12 ms·

I don't get why the SEC doesn't enforce a minimum tick rate of one second. Heck, even one whole minute would barely exceed the noise floor. High-frequency tradi

I don't get why the SEC doesn't enforce a minimum tick rate of one second. Heck, even one whole minute would barely exceed the noise floor. High-frequency trading doesn't need to exist, and the brilliant minds bashing their heads against the problem could be pursuing far more productive endeavors.

542458 3y ago
> High-frequency trading doesn't need to exist Neither does most of the stock market, for many definitions of “need”. But on the flip side, nobody has ever really demonstrated strong negative effects from HFT and many studies show positive effects, so bans seem very kneejerk to me.
- stefan_ 3y ago
  The point is that whatever function you think HFT serves can be done just as well at fixed tick rates. This whole latency optimization mini game is just a pure waste.
  - super256 3y ago
    And in which order would orders be executed when they come in and get queued? A delay wouldn't fix anything because the queue would still be FIFO. The only way to remove HTF would be removing the trading session, and instead only offering the market auction. Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA).
    - denotational 3y ago
      > Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA). This is true, but the term is overloaded: if I say "the exchange slid the price one tick to comply with Reg. NMS" then I'm using it in the sense you mean; if I say "the model recomputes on each tick" then I'm using it in the sense of the GP.
    - elictronic 3y ago
      Randomize the queue.
      - growse 3y ago
        That'll make everything more expensive, as every trade now has to price in the risk that it won't actually happen. Increasing market friction is not a good idea.
        cosmojg 3y ago
        Given that randomization need only apply to orders placed simultaneously at identical prices, I don't see how it would increase market frictions enough to significantly limit their utility in price discovery, long-term investing, and the raising of capital. Individuals and corporations aren't making tradable decisions at subsecond intervals.
        growse 3y ago
        By simultaneously, I assume you mean "within one time interval". I suspect you'd be surprised how many orders at the same price can happen in a very very short time window. As for price discovery, a lot of information can happen in one second. Quantizing just adds risk, which adds cost, which harms everyone. > Individuals and corporations aren't making tradable decisions at subsecond intervals. No, but they're benefitting significantly from the fact that the cost of trading is now minuscule compared to what it used to be.
        cosmojg 3y ago
        > Quantizing just adds risk, which adds cost, which harms everyone. No, it adds risk at the scale of the quantum, adding cost for those trading at the scale of the quantum, harming a very small subset of traders who would normally benefit from trading at or below the scale of the quantum, like HFT firms and short-term market makers. Should such institutions cease to exist because the cost of trading at such scales becomes prohibitively expensive, I highly doubt that society will suffer.
    - cosmojg 3y ago
      > And in which order would orders be executed when they come in and get queued? That's easy! Come time to match and fill for orders placed at identical prices, there's no reason a random number generator couldn't do the trick. Trading second-by-second need not be reliably profitable in the extremely short term to ensure an orderly and efficient market. The whole point of a static tick rate is to disincentivize such myopic trading in the first place! I agree, though, that the logical conclusion of all this would be to replace the trading session with a market auction. However, while I appreciate the superior allocative efficiency of a Vickrey-style sealed-bid second-price multi-unit double auction[1] as much as the next guy, I have more faith in iterative improvements coming to pass before revolutionary ones. > Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA). Right, I apologize if I confused anyone with overloaded terms, but I think it's appropriate to expect the average Hacker News reader to correctly parse "tick rate" in the context of telecommunications and networking rather than confuse it with the trading concept of "tick size." [1] https://www.cs.cmu.edu/~softagents/papers/Emarket.pdf https://www.cs.cmu.edu/~softagents/papers/Emarket.pdf
      - growse 3y ago
        > > And in which order would orders be executed when they come in and get queued? > That's easy! Come time to match and fill for orders placed at identical prices, there's no reason a random number generator couldn't do the trick. Trading second-by-second need not be reliably profitable in the extremely short term to ensure an orderly and efficient market. The whole point of a static tick rate is to disincentivize such myopic trading in the first place! Adding deliberate randomness to the market makes it neither more orderly nor more efficient. And you're confusing "myopic" trading with market making. Buying now and selling 10 minutes from now brings together two other participants who want to trade but not at the same time. That seller may have needed to have accepted a worse price in order to execute when they needed to. But if you just look at the market maker, they briefly held onto something they didn't need for 10 minutes. What's the point!
        AlbertCory 3y ago
        You are intentionally exaggerating. He didn't say to add "deliberate randomness" and he didn't say "10 minutes." A one microsecond or one millisecond time window would serve all legitimate trading purposes.
    - AlbertCory 3y ago
      Someone else here said "random" for choosing which of two or more identical trades to execute. As it is now, it's "first one to arrive, measured in nanosecond time." I think the SEC decreeing "random" for trades within some time window (is the window of millisecond size? microsecond size? not sure) would be totally legit, and it would redirect financial resources to better trades, not faster ones.
    - Ekaros 3y ago
      Disallowing fill or kill(or deprioritising) could solve this. So any sell order is split between buy orders matching.
  - Enginerrrd 3y ago
    I don't think this would really get rid of HFT. You'd still have price discovery and a fight to reduce latency happening on some HFT time scale before each tick.
    - cosmojg 3y ago
      And that's fine. Most of that activity would be happening off-exchange, meaning less market noise, less price volatility, and less need to consume limited resources like radio spectrum and New York City real estate.
- hhs 3y ago
