54 ms·
Disclaimer: I am a developer in the HFT space. This is utter crap. As long as there has been a transfer of money, there has always been a market for faster ac
by reverend_gonzo 14y ago
Disclaimer: I am a developer in the HFT space.
This is utter crap.
As long as there has been a transfer of money, there has always been a market for faster access to information and faster use of that information. Its only in the last ten years that the speed is so fast it has to be done electronically.
There's a autobiography of a stock trader written in the early 1900s called Reminiscence of a Stock Operator where, in 1907/1908, the author is complaining that the time to execute a trade is too long. Specifically, he would notice a price movement on the tape, tell his runner to go (for example) buy 100 at $60, but by the time the runner was actually able to execute, the price was at $80, hence he's getting a worse price. The solution back then was faster runners, then faster communication (such as hand signals), then computers, etc.
Wall Street is not just HFT. Different firms have different ways of trying to make money. Some are speculators, some are value investors, some are arbitrageurs, some are market makers. Some companies trade to hedge risk in, for example, commodities that they expect to buy in the future. Others trade to hedge currency risk against countries they do business with.
To claim that Wall Street used to bet on companies that build things but now only bet on companies that make money is terrible mass-market journalism at best.
- confluence 14y agoI don't mind HFT - I use their services every time I trade and I love them. Never understood why the quants always get blamed for so many negative situations - most of it is essentially predetermined by the directions of "financial directors" in conjunction with their lawyers (monopoly on markets/one way regulation).
- JumpCrisscross 14y agoBanks' market making desks (I worked at one) are getting beaten up by the nimbler newbies. No points for guessing which one can make more noise.
- wtvanhest 14y agoI know a lot of people at major investment firms and not one of them trades HFT. I'd assume HFT is an extremely small percentage of the overall market in terms of average position size.
- confluence 14y agoHFT is massive volume over the same capital structure (e.g. same 1% of money being risked at any one time - just many times a day).
- deleted 14y ago[deleted]
- theorique 14y agoIf they are trading any stocks at all, they will be using essentially the same systems as HF traders. Any big broker-dealer ('big' in terms of quantity of orders processed) will be a high frequency trader by definition, because they aggregate large quantities of customer order flow, process it rapidly, and send the orders out in rapid succession.
- deleted 14y ago[deleted]
- beagle3 14y agoit might be 1% of the average position size (and thus margin), and still account for 30% of the trades. In "long term trading", you buy 100,000 shares and weight, locking down margin big enough for 100,000 shares. You sell it after a month. In "hft", you buy one share, and sell it. You repeat that 100,000 times in one day. If you did this smartly, you come up with some profit, and you only need enough capital to have a margin for 1 share. Furthermore, at the end of the moneht, the hft guy had 20 times as much volume (assuming 20 trading days in a month), which is why the exchange loves them so much (they live off volume!), and why the exchanges will never let hft be regulated out of existence.
- nlz1 14y agoReally? http://www.kurzweilai.net/this-is-what-wall-streets-terrifying-robot-invasion-looks-like?utm_source=KurzweilAI+Daily+Newsletter&utm_campaign=e54fcf6bac-UA-946742-1&utm_medium=emai http://www.kurzweilai.net/this-is-what-wall-streets-terrifyi...
- reverend_gonzo 14y agoWhat's your point? That shows that volume increased. Which means higher competition between market makers resulting in smaller bid-ask spreads and higher liquidity, meaning the market can correct itself much faster.
- nlz1 14y agoYou're naive or outright lying if you think that all HFT firms are simply doing what earlier generations of traders did, just "faster." http://www.nanex.net/aqck2/3528.html http://www.nanex.net/aqck2/3528.html
- SeanDav 14y agoVast amounts of money are being spent on HFT with no benefit to the market, but only to the firms that are currently the fastest at the time. This is a pure greed move and demonstrates so much of what is wrong with much of the modern banking and investment industry. I would be incredibly easy to come up with a workable compromise, like a throttle or minimum time an order must be maintained, but vested interests will keep that from happening until something truly disastrous happens.
- AkThhhpppt 14y agoIt's a Red Queen Race: everyone's running as fast as they can to stay in the same place - and burning cash by the ton to do so. Red Queen races tend to be good for advancing the state of the art, but they're wasteful. And if you're trying to do something other than advance the state of the art, they're a trap. http://en.wikipedia.org/wiki/Red_Queen%27s_Hypothesis http://en.wikipedia.org/wiki/Red_Queen%27s_Hypothesis
- adastra 14y agoI guess I'll pose my question about HFT directly: what value do you add to the economy by being in the HFT business? Surely the markets must at some point be "liquid enough". i.e. that the companies that are supposed to actually benefit from liquid markets no longer do see any additional benefit from increased speed. If trades could only be made once per day, then traders would be very, very hesitant to invest in a new company IPO, because if there was new information or a problem, they couldn't sell it for 24 hours, at which point the price could have plummeted. Companies would have a bona fide problem raising new capital. But does that problem really still exist if trades could only be executed once per second? per quarter-second? Billions are now being made that justify shaving a few milliseconds off of a signal -- how do you justify that in terms of benefit to the companies? I think its on the people who don't want HFT to be regulated out of existence to convince the rest of us that it actually has value for someone other than themselves and isn't basically legalized gambling.
- anonymoushn 14y agoIf you are a market participant, you benefit from tighter spreads. If you "regulate HFT out of existence," you will instead get to buy higher and sell lower.
- beagle3 14y agoNot necessarily. While it makes the spreads tighter for market orders, you could put a limit order in the middle of a larger spread and are likely to be matched. If you join the bid or the offer (and are satisfied), you'll actually buy lower and sell higher! So the real answer is: "If you are more patient, or smarter, you will pay less. If you are impatient or dumb, you will pay more.". And of course all of this ONLY applies to the most liquid 500 symbols or so, which are the HFT playground.
- anonymoushn 14y agoI was assuming that the desired course of action was to enter or exit a position, rather than to enter or exit a position with moderately high probability.