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Not entirely "nothing", as a result of HFT market making all participants are getting smaller spreads and increased liquidity. However... That has huge diminish

Not entirely "nothing", as a result of HFT market making all participants are getting smaller spreads and increased liquidity. However... That has huge diminishing returns. The first few steps to electronic markets and fast market makers dropped the spread considerably (making trading cheaper for everyone), all the steps that came after cost a lot more and didn't really improve things much. So they're not adding a lot now relative to the cost and complexity. But banning the whole practice will make the markets function much worse and more expensive for everyone.

mrcode007 3y ago
The only agent the spread matters to is the HFT and a market maker so it’s a circular reasoning. Similar for liquidity provision; most of the optimal control theory solutions for market making with alpha signal will widen the spread and remove liquidity the moment they sense something is off.
- bryanlarsen 3y ago
  If I buy a stock and sell it three years later, my profit is reduced by the spread. If the spread is 5% that might be a significant portion of my profit.
  - mrcode007 3y ago
    You’ll trigger a circuit breaker before you get a spread of 5%
bb88 3y ago
So if a stock price crashes there's no one around to buy the stock, so HFT doesn't help in that scenario. They're not going to reduce the buy/ask spread. But if a stock is going up, HFT inserts themselves between the buyer and the seller and takes a small cut in the process. I don't see how it helps the liquidity stock, but seems to be more like an HFT tax. They didn't increase the number of stock shares, just got in between the buy/ask margin.
- t0mas88 3y ago
  Going in between the buy/ask margin means the margin got smaller which is good for all traders in the market. There is no way to "go in between" and not make it smaller, because the best price gets the order. Here's a much deeper analysis on bid ask spread from HFT market making: https://www.cftc.gov/sites/default/files/2022-08/HFT_and_market_quality_ada.pdf https://www.cftc.gov/sites/default/files/2022-08/HFT_and_mar...
- caddemon 3y ago
  Jane Street is not a huge player in HFT, they are primarily a liquidity provider and therefore actually do enable people to sell stocks during a crash. Any registered market maker has specific rules imposed by the exchange about always needing to provide a 2 sided offer within a reasonable bound of the current market.

mrcode007 3y ago

The only agent the spread matters to is the HFT and a market maker so it’s a circular reasoning. Similar for liquidity provision; most of the optimal control theory solutions for market making with alpha signal will widen the spread and remove liquidity the moment they sense something is off.

bryanlarsen 3y ago
If I buy a stock and sell it three years later, my profit is reduced by the spread. If the spread is 5% that might be a significant portion of my profit.
- mrcode007 3y ago
  You’ll trigger a circuit breaker before you get a spread of 5%

bb88 3y ago

So if a stock price crashes there's no one around to buy the stock, so HFT doesn't help in that scenario. They're not going to reduce the buy/ask spread. But if a stock is going up, HFT inserts themselves between the buyer and the seller and takes a small cut in the process. I don't see how it helps the liquidity stock, but seems to be more like an HFT tax. They didn't increase the number of stock shares, just got in between the buy/ask margin.

t0mas88 3y ago
Going in between the buy/ask margin means the margin got smaller which is good for all traders in the market. There is no way to "go in between" and not make it smaller, because the best price gets the order. Here's a much deeper analysis on bid ask spread from HFT market making: https://www.cftc.gov/sites/default/files/2022-08/HFT_and_market_quality_ada.pdf https://www.cftc.gov/sites/default/files/2022-08/HFT_and_mar...
caddemon 3y ago
Jane Street is not a huge player in HFT, they are primarily a liquidity provider and therefore actually do enable people to sell stocks during a crash. Any registered market maker has specific rules imposed by the exchange about always needing to provide a 2 sided offer within a reasonable bound of the current market.