyone who custodies with them. The parties with global visibility of the US market are TRF (trade reporting facility) and those are the only parties who can sort of evaluate the HFT claims without bias or vested interest. Most of the studies in the field have some sort of an angle or vested interest so it’s hard to evaluate the veracity of the claims one way or another. A counterpoint to HFT is that stock markets existed before the the advent of computers and they had runs, panics and blow ups just like regular markets do now.
    - alchemist1e9 3y ago
      I don’t have time to reply properly until a few hours from now. In the meantime what I can say very simply in the hope that someone else knowledgeable can contribute earlier. It’s simply an empirical fact that the costs of intermediation to the system are the lowest they have ever been. The US and other global electronic markets are incredibly efficient and deliver unmatched liquidity, information efficiency, and the lowest costs to the entire capital markets than at anytime in history. That march forward is continuous and brutally competitive There are many many way to see this and measure it, any serious quantitative analysis, by professionals, for instance trained in econometrics and with access to the raw data, like those at say the Fed, or those operating exchanges, as examples.
      - mrcode007 3y ago
        Your dismissals seem to be very biased and you’re not allowing the possibility of being wrong. As a practitioner who worked on the systems you’re citing I can tell you’re wrong on many fronts. As far as costs are concerned, you’re not answering the most relevant question that applies to most users of this forum: costs to retail traders, and are only tackling the institutional side of things. Nobody from retail concerns themselves with costs of intermediation because those costs are irrelevant to retail. Not at the order volumes that don’t even incur slippage. Plus, fees are only part of the game. I can give you an NBBO improvement now to be compliant with the regulation, but I am not guaranteeing anything in terms of price in the next second. See where this is going? Edit: by the way, what you’re repeating is what I jokingly call a “party line”. Especially if you look at the hard cold data. For example people often cite narrower spreads etc. but even with Interactive Brokers you can get MPID displayed on the NMS aggregated full depth order book and see who quotes how much and at what levels and the spreads don’t add up to the half of the myths people keep repeating. It’s easy to hide the real numbers in the _averages_ and various other statistics though.
        alchemist1e9 3y ago
        I’m a practitioner and no, the costs to retail traders is included and analyzed. The most vocal critics of HFT are very often previously practitioners who are upset when their strategies and models becomes obsolete are are outwitted by even more efficient operators. Give any example of where you are going? I will say RegNMS and NBBO regulations are actually preventing even further efficiencies. Dark pools and off exchange matching or internalization are complex topic that are easy to misunderstand. There are absolutely bad actors to be found in the system. This is true in any system. But on aggregate the system is continuously reducing costs and improving efficiency. Intermediation costs are a friction on the real economy and capital markets and they will always exist, but on aggregate they are dropping for all users, institutional and retail. In regards to party line, it’s absurd, you can simply take the aggregate income, not profits, of all the top HFT operators, their income is their counterparties costs, and when attributed per market, this number is continuously dropping on aggregate. If you look at an individual firm, you can see it’s income growing, however that will come from 2 dimensions, either expanding their operations to other markets, or taking share from a competitor. However if you sum all profits across all HFT operators on a single market complex, say US equities, on longer economic timescales, this number is continuously dropping. Obviously during periods of market volatility this number can increase, but the trend over years, will be always downward. HFT is a absolutely brutally competitive industry. I’d be interested in what you saw working on such systems seem “wrong” or “unfair”. My guess is you don’t understand that all is fair in war and that includes HFT, as long as it is legal.
- joshu 3y ago
  Did you really mean to be this insulting?