  > But on the flip side, nobody has ever really demonstrated strong negative effects from HFT and many studies show positive effects If interested, this is a paper published in January 2023 called "Does high-frequency trading actually improve market liquidity? A comparative study for selected models and measures" [0]. And the abstract notes: "By comparing a variety of regression models that associate various measures of market liquidity with measures of high-frequency activity on the same dataset, we find that for some models the increase in high-frequency activity improves market liquidity, but for others, we get the opposite effect. We indicate that this ambiguity does not depend only on the stock market or the data period, but also on the used HFT measure: the increase of high-frequency orders leads to lower market liquidity whereas the increase in high-frequency trades improves liquidity. We hypothesize that the observed decrease in market liquidity associated with an increasing level of high-frequency orders is caused by a rise in quote volatility." [0] [0]: https://www.sciencedirect.com/science/article/pii/S0275531922002586 https://www.sciencedirect.com/science/article/pii/S027553192...
- cosmojg 3y ago
  The stock market provides an efficient medium for the allocation of capital. This means that corporations can more easily and safely raise capital from the public and that the public can participate in the positive-sum growth of publicly traded companies and the economy at large. Moreover, the stock market, like any market efficient enough to be worth its salt, provides a uniquely effective information aggregation mechanism via price discovery, facilitating more accurate and more precise forecasting and prediction for nearly any process which interacts with the greater economy. Studies of high-frequency trading have yet to show benefits to these processes above and beyond those provided by a slower static tick rate, and in fact, more recent studies seem to suggest that HFT may even exist only to the detriment of these processes, all while wasting undue resources, both physical and intellectual, on an endless arms race over ever decreasing trading latency[1]. [1] https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading
  - j-pb 3y ago
    > The stock market provides an efficient medium for the allocation of capital. Only if P=NP.[1] Besides Efficiency: the ratio of the useful work performed by a machine or in a process to the total energy expended or heat taken in. This also begs the question: "To efficiently allocate capital (energy) for what goal (work)?" And it doesn't look like the answer to that is "the betterment of humanity", but to push the bell curve of wealth as far to the left as possible with the longest tail possible, externalities be damned. The stock market isn't a usefull tool for society like kickstarter, but a wealth extraction mechanism for the wealthiest. So I'd argue that HFT isn't any more immoral than T. 1: https://arxiv.org/abs/1002.2284 https://arxiv.org/abs/1002.2284
    - Dylan16807 3y ago
      > Efficiency: the ratio of the useful work And then you merely link a proof that the efficiency is not 100%. That's effectively meaningless.
      - consilient 3y ago
- shw1n 3y ago
  I thought they did find negative effects? I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running and worse prices for customers? Michael Lewis covered this beautifully in Flashboys
  - denotational 3y ago
    Can you explain how "dark pools lead to front-running and worse prices for customers"? I would agree that the price discovery works best when liquidity is lit up on a single CLOB, but claims about HFT leading to front-running or worse prices for customers (I assume you mean retail investors?) need justification. What do you mean when you say "front-running"? It has a fairly specific definition, but it is often used inaccurately in discussions around HFT. If by front-running you mean "HFT firms accept instructions as agent and then deal as principle prior to executing their client's instructions so as to benefit from the price move their client's order may induce" then you would be using the term correctly, and the SEC would be very interested, but this isn't what HFT firms do.
    - AlbertCory 3y ago
      That's my (naive) understanding of front-running. But I'm not familiar with the argument that HFT facilitates it. The best argument is that HFT serves no legitimate purpose, and is just a pointless arms race. Money should flow to better trades, not faster ones.
      - denotational 3y ago
        Usually when people claim that HFT strategies “front-run” they are talking about aggressor/taker strategies that are trying to shave off every nanosecond of latency to increase the chance of a fill at the best possible price. Because these strategies are actively racing other participants for a fill, some people (inaccurately) call this “front-running”, presumably because they are “running in front” of other participants, but this isn’t what is usually meant by front-running. As another commented has pointed out, front-running (in the sense I described it in my previous comment) is explicitly prohibited by regulation in the US, so to misuse the term in this way is to accuse someone of acting illegally without actually understanding what the terms mean.
- tmn 3y ago
  It’s my naive understanding that HFT makes money at the direct expense of other market participants. Is this not a downside? I’m genuinely curious to the arguments against this.
  - qeternity 3y ago
    You can’t state it’s at the expense without stating how.
    - Ekaros 3y ago
      They make money/"wealth". That must come from either the seller or buyer or both. Unless existence of HFT directly leads to higher appreciation of assets traded.
      - qeternity 3y ago
        All trading is zero sum. If I own shares in a company for 20 years, that means someone else who sold them to me doesn’t own those shares and doesn’t earn those returns.
      - rcxdude 3y ago
        In the absence of a market maker (human or algorithmic), a much larger fraction of the value of a transaction is effectively randomly distributed between the buyer and seller. And it turns out buyers and sellers don't really like this much, and are happy to pay a small fraction of the transaction for a more predictable outcome.
    - bobbylarrybobby 3y ago
      Even if you're right about the market, HFTs will make you a little less right for no reason other than that they've invested billions of dollars into being faster than you.
      - lotsofpulp 3y ago
        And they will give you a little more liquidity.
- BurningFrog 3y ago
  The clear negative effect is the many billions spent on shaving communication milli- and microseconds to win zero sum games.
  - tomatotomato37 3y ago
    [dead]
- MarkMarine 3y ago
  Bernie has a great proposal to tax these transactions, and fund some wonderful social programs with the money.
  - PoignardAzur 3y ago
    > and fund some wonderful social programs with the money. That's silly. The whole point is they're a zero-sum game with semiconductor-thin margins. Any meaningful taxation will make them evaporate. That doesn't mean they shouldn't be taxed! But it would be a pigovian tax, the kind that serves as a soft interdiction and not as government income.
epx 3y ago
One day the market itself will reach this conclusion, that one auction-trade a day is all it's needed.
- DwnVoteHoneyPot 3y ago
