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HFT allows the Market Makers to have total control over the price. They literally intercept all orders for most institutionally owned stocks in order to manage

by JakeAl 3y ago

HFT allows the Market Makers to have total control over the price. They literally intercept all orders for most institutionally owned stocks in order to manage the allocation/inventory of shares to make sure shares are available to users of the different brokerage services, and in doing so track the value of all of their initial contracts so they can keep the most valuable contracts and only sell those in the money (you don't actually buy shares, you lease contracts that give you the same rights as those shares and if you want the actual shares you have to submit a special request, so the Market Makers are just managing and tracking contracts which they sell each f a certain number of times at a given price before moving on.)

SkipperCat 3y ago
You are not correct. HFT firms do not have total control over the price. You, as a retail or institutional investor, can set the price of any stock you wish to buy or sell. And everyone else has 100% control if they want to transact with you at that price. Also, HFT firms do not intercept any institutional orders. The race for speed is so they can be the first to transact against orders which are publicly announced at an exchange. I have to stress on the word "public". Exchange are marketplaces where many institutions publicly display their prices to buy and sell stocks. No orders get "intercepted" before they hit the marketplace. If anyone did do that, it would be against the law. And please don't confuse market order flow for front running. The rules and regs around order flow are very clear and firms that would violate that would be fined into bankruptcy for violation. I really can't make heads or tails of your last point, but Market Makers are obligated to provide liquidity at exchanges and their prices are based off of what people want to buy/sell. Its not that complex and if you don't want to transact at their prices, you're welcome not to do so.
- rdm70 3y ago
  Multiple big market makers pay for order flow in the United States, which results in orders getting intercepted before they hit the public markets. They are generally given some price improvement relative to the public BBO, so the argument is that customers filled via PFOF are better off. However one second-order effect of PFOF which argues against this is that PFOF makes it less attractive for non-PFOF firms to participate on the exchange. Because small customer trades, which are generally low information content, have been filled off exchange, only the larger and riskier trades trade on the exchange. This causes spreads to be wider on the exchange than otherwise. Some European exchanges have banned PFOF. I think these exchanges are working OK without it.
  - SkipperCat 3y ago
    No quarrel with the facts in your statement about PFOF. But why on earth are small low information traders even worrying about this? Are small order retail traders trying to score that extra .01 price diff? If you're not trading for a Wall Street fund, just buy and hold some decent ETFs or some quality stocks. Day trading is just a form of compulsive gambling and it's only guarantee is to underperform the SP500.
lotsofpulp 3y ago
https://www.investopedia.com/terms/l/limitorder.asp https://www.investopedia.com/terms/l/limitorder.asp

by JakeAl 3y ago

SkipperCat 3y ago

You are not correct. HFT firms do not have total control over the price. You, as a retail or institutional investor, can set the price of any stock you wish to buy or sell. And everyone else has 100% control if they want to transact with you at that price. Also, HFT firms do not intercept any institutional orders. The race for speed is so they can be the first to transact against orders which are publicly announced at an exchange. I have to stress on the word "public". Exchange are marketplaces where many institutions publicly display their prices to buy and sell stocks. No orders get "intercepted" before they hit the marketplace. If anyone did do that, it would be against the law. And please don't confuse market order flow for front running. The rules and regs around order flow are very clear and firms that would violate that would be fined into bankruptcy for violation. I really can't make heads or tails of your last point, but Market Makers are obligated to provide liquidity at exchanges and their prices are based off of what people want to buy/sell. Its not that complex and if you don't want to transact at their prices, you're welcome not to do so.

rdm70 3y ago
Multiple big market makers pay for order flow in the United States, which results in orders getting intercepted before they hit the public markets. They are generally given some price improvement relative to the public BBO, so the argument is that customers filled via PFOF are better off. However one second-order effect of PFOF which argues against this is that PFOF makes it less attractive for non-PFOF firms to participate on the exchange. Because small customer trades, which are generally low information content, have been filled off exchange, only the larger and riskier trades trade on the exchange. This causes spreads to be wider on the exchange than otherwise. Some European exchanges have banned PFOF. I think these exchanges are working OK without it.
- SkipperCat 3y ago
  No quarrel with the facts in your statement about PFOF. But why on earth are small low information traders even worrying about this? Are small order retail traders trying to score that extra .01 price diff? If you're not trading for a Wall Street fund, just buy and hold some decent ETFs or some quality stocks. Day trading is just a form of compulsive gambling and it's only guarantee is to underperform the SP500.

lotsofpulp 3y ago

https://www.investopedia.com/terms/l/limitorder.asp https://www.investopedia.com/terms/l/limitorder.asp