  - alchemist1e9 3y ago
    Unfortunately I don’t understand why anyone finds my comment very insulting. However the primary moderator (dang) appears to agree with you it seems. It’s unfortunate that calling out other’s bias is off limits in society too much as it’s often the primary reason people advocate their position. HFT is not anything like what critics claim and those critics have severe biases.
    - joshu 3y ago
      You went directly to ad hominem. Not sure why you are surprised.
- dang 3y ago
  Please don't cross into personal attack or name-calling swipes, regardless of how right you are or feel you are. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html If you know more than others, that's great—please share some of what you know, so the rest of us can learn—or else don't post. Sneers and putdowns only make everything worse. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sort=byDate&type=comment&query=share%20know%20learn%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...
_zkyx 3y ago
Amazing, I just checked out your profile. I used del.icio.us religiously back in the day. Thank you!
ye-olde-sysrq 3y ago
I think you would still end up with races, they'd just move around. IEX's "speed bump" was just marketing and didn't really matter to actual HFTs. Plus, some of it is unavoidable if you don't have a single unified exchange. Where there's latency, there's inefficiencies, and where there's inefficiency, there's profit to be made. And competition among exchanges is healthy for the ecosystem, so I don't think we'd want to consolidate. And lastly, HFT has consolidated so much that I don't think it's worth worrying about. Virtu literally switched sides and make most of their money on order execution. Industry-wide, HFT revenues are down like 80% over the last 5-8 years. Between wholesaling/PFOF taking non-toxic order flow off the lit exchanges, and banks finally wising up on not being pants-on-head about their order execution, it's literally just sharks in the pool now, there's not even any water.
- HWR_14 3y ago
  Why is competition among exchanges a good thing? Why not a single, very regulated, exchange which serves as a neutral playing field?
  - tick_tock_tick 3y ago
    Single point of failure is a simple justification right off the top of my head. What happens if you have a critical failure that brings down an exchange for several days?
    - quickthrower2 3y ago
      As a counter I had some VW shares I couldn’t access for 6 months because they were moved to another exchange. 20 calls to the broker to find out what had even happened. Eventually I was able to sell them.
      - tomcam 3y ago
        Well, your first problem was investing in VW (KIDDING!). But seriously, I usually stick to self-serve stock purchases. Was this a situation where you had to contact a human to make the buy in the first place, or was it that you bought it yourself, then VW changed up their infrastructure and inadvertently locked you out? Shitty situation either way.
ilyt 3y ago
...that's kinda entire stock exchange. It could be all run once a day if it was just to give ability to raise funds via investment
Eddy_Viscosity2 3y ago
There should be transaction fees on all trades on all exchanges that go to the government, yes I mean a tax.
- alchemist1e9 3y ago
  Why?
auntienomen 3y ago
Running the matching engine at discrete times doesn't eliminate the speed race, as that's mainly about jockeying for queue position. You could put in an auction instead, but that's just changing the rules of the game rather than eliminating the game. But really, the key thing is that liquidity provision actually is a service -- market makers are basically selling insurance. There's money to be made doing his, so people will compete to do so. That's what the millisecond race is about. Faster trading -> less risk for the MM -> less capital needed -> lower profits acceptable. Contra what you're claiming, the race is cutting into profits, not raising them. If you want to reduce market-maker profits, crack down on payment for order flow, and let everyone compete for a chance to trade against it.
blibble 3y ago
periodic auctions are common on european exchanges (pesky limits on dark pool volume) instead of order entry + continuous matching: order entry is allowed, but no matching (like pre-open phase) then after a random period of time the auction algo runs on the entered orders then repeat the entire thing every second
Ntrails 3y ago
We tried this in Taiwan. They reverted to continuous matching.
deleted 3y ago
[deleted]