  No. Trades happen because people disagree with the value of the company. One person thinks the value is higher, other thinks it's lower. They are arguing and they're willing to put money behind their opinion. Faster the argument, the faster the price discovery is. An analogy would be operating Hacker News by publishing all the opinions once a day like a print newspaper. The back and forth arguments would take weeks... you post, some responds the next day, you respond the third day. Not good.
  - rytis 3y ago
    > The back and forth arguments would take weeks... you post, some responds the next day, you respond the third day. Not good. Is it really not good?.. Now just thinking about what you said reminded me good old FidoNET days. You’d get mail once a day (typically), read/respond and that’s it, done for the day, on to do some work. Procrastination problem solved :)
- Animats 3y ago
  Doesn't help. Then you have auction sniping, like eBay. If the auction is sealed bid, then price discovery is terrible.
xwdv 3y ago
Sports don’t need to exist either. For programmers obsessed with speed and never ending optimization to get the extra edge, HFT is the ultimate sport.
- cosmojg 3y ago
  I prefer sports with fewer negative externalities, and I certainly believe trading can continue to be fun with a slower tick rate. Heck, the additional skill required to succeed in a more efficient market should make the sport of trading even more fun!
  - qeternity 3y ago
    The additional skill is the speed. It’s just a skill you and I don’t possess. It’s like saying there should be a height limit and basketball and that should make it more fun for really tall players who now have an extra challenge. It just benefits shorter players, or slower in this case.
    - AlbertCory 3y ago
      No, it isn't. Extremely tall players have not dominated in basketball. Steph Curry is only 6' 4", while Manute Bol (7' 7") was successful but not a GOAT. Secondly, basketball has all kinds of rules to even the competition, e.g. zone defenses, shot clocks, etc. Baseball has umpires checking pitchers' hands for sticky substances. Rules are a part of fair competition.
      - xwdv 3y ago
        Regardless, the point still stands. The sport is ruined if you put limits on how skilled players are allowed to be. HFT is only for the best and fastest of programmers backed by the best resources. Elites.
        AlbertCory 3y ago
        No, it doesn't. Cheating is not skill. Anymore than having Spider Tack on your hand is "skill" for a baseball pitcher. http://www.spidertack.com/ http://www.spidertack.com/
ImJamal 3y ago
>High-frequency trading doesn't need to exist Technically speaking no job needs to exist. I'm not sure why that matters though? Just because it would be better for society doesn't mean the job shouldn't exist. I'm sure there is a job where you could be more productive as well.
- AlbertCory 3y ago
  The SEC regulates financial markets, and that's key to investors' trust in them. A job in financial markets is not the same as a job in, say, sports.
- cosmojg 3y ago
  Ironically, I'm currently interviewing for a job at a high-frequency trading firm! I happen to be one of those altruistic weirdos who donates a substantial fraction of their wealth to effective charities, and it turns out that there are few gigs outside of HFT that will facilitate my ability to "earn to give" to the same extent. I genuinely believe that HFT presents a variety of fun and interesting problems and challenges, and I look forward to it! Still, that doesn't mean that I can't have fun and make bank elsewhere. I repeat: high-frequency trading doesn't need to exist.
infecto 3y ago
Who are you to say people should not focus on what they want? Like all things in life there are more shades of gray than just black and white. You think it is as easy as setting a law. Your law would not only have unknown consequences. It would also most likely have negative consequences as the market would quickly adapt.
- AlbertCory 3y ago
  Like it or not, the SEC regulates the financial markets. That is a primary reason why people trust them with their money. "Who are you to say people should not focus on what they want?" is fairly dumb. This isn't like stamp collecting. The SEC can quite legitimately rule that: 1) Traders competing to make better trades: serves a purpose. 2) Traders competing to make the same trades, but a microsecond faster: serves no purpose at all.
  - growse 3y ago
    If two traders want to buy 100 widgets at the same price, but there are only 100 for sale at that price, whose trade should 'win' that competition? Which is the 'better' trade?
    - AlbertCory 3y ago
      > Which is the 'better' trade? You just said they were the same.
      - growse 3y ago
        > 2) Traders competing to make the same trades, but a microsecond faster: serves no purpose at all. So if time of quote has zero value, then how should the market decide which two orders at same volume and price gets executed?
        infecto 3y ago
        Just randomly pick it. /s I find these threads are the opposite of Bitcoin threads. It brings out the wild opinions about financial markets.
RecycledEle 3y ago
Before I checked HN today, I was thinking: There are 2 kinds of people in the world today. The first class is constantly rent seeking. They want to be in charge and want something for nothing. They do not care if the person they are contracting with looses on the deal, in fact they prefer it that way. This class is mostly MBAs and welfare recipients. High frequency traders fall into this category. The second class is people who want to work and only ask for a fair deal. They strive to increase the size of the pie for everyone. Our situation today is very similar to Germany's Weimar republic, where an elite class that knew how to manipulate the workers could take advantage of a predictable economic collapse and predictable hyper-inflation to gain power. I hope our correction does not follow the NAZI German example. We could go that way. Many of the working class realize that if someone plays negative-sum-games at work, society is better off putting them in a labor cap and teaching them to do manual labor. I suggest that US federal law should require that workers compensation be linked to how much they increase the well-being of the human race. Leave a loophole that says you are exempt if you work for yourself. The rent seekers will be so busy squabbling over pennies and clauses in contracts that they will have little time left to screw the rest of us.
- shreyshnaccount 3y ago
  I don't really fully agree with this but that's not the point. What worries me is that even if you are right, the first class makes the rules and wouldn't lead the transition into the system you describe
  - MarkMarine 3y ago
    Correct. Read Animal House for a fairly accurate portrayal of what happens.
    - NoZebra120vClip 3y ago
      Yeah, fraternity members have drunken toga parties. Shivers I wasn't aware it was novelized, though. Only saw the film.
Gibbon1 3y ago
Just charge a 0.1% excise tax on trades.
- cosmojg 3y ago
  Trading in and of itself isn't the problem. Far from it, in fact, given how much well-regulated markets contribute to the overall well-being of society. The problem is the race to the bottom unique to high-frequency trading which squanders otherwise productive human capital and consumes fixed-supply resources like real estate and electromagnetic spectrum. This also happens to be a case where a direct rule change can be implemented cheaply enough to provide more benefit at less cost than even an indirect tax, especially considering the overwhelming evidence that taxes on transactions of any sort are far from Pigouvian in nature.
