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My understanding is that HFT has been used for frontrunning (which is undeniably stealing pennies), and associated with unintended market instability (flash cra

by ynniv 15y ago

My understanding is that HFT has been used for frontrunning (which is undeniably stealing pennies), and associated with unintended market instability (flash crashes) due to unforeseen trader interactions. This post primarily defends algo trading, which does not have the negative connotations of HFT. The author claims speed is mostly important for order precedence, but I find this to be a naive view. The potential upside for a trader coming to a conclusion and executing a trade first is minute compared to the potential for frontrunning trades that have been executed but not yet communicated to the market. Yes, this kind of frontrunning requires (sometimes[1]) automated illegal eavesdropping on secure financial transactions, and is highly immoral and illegal. But you don't make $100M a day without compromising some morals[2]. Algo I'm okay with, but HFT is a fancy toy for messing with the markets. [1 | http://zerohedge.blogspot.com/2009/07/is-goldman-legally-frontrunning-its.html http://zerohedge.blogspot.com/2009/07/is-goldman-legally-fro...] [2 | http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7HGVAn8w73Y http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a... ]

scott_s 15y ago
HFT is, essentially, automated market making, and only market makers have the opportunity to do front running.
azmenthe 15y ago
Your association of a dollar amount to morality is unnerving. If Happy Unicorn Widget Inc. upgrades it's production line speed, it experiences some increase in revenue and can thus even make a $100M a day gasp. I work at a HFT firm and any serious suggestion of frontrunning would probably get you fired. The truth is the majority of HFT is liquidity providing or some form of arbitrage.
- ynniv 15y ago
  Your association of a dollar amount to morality is unnerving That's a silly assertion. What if it were $100B a day? That's $35T/year, or half the GDP of the world. Do you think that a company could receive half of the productivity of the entire world morally? I work at a HFT firm and any serious suggestion of frontrunning would probably get you fired. Another silly statement. Of course people don't talk about it openly - who plans illicit activities openly? I would expect that anyone involved in such a system would have no knowledge of it being used immorally/illegally - there is too much risk in that. HFT is an assault rifle. People who make them talk about how they keep the peace, but that isn't the use that caused them to be outlawed.

by ynniv 15y ago

scott_s 15y ago

HFT is, essentially, automated market making, and only market makers have the opportunity to do front running.

azmenthe 15y ago

Your association of a dollar amount to morality is unnerving. If Happy Unicorn Widget Inc. upgrades it's production line speed, it experiences some increase in revenue and can thus even make a $100M a day gasp. I work at a HFT firm and any serious suggestion of frontrunning would probably get you fired. The truth is the majority of HFT is liquidity providing or some form of arbitrage.

ynniv 15y ago
Your association of a dollar amount to morality is unnerving That's a silly assertion. What if it were $100B a day? That's $35T/year, or half the GDP of the world. Do you think that a company could receive half of the productivity of the entire world morally? I work at a HFT firm and any serious suggestion of frontrunning would probably get you fired. Another silly statement. Of course people don't talk about it openly - who plans illicit activities openly? I would expect that anyone involved in such a system would have no knowledge of it being used immorally/illegally - there is too much risk in that. HFT is an assault rifle. People who make them talk about how they keep the peace, but that isn't the use that caused them to be outlawed.