by joshu 3y ago

alchemist1e9 3y ago

[flagged]

grog454 3y ago
> but overall it performs a valuable economic function Can you explain what that is? > To understand this requires understanding markets very deeply Apparently you aren't the only person on this forum who does. Are we just supposed to take your word for it?
- mrcode007 3y ago
  He’s referring to the fact that the HFT “provides liquidity” as in getting a share off your hands and flipping it to someone else that is not you a moment later. This way you didn’t have to wait 3 seconds or 1 minute or whatever to sell your shares because someone knew they could flip them (alpha) on a short notice so they participated in a transaction with you. He’s assuming that without the HFT, the transactions wouldn’t be as frequent and you’d have to either a) wait for the fill on your trade , or b) lower your ask price if selling under time deadline. Analogously for buy orders. The only parties with semi-global visibility are prime brokers by definition; they see every position of everyone who custodies with them. The parties with global visibility of the US market are TRF (trade reporting facility) and those are the only parties who can sort of evaluate the HFT claims without bias or vested interest. Most of the studies in the field have some sort of an angle or vested interest so it’s hard to evaluate the veracity of the claims one way or another. A counterpoint to HFT is that stock markets existed before the the advent of computers and they had runs, panics and blow ups just like regular markets do now.
  - alchemist1e9 3y ago
    I don’t have time to reply properly until a few hours from now. In the meantime what I can say very simply in the hope that someone else knowledgeable can contribute earlier. It’s simply an empirical fact that the costs of intermediation to the system are the lowest they have ever been. The US and other global electronic markets are incredibly efficient and deliver unmatched liquidity, information efficiency, and the lowest costs to the entire capital markets than at anytime in history. That march forward is continuous and brutally competitive There are many many way to see this and measure it, any serious quantitative analysis, by professionals, for instance trained in econometrics and with access to the raw data, like those at say the Fed, or those operating exchanges, as examples.
    - mrcode007 3y ago
      Your dismissals seem to be very biased and you’re not allowing the possibility of being wrong. As a practitioner who worked on the systems you’re citing I can tell you’re wrong on many fronts. As far as costs are concerned, you’re not answering the most relevant question that applies to most users of this forum: costs to retail traders, and are only tackling the institutional side of things. Nobody from retail concerns themselves with costs of intermediation because those costs are irrelevant to retail. Not at the order volumes that don’t even incur slippage. Plus, fees are only part of the game. I can give you an NBBO improvement now to be compliant with the regulation, but I am not guaranteeing anything in terms of price in the next second. See where this is going? Edit: by the way, what you’re repeating is what I jokingly call a “party line”. Especially if you look at the hard cold data. For example people often cite narrower spreads etc. but even with Interactive Brokers you can get MPID displayed on the NMS aggregated full depth order book and see who quotes how much and at what levels and the spreads don’t add up to the half of the myths people keep repeating. It’s easy to hide the real numbers in the _averages_ and various other statistics though.
      - alchemist1e9 3y ago
        I’m a practitioner and no, the costs to retail traders is included and analyzed. The most vocal critics of HFT are very often previously practitioners who are upset when their strategies and models becomes obsolete are are outwitted by even more efficient operators. Give any example of where you are going? I will say RegNMS and NBBO regulations are actually preventing even further efficiencies. Dark pools and off exchange matching or internalization are complex topic that are easy to misunderstand. There are absolutely bad actors to be found in the system. This is true in any system. But on aggregate the system is continuously reducing costs and improving efficiency. Intermediation costs are a friction on the real economy and capital markets and they will always exist, but on aggregate they are dropping for all users, institutional and retail. In regards to party line, it’s absurd, you can simply take the aggregate income, not profits, of all the top HFT operators, their income is their counterparties costs, and when attributed per market, this number is continuously dropping on aggregate. If you look at an individual firm, you can see it’s income growing, however that will come from 2 dimensions, either expanding their operations to other markets, or taking share from a competitor. However if you sum all profits across all HFT operators on a single market complex, say US equities, on longer economic timescales, this number is continuously dropping. Obviously during periods of market volatility this number can increase, but the trend over years, will be always downward. HFT is a absolutely brutally competitive industry. I’d be interested in what you saw working on such systems seem “wrong” or “unfair”. My guess is you don’t understand that all is fair in war and that includes HFT, as long as it is legal.
joshu 3y ago
Did you really mean to be this insulting?
- alchemist1e9 3y ago
  Unfortunately I don’t understand why anyone finds my comment very insulting. However the primary moderator (dang) appears to agree with you it seems. It’s unfortunate that calling out other’s bias is off limits in society too much as it’s often the primary reason people advocate their position. HFT is not anything like what critics claim and those critics have severe biases.
  - joshu 3y ago
    You went directly to ad hominem. Not sure why you are surprised.
dang 3y ago
Please don't cross into personal attack or name-calling swipes, regardless of how right you are or feel you are. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html If you know more than others, that's great—please share some of what you know, so the rest of us can learn—or else don't post. Sneers and putdowns only make everything worse. https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sort=byDate&type=comment&query=share%20know%20learn%20by:dang https://hn.algolia.com/?dateRange=all&page=0&prefix=true&sor...