SkipperCat 3y ago
I work in HFT. A lot of the folk we've hired came from places like Twitter, Facebook and other social media tech firms. Its not hard to make the argument that social media is just as toxic or even worse. On the other hand, due to advancements in trading tech, I've seen commissions drop to zero. I've see better price discovery available to professional and retail traders and there has been a lot of people introduced to stock markets because it was accessible via their phone. This is not a perfect world. HFT and Fintech are not godly, but its not without merit.
- bboygravity 3y ago
  Better price discovery? You've got to be joking. There is no price discovery. Source: GME in Januari 2021 when the buy button was turned off for household investors only, while the rest of the market (shorts) where allowed to keep trading. That and the fact that the stock moved the way it did with the trade volume it had tells me all I need to know about price discovery: there is none.
- Dylan16807 3y ago
  > Its not hard to make the argument that social media is just as toxic or even worse. That's a very low bar. > better price discovery I expect that price discovery would be perfectly fine with a 1 second or 1 minute tick. Trading tech isn't going to regress. Low commissions are about automation more than anything else.
  - SkipperCat 3y ago
    Even if there were 1 second ticks, there would be a race every second (or minute) to get in queue for specific trades. And therefore the speed race would continue as it is now. It would just happen on the edge of every second instead of continuously. As long as you have markets, you are going to have market makers and takers trying to get edge. It happens on Wall Street and also every other market place you can think of. I agree that there is rent seeking in this setup, but the overall value of free and open markets greatly overshadows that cost.
    - 3y ago
ifdefdebug 3y ago
What does that even mean? If you halt the match engine for one second, you can expect 100000 order placement requests to queue up until that second is over. And then what? If you process the whole queue and then rest another second etc., then you change the HF game only a little, the fight is now about your spot in the queue.
- jimmydef 3y ago
  i guess they can randomize the queue order so no one gets aan advantage by being in the queue first.
  - Maxion 3y ago
    There are still issues to solve. With a randomized queue order of matching trade pairs, in order for you to maximize the probability of your trade succeeding you could flood the market with buy or sell orders with price x and amount y. Though I guess you could group orders by price & amount, which would negate some of this. Per trade fees could also help mitigate it.
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jaybny 3y ago
Sidepit.com soon
toth 3y ago
I work in HFT, so feel free to dismiss what I say as biased... There is this widespread perception that HFT traders are rent seekers, and bad for markets, and in particular for retail traders. Anyone well informed knows this is completely wrong: - HFT is not rent seeking, it is providing a valuable service (liquidity provision) that people are willing to pay for. Over the years, there are been multiple attempts to set up trading venues that exclude HFT traders and they all end up inviting them in because without them there's no liquidity and very little trading. - There are multiple studies that show that regulatory interventions aimed at reducing HFT, such as financial transaction taxes, increase volatility and spreads and raise effective trading costs for retail traders. It is still possible that changing market structure or regulation to reduce the incentives for HFT (and in particular the speed race aspect of it) could be somehow beneficial for markets or society as a whole, but this is far from obvious. As for having regulation steer what "brilliant minds" go into, you have to have a lot of faith in the foresight of regulators to argue for that. Could say a lot of similar things about different industries, such as the usual quip about the best minds of our generation working on maximizing ad click through rates.
- throwawayqqq11 3y ago
  You said * HTF provide liquidity. * HTF beeing invited into markets formerly excluding them. * Regulation attempts on HFT hit retail traiders too. * You disagree, that HTF is rent seeking? Imho, all those statements are weak. Providing liquidity in markets is essential but markets worked long before HFT was a thing. FTH is just another way of going "meta" (for VC?) simply beeing faster. Until they are the market. The big question, as you too said is. > It is still possible that changing market structure or regulation [...] could be somehow beneficial for markets or society as a whole, but this is far from obvious. To me, it is rent seeking. What would you reply to the scenario ofa strong FTH monopoly, which the tech sector is in hot pursuit of.
  - toth 3y ago
    > You said > * HTF provide liquidity. > * HTF beeing invited into markets formerly excluding them. > * Regulation attempts on HFT hit retail traiders too. > * You disagree, that HTF is rent seeking? > Imho, all those statements are weak. > Providing liquidity in markets is essential but markets worked long before HFT was a thing. Correct, but the previous incarnation of liquid providers (mostly humans on stock exchange floors) was far more expensive and less efficient than HFT. This is why HFT was able to compete on price of liquidity provision (i.e., the spreads came down) and win. These legacy firms did lose out from HFT (and are actually behind some of the anti HFT rhetoric out there) but I assume people in HFT see technological disruption as a good thing, even if bad for some incumbents. The idea that retail traders or institutional investors are the ones that lost out from HFT lacks any evidence, AFAIK. > FTH is just another way of going "meta" (for VC?) simply beeing faster. Until they are the market. Your wording is a bit unclear, but if you are hinting that HFTs are operating at a loss until they capture sufficient market share, this is demonstrably false. HFTs make a lot of money (you can look up Virtu's financial statements for proof since it is a public company). > The big question, as you too said is. > > It is still possible that changing market structure or regulation [...] could be somehow beneficial for markets or society as a whole, but this is far from obvious. > To me, it is rent seeking. It would be if it was true. I admit it's a theoretical possibility, but I am yet to see a convincing argument of it.
wbl 3y ago
The tick rate doesn't remove the impact of faster communication as you can remove a bad price faster.
deleted 3y ago
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jaybny 3y ago
here is the solution. funding public goods is the problem. building this now https://drive.google.com/file/d/13edfo0uhuG5JAaP6i2VTOJho1lP1AnhF/view?usp=drivesdk https://drive.google.com/file/d/13edfo0uhuG5JAaP6i2VTOJho1lP...

542458 3y ago

> High-frequency trading doesn't need to exist Neither does most of the stock market, for many definitions of “need”. But on the flip side, nobody has ever really demonstrated strong negative effects from HFT and many studies show positive effects, so bans seem very kneejerk to me.

stefan_ 3y ago
The point is that whatever function you think HFT serves can be done just as well at fixed tick rates. This whole latency optimization mini game is just a pure waste.
- super256 3y ago
  And in which order would orders be executed when they come in and get queued? A delay wouldn't fix anything because the queue would still be FIFO. The only way to remove HTF would be removing the trading session, and instead only offering the market auction. Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA).
  - denotational 3y ago
    > Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA). This is true, but the term is overloaded: if I say "the exchange slid the price one tick to comply with Reg. NMS" then I'm using it in the sense you mean; if I say "the model recomputes on each tick" then I'm using it in the sense of the GP.
  - elictronic 3y ago
    Randomize the queue.
    - growse 3y ago
      That'll make everything more expensive, as every trade now has to price in the risk that it won't actually happen. Increasing market friction is not a good idea.
      - cosmojg 3y ago
        Given that randomization need only apply to orders placed simultaneously at identical prices, I don't see how it would increase market frictions enough to significantly limit their utility in price discovery, long-term investing, and the raising of capital. Individuals and corporations aren't making tradable decisions at subsecond intervals.
        growse 3y ago
        By simultaneously, I assume you mean "within one time interval". I suspect you'd be surprised how many orders at the same price can happen in a very very short time window. As for price discovery, a lot of information can happen in one second. Quantizing just adds risk, which adds cost, which harms everyone. > Individuals and corporations aren't making tradable decisions at subsecond intervals. No, but they're benefitting significantly from the fact that the cost of trading is now minuscule compared to what it used to be.
        cosmojg 3y ago
        > Quantizing just adds risk, which adds cost, which harms everyone. No, it adds risk at the scale of the quantum, adding cost for those trading at the scale of the quantum, harming a very small subset of traders who would normally benefit from trading at or below the scale of the quantum, like HFT firms and short-term market makers. Should such institutions cease to exist because the cost of trading at such scales becomes prohibitively expensive, I highly doubt that society will suffer.
  - cosmojg 3y ago
    > And in which order would orders be executed when they come in and get queued? That's easy! Come time to match and fill for orders placed at identical prices, there's no reason a random number generator couldn't do the trick. Trading second-by-second need not be reliably profitable in the extremely short term to ensure an orderly and efficient market. The whole point of a static tick rate is to disincentivize such myopic trading in the first place! I agree, though, that the logical conclusion of all this would be to replace the trading session with a market auction. However, while I appreciate the superior allocative efficiency of a Vickrey-style sealed-bid second-price multi-unit double auction[1] as much as the next guy, I have more faith in iterative improvements coming to pass before revolutionary ones. > Btw, a "tick" in trading is the minimum up/down movement of an asset (e.g. 0.25 points on NQ, or 0.01 on TSLA). Right, I apologize if I confused anyone with overloaded terms, but I think it's appropriate to expect the average Hacker News reader to correctly parse "tick rate" in the context of telecommunications and networking rather than confuse it with the trading concept of "tick size." [1] https://www.cs.cmu.edu/~softagents/papers/Emarket.pdf https://www.cs.cmu.edu/~softagents/papers/Emarket.pdf
    - growse 3y ago
      > > And in which order would orders be executed when they come in and get queued? > That's easy! Come time to match and fill for orders placed at identical prices, there's no reason a random number generator couldn't do the trick. Trading second-by-second need not be reliably profitable in the extremely short term to ensure an orderly and efficient market. The whole point of a static tick rate is to disincentivize such myopic trading in the first place! Adding deliberate randomness to the market makes it neither more orderly nor more efficient. And you're confusing "myopic" trading with market making. Buying now and selling 10 minutes from now brings together two other participants who want to trade but not at the same time. That seller may have needed to have accepted a worse price in order to execute when they needed to. But if you just look at the market maker, they briefly held onto something they didn't need for 10 minutes. What's the point!
      - AlbertCory 3y ago
        You are intentionally exaggerating. He didn't say to add "deliberate randomness" and he didn't say "10 minutes." A one microsecond or one millisecond time window would serve all legitimate trading purposes.
  - AlbertCory 3y ago
    Someone else here said "random" for choosing which of two or more identical trades to execute. As it is now, it's "first one to arrive, measured in nanosecond time." I think the SEC decreeing "random" for trades within some time window (is the window of millisecond size? microsecond size? not sure) would be totally legit, and it would redirect financial resources to better trades, not faster ones.
  - Ekaros 3y ago
    Disallowing fill or kill(or deprioritising) could solve this. So any sell order is split between buy orders matching.
- Enginerrrd 3y ago
  I don't think this would really get rid of HFT. You'd still have price discovery and a fight to reduce latency happening on some HFT time scale before each tick.
  - cosmojg 3y ago
    And that's fine. Most of that activity would be happening off-exchange, meaning less market noise, less price volatility, and less need to consume limited resources like radio spectrum and New York City real estate.
hhs 3y ago