_zkyx 3y ago

Amazing, I just checked out your profile. I used del.icio.us religiously back in the day. Thank you!

ye-olde-sysrq 3y ago

I think you would still end up with races, they'd just move around. IEX's "speed bump" was just marketing and didn't really matter to actual HFTs. Plus, some of it is unavoidable if you don't have a single unified exchange. Where there's latency, there's inefficiencies, and where there's inefficiency, there's profit to be made. And competition among exchanges is healthy for the ecosystem, so I don't think we'd want to consolidate. And lastly, HFT has consolidated so much that I don't think it's worth worrying about. Virtu literally switched sides and make most of their money on order execution. Industry-wide, HFT revenues are down like 80% over the last 5-8 years. Between wholesaling/PFOF taking non-toxic order flow off the lit exchanges, and banks finally wising up on not being pants-on-head about their order execution, it's literally just sharks in the pool now, there's not even any water.

HWR_14 3y ago
Why is competition among exchanges a good thing? Why not a single, very regulated, exchange which serves as a neutral playing field?
- tick_tock_tick 3y ago
  Single point of failure is a simple justification right off the top of my head. What happens if you have a critical failure that brings down an exchange for several days?
  - quickthrower2 3y ago
    As a counter I had some VW shares I couldn’t access for 6 months because they were moved to another exchange. 20 calls to the broker to find out what had even happened. Eventually I was able to sell them.
    - tomcam 3y ago
      Well, your first problem was investing in VW (KIDDING!). But seriously, I usually stick to self-serve stock purchases. Was this a situation where you had to contact a human to make the buy in the first place, or was it that you bought it yourself, then VW changed up their infrastructure and inadvertently locked you out? Shitty situation either way.

ilyt 3y ago

...that's kinda entire stock exchange. It could be all run once a day if it was just to give ability to raise funds via investment

Eddy_Viscosity2 3y ago

There should be transaction fees on all trades on all exchanges that go to the government, yes I mean a tax.

alchemist1e9 3y ago
Why?

auntienomen 3y ago

Running the matching engine at discrete times doesn't eliminate the speed race, as that's mainly about jockeying for queue position. You could put in an auction instead, but that's just changing the rules of the game rather than eliminating the game. But really, the key thing is that liquidity provision actually is a service -- market makers are basically selling insurance. There's money to be made doing his, so people will compete to do so. That's what the millisecond race is about. Faster trading -> less risk for the MM -> less capital needed -> lower profits acceptable. Contra what you're claiming, the race is cutting into profits, not raising them. If you want to reduce market-maker profits, crack down on payment for order flow, and let everyone compete for a chance to trade against it.

blibble 3y ago

periodic auctions are common on european exchanges (pesky limits on dark pool volume) instead of order entry + continuous matching: order entry is allowed, but no matching (like pre-open phase) then after a random period of time the auction algo runs on the entered orders then repeat the entire thing every second

Ntrails 3y ago

We tried this in Taiwan. They reverted to continuous matching.

deleted 3y ago

[deleted]