> But on the flip side, nobody has ever really demonstrated strong negative effects from HFT and many studies show positive effects If interested, this is a paper published in January 2023 called "Does high-frequency trading actually improve market liquidity? A comparative study for selected models and measures" [0]. And the abstract notes: "By comparing a variety of regression models that associate various measures of market liquidity with measures of high-frequency activity on the same dataset, we find that for some models the increase in high-frequency activity improves market liquidity, but for others, we get the opposite effect. We indicate that this ambiguity does not depend only on the stock market or the data period, but also on the used HFT measure: the increase of high-frequency orders leads to lower market liquidity whereas the increase in high-frequency trades improves liquidity. We hypothesize that the observed decrease in market liquidity associated with an increasing level of high-frequency orders is caused by a rise in quote volatility." [0] [0]: https://www.sciencedirect.com/science/article/pii/S0275531922002586 https://www.sciencedirect.com/science/article/pii/S027553192...
cosmojg 3y ago
The stock market provides an efficient medium for the allocation of capital. This means that corporations can more easily and safely raise capital from the public and that the public can participate in the positive-sum growth of publicly traded companies and the economy at large. Moreover, the stock market, like any market efficient enough to be worth its salt, provides a uniquely effective information aggregation mechanism via price discovery, facilitating more accurate and more precise forecasting and prediction for nearly any process which interacts with the greater economy. Studies of high-frequency trading have yet to show benefits to these processes above and beyond those provided by a slower static tick rate, and in fact, more recent studies seem to suggest that HFT may even exist only to the detriment of these processes, all while wasting undue resources, both physical and intellectual, on an endless arms race over ever decreasing trading latency[1]. [1] https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading
- j-pb 3y ago
  > The stock market provides an efficient medium for the allocation of capital. Only if P=NP.[1] Besides Efficiency: the ratio of the useful work performed by a machine or in a process to the total energy expended or heat taken in. This also begs the question: "To efficiently allocate capital (energy) for what goal (work)?" And it doesn't look like the answer to that is "the betterment of humanity", but to push the bell curve of wealth as far to the left as possible with the longest tail possible, externalities be damned. The stock market isn't a usefull tool for society like kickstarter, but a wealth extraction mechanism for the wealthiest. So I'd argue that HFT isn't any more immoral than T. 1: https://arxiv.org/abs/1002.2284 https://arxiv.org/abs/1002.2284
  - Dylan16807 3y ago
    > Efficiency: the ratio of the useful work And then you merely link a proof that the efficiency is not 100%. That's effectively meaningless.
    - consilient 3y ago
shw1n 3y ago
I thought they did find negative effects? I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running and worse prices for customers? Michael Lewis covered this beautifully in Flashboys
- denotational 3y ago
  Can you explain how "dark pools lead to front-running and worse prices for customers"? I would agree that the price discovery works best when liquidity is lit up on a single CLOB, but claims about HFT leading to front-running or worse prices for customers (I assume you mean retail investors?) need justification. What do you mean when you say "front-running"? It has a fairly specific definition, but it is often used inaccurately in discussions around HFT. If by front-running you mean "HFT firms accept instructions as agent and then deal as principle prior to executing their client's instructions so as to benefit from the price move their client's order may induce" then you would be using the term correctly, and the SEC would be very interested, but this isn't what HFT firms do.
  - AlbertCory 3y ago
    That's my (naive) understanding of front-running. But I'm not familiar with the argument that HFT facilitates it. The best argument is that HFT serves no legitimate purpose, and is just a pointless arms race. Money should flow to better trades, not faster ones.
    - denotational 3y ago
      Usually when people claim that HFT strategies “front-run” they are talking about aggressor/taker strategies that are trying to shave off every nanosecond of latency to increase the chance of a fill at the best possible price. Because these strategies are actively racing other participants for a fill, some people (inaccurately) call this “front-running”, presumably because they are “running in front” of other participants, but this isn’t what is usually meant by front-running. As another commented has pointed out, front-running (in the sense I described it in my previous comment) is explicitly prohibited by regulation in the US, so to misuse the term in this way is to accuse someone of acting illegally without actually understanding what the terms mean.
tmn 3y ago
It’s my naive understanding that HFT makes money at the direct expense of other market participants. Is this not a downside? I’m genuinely curious to the arguments against this.
- qeternity 3y ago
  You can’t state it’s at the expense without stating how.
  - Ekaros 3y ago
    They make money/"wealth". That must come from either the seller or buyer or both. Unless existence of HFT directly leads to higher appreciation of assets traded.
    - qeternity 3y ago
      All trading is zero sum. If I own shares in a company for 20 years, that means someone else who sold them to me doesn’t own those shares and doesn’t earn those returns.
    - rcxdude 3y ago
      In the absence of a market maker (human or algorithmic), a much larger fraction of the value of a transaction is effectively randomly distributed between the buyer and seller. And it turns out buyers and sellers don't really like this much, and are happy to pay a small fraction of the transaction for a more predictable outcome.
  - bobbylarrybobby 3y ago
    Even if you're right about the market, HFTs will make you a little less right for no reason other than that they've invested billions of dollars into being faster than you.
    - lotsofpulp 3y ago
      And they will give you a little more liquidity.
BurningFrog 3y ago
The clear negative effect is the many billions spent on shaving communication milli- and microseconds to win zero sum games.
- tomatotomato37 3y ago
  [dead]
MarkMarine 3y ago
Bernie has a great proposal to tax these transactions, and fund some wonderful social programs with the money.
- PoignardAzur 3y ago
  > and fund some wonderful social programs with the money. That's silly. The whole point is they're a zero-sum game with semiconductor-thin margins. Any meaningful taxation will make them evaporate. That doesn't mean they shouldn't be taxed! But it would be a pigovian tax, the kind that serves as a soft interdiction and not as government income.

epx 3y ago

One day the market itself will reach this conclusion, that one auction-trade a day is all it's needed.

DwnVoteHoneyPot 3y ago
No. Trades happen because people disagree with the value of the company. One person thinks the value is higher, other thinks it's lower. They are arguing and they're willing to put money behind their opinion. Faster the argument, the faster the price discovery is. An analogy would be operating Hacker News by publishing all the opinions once a day like a print newspaper. The back and forth arguments would take weeks... you post, some responds the next day, you respond the third day. Not good.
- rytis 3y ago
  > The back and forth arguments would take weeks... you post, some responds the next day, you respond the third day. Not good. Is it really not good?.. Now just thinking about what you said reminded me good old FidoNET days. You’d get mail once a day (typically), read/respond and that’s it, done for the day, on to do some work. Procrastination problem solved :)
Animats 3y ago
Doesn't help. Then you have auction sniping, like eBay. If the auction is sealed bid, then price discovery is terrible.

xwdv 3y ago

Sports don’t need to exist either. For programmers obsessed with speed and never ending optimization to get the extra edge, HFT is the ultimate sport.

cosmojg 3y ago
I prefer sports with fewer negative externalities, and I certainly believe trading can continue to be fun with a slower tick rate. Heck, the additional skill required to succeed in a more efficient market should make the sport of trading even more fun!
- qeternity 3y ago
  The additional skill is the speed. It’s just a skill you and I don’t possess. It’s like saying there should be a height limit and basketball and that should make it more fun for really tall players who now have an extra challenge. It just benefits shorter players, or slower in this case.
  - AlbertCory 3y ago
    No, it isn't. Extremely tall players have not dominated in basketball. Steph Curry is only 6' 4", while Manute Bol (7' 7") was successful but not a GOAT. Secondly, basketball has all kinds of rules to even the competition, e.g. zone defenses, shot clocks, etc. Baseball has umpires checking pitchers' hands for sticky substances. Rules are a part of fair competition.
    - xwdv 3y ago
      Regardless, the point still stands. The sport is ruined if you put limits on how skilled players are allowed to be. HFT is only for the best and fastest of programmers backed by the best resources. Elites.
      - AlbertCory 3y ago
        No, it doesn't. Cheating is not skill. Anymore than having Spider Tack on your hand is "skill" for a baseball pitcher. http://www.spidertack.com/ http://www.spidertack.com/

ImJamal 3y ago

>High-frequency trading doesn't need to exist Technically speaking no job needs to exist. I'm not sure why that matters though? Just because it would be better for society doesn't mean the job shouldn't exist. I'm sure there is a job where you could be more productive as well.

AlbertCory 3y ago
The SEC regulates financial markets, and that's key to investors' trust in them. A job in financial markets is not the same as a job in, say, sports.
cosmojg 3y ago
Ironically, I'm currently interviewing for a job at a high-frequency trading firm! I happen to be one of those altruistic weirdos who donates a substantial fraction of their wealth to effective charities, and it turns out that there are few gigs outside of HFT that will facilitate my ability to "earn to give" to the same extent. I genuinely believe that HFT presents a variety of fun and interesting problems and challenges, and I look forward to it! Still, that doesn't mean that I can't have fun and make bank elsewhere. I repeat: high-frequency trading doesn't need to exist.

infecto 3y ago

Who are you to say people should not focus on what they want? Like all things in life there are more shades of gray than just black and white. You think it is as easy as setting a law. Your law would not only have unknown consequences. It would also most likely have negative consequences as the market would quickly adapt.

AlbertCory 3y ago
Like it or not, the SEC regulates the financial markets. That is a primary reason why people trust them with their money. "Who are you to say people should not focus on what they want?" is fairly dumb. This isn't like stamp collecting. The SEC can quite legitimately rule that: 1) Traders competing to make better trades: serves a purpose. 2) Traders competing to make the same trades, but a microsecond faster: serves no purpose at all.
- growse 3y ago
  If two traders want to buy 100 widgets at the same price, but there are only 100 for sale at that price, whose trade should 'win' that competition? Which is the 'better' trade?
  - AlbertCory 3y ago
    > Which is the 'better' trade? You just said they were the same.
    - growse 3y ago
      > 2) Traders competing to make the same trades, but a microsecond faster: serves no purpose at all. So if time of quote has zero value, then how should the market decide which two orders at same volume and price gets executed?
      - infecto 3y ago
        Just randomly pick it. /s I find these threads are the opposite of Bitcoin threads. It brings out the wild opinions about financial markets.

RecycledEle 3y ago

Before I checked HN today, I was thinking: There are 2 kinds of people in the world today. The first class is constantly rent seeking. They want to be in charge and want something for nothing. They do not care if the person they are contracting with looses on the deal, in fact they prefer it that way. This class is mostly MBAs and welfare recipients. High frequency traders fall into this category. The second class is people who want to work and only ask for a fair deal. They strive to increase the size of the pie for everyone. Our situation today is very similar to Germany's Weimar republic, where an elite class that knew how to manipulate the workers could take advantage of a predictable economic collapse and predictable hyper-inflation to gain power. I hope our correction does not follow the NAZI German example. We could go that way. Many of the working class realize that if someone plays negative-sum-games at work, society is better off putting them in a labor cap and teaching them to do manual labor. I suggest that US federal law should require that workers compensation be linked to how much they increase the well-being of the human race. Leave a loophole that says you are exempt if you work for yourself. The rent seekers will be so busy squabbling over pennies and clauses in contracts that they will have little time left to screw the rest of us.

shreyshnaccount 3y ago
I don't really fully agree with this but that's not the point. What worries me is that even if you are right, the first class makes the rules and wouldn't lead the transition into the system you describe
- MarkMarine 3y ago
  Correct. Read Animal House for a fairly accurate portrayal of what happens.
  - NoZebra120vClip 3y ago
    Yeah, fraternity members have drunken toga parties. Shivers I wasn't aware it was novelized, though. Only saw the film.

Gibbon1 3y ago

Just charge a 0.1% excise tax on trades.

cosmojg 3y ago
Trading in and of itself isn't the problem. Far from it, in fact, given how much well-regulated markets contribute to the overall well-being of society. The problem is the race to the bottom unique to high-frequency trading which squanders otherwise productive human capital and consumes fixed-supply resources like real estate and electromagnetic spectrum. This also happens to be a case where a direct rule change can be implemented cheaply enough to provide more benefit at less cost than even an indirect tax, especially considering the overwhelming evidence that taxes on transactions of any sort are far from Pigouvian in nature.

SkipperCat 3y ago

I work in HFT. A lot of the folk we've hired came from places like Twitter, Facebook and other social media tech firms. Its not hard to make the argument that social media is just as toxic or even worse. On the other hand, due to advancements in trading tech, I've seen commissions drop to zero. I've see better price discovery available to professional and retail traders and there has been a lot of people introduced to stock markets because it was accessible via their phone. This is not a perfect world. HFT and Fintech are not godly, but its not without merit.

bboygravity 3y ago
Better price discovery? You've got to be joking. There is no price discovery. Source: GME in Januari 2021 when the buy button was turned off for household investors only, while the rest of the market (shorts) where allowed to keep trading. That and the fact that the stock moved the way it did with the trade volume it had tells me all I need to know about price discovery: there is none.
Dylan16807 3y ago
> Its not hard to make the argument that social media is just as toxic or even worse. That's a very low bar. > better price discovery I expect that price discovery would be perfectly fine with a 1 second or 1 minute tick. Trading tech isn't going to regress. Low commissions are about automation more than anything else.
- SkipperCat 3y ago
  Even if there were 1 second ticks, there would be a race every second (or minute) to get in queue for specific trades. And therefore the speed race would continue as it is now. It would just happen on the edge of every second instead of continuously. As long as you have markets, you are going to have market makers and takers trying to get edge. It happens on Wall Street and also every other market place you can think of. I agree that there is rent seeking in this setup, but the overall value of free and open markets greatly overshadows that cost.
  - 3y ago

ifdefdebug 3y ago

What does that even mean? If you halt the match engine for one second, you can expect 100000 order placement requests to queue up until that second is over. And then what? If you process the whole queue and then rest another second etc., then you change the HF game only a little, the fight is now about your spot in the queue.

jimmydef 3y ago
i guess they can randomize the queue order so no one gets aan advantage by being in the queue first.
- Maxion 3y ago
  There are still issues to solve. With a randomized queue order of matching trade pairs, in order for you to maximize the probability of your trade succeeding you could flood the market with buy or sell orders with price x and amount y. Though I guess you could group orders by price & amount, which would negate some of this. Per trade fees could also help mitigate it.

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jaybny 3y ago

Sidepit.com soon

toth 3y ago

I work in HFT, so feel free to dismiss what I say as biased... There is this widespread perception that HFT traders are rent seekers, and bad for markets, and in particular for retail traders. Anyone well informed knows this is completely wrong: - HFT is not rent seeking, it is providing a valuable service (liquidity provision) that people are willing to pay for. Over the years, there are been multiple attempts to set up trading venues that exclude HFT traders and they all end up inviting them in because without them there's no liquidity and very little trading. - There are multiple studies that show that regulatory interventions aimed at reducing HFT, such as financial transaction taxes, increase volatility and spreads and raise effective trading costs for retail traders. It is still possible that changing market structure or regulation to reduce the incentives for HFT (and in particular the speed race aspect of it) could be somehow beneficial for markets or society as a whole, but this is far from obvious. As for having regulation steer what "brilliant minds" go into, you have to have a lot of faith in the foresight of regulators to argue for that. Could say a lot of similar things about different industries, such as the usual quip about the best minds of our generation working on maximizing ad click through rates.

throwawayqqq11 3y ago
You said * HTF provide liquidity. * HTF beeing invited into markets formerly excluding them. * Regulation attempts on HFT hit retail traiders too. * You disagree, that HTF is rent seeking? Imho, all those statements are weak. Providing liquidity in markets is essential but markets worked long before HFT was a thing. FTH is just another way of going "meta" (for VC?) simply beeing faster. Until they are the market. The big question, as you too said is. > It is still possible that changing market structure or regulation [...] could be somehow beneficial for markets or society as a whole, but this is far from obvious. To me, it is rent seeking. What would you reply to the scenario ofa strong FTH monopoly, which the tech sector is in hot pursuit of.
- toth 3y ago
  > You said > * HTF provide liquidity. > * HTF beeing invited into markets formerly excluding them. > * Regulation attempts on HFT hit retail traiders too. > * You disagree, that HTF is rent seeking? > Imho, all those statements are weak. > Providing liquidity in markets is essential but markets worked long before HFT was a thing. Correct, but the previous incarnation of liquid providers (mostly humans on stock exchange floors) was far more expensive and less efficient than HFT. This is why HFT was able to compete on price of liquidity provision (i.e., the spreads came down) and win. These legacy firms did lose out from HFT (and are actually behind some of the anti HFT rhetoric out there) but I assume people in HFT see technological disruption as a good thing, even if bad for some incumbents. The idea that retail traders or institutional investors are the ones that lost out from HFT lacks any evidence, AFAIK. > FTH is just another way of going "meta" (for VC?) simply beeing faster. Until they are the market. Your wording is a bit unclear, but if you are hinting that HFTs are operating at a loss until they capture sufficient market share, this is demonstrably false. HFTs make a lot of money (you can look up Virtu's financial statements for proof since it is a public company). > The big question, as you too said is. > > It is still possible that changing market structure or regulation [...] could be somehow beneficial for markets or society as a whole, but this is far from obvious. > To me, it is rent seeking. It would be if it was true. I admit it's a theoretical possibility, but I am yet to see a convincing argument of it.

wbl 3y ago

The tick rate doesn't remove the impact of faster communication as you can remove a bad price faster.

deleted 3y ago

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jaybny 3y ago

here is the solution. funding public goods is the problem. building this now https://drive.google.com/file/d/13edfo0uhuG5JAaP6i2VTOJho1lP1AnhF/view?usp=drivesdk https://drive.google.com/file/d/13edfo0uhuG5JAaP6i2VTOJho1lP...