4 ms·

there is a case that the markets are highly efficient, just the the "information" part of the market hypothesis isn't the information a layman thinks are the ma

by weego 1y ago

there is a case that the markets are highly efficient, just the the "information" part of the market hypothesis isn't the information a layman thinks are the market signals, and that only the HFT trading firms have the "correct" signals available to them. That certainly accounts for the seeming dissociation between company performance and market performance on certainly "blue chip" stocks

_heimdall 1y ago
I think you're coming in with an assumption that HFTs are generally correct in their valuations, and that they are chasing efficiency or proper valuations rather than short term gains. Maybe those would be roughly analogous in a stable situation, but my read is that the big players in the markets today are chasing short term gains despite the signals. I'd point to the housing crisis as a recent example, the biggest banks and funds were massively over valuing real estate and real estate derivatives because they were blind to the actual risks and saw what appeared to be free money.
- seanhunter 1y ago
  There are so many misconceptions about what HFTs do and if anything they seem worse here than average. HFTs do not (for the most part) have any kind of “valuation” of stocks based on the fundamentals of companies. To a first approximation most HFT strategies are market making- they buy from people who want to sell at 9 and they sell to people who want to buy at 10 and every time they successfully do that round trip they make a dollar. There’s more to it than that because of course there is. Markets are complicated and there are a lot of market participants trying to do lots of things. So sometimes they make use of their knowledge of market microstructure to try to detect and preempt big market moves (eg index rebalances, big portfolio unwind trades etc). But don’t think HFTs have a perspective or care about the value of TSLA or whatever as a company. They basically want people to trade TSLA a lot so they make the vig every time they do. As some sibling has pointed out, they don’t want toxic/directional flow though, they want balanced flow because that means they keep making a clip whereas directional flow leaves them holding a lot of risk one way or the other because they are on the other side of those trades.
barchar 1y ago
HFTs chase two sided order flow, not valuations that are "correct" in the long term. They generally don't add information to the market. Quantitative traders do add information. HFTs probably don't like trading with people that are adding information, that's why order flow from retail traders is valuable.
- Fade_Dance 1y ago
  >HFTs probably don't like trading with people that are adding information Literally called Toxic Flow in the industry.

by weego 1y ago

_heimdall 1y ago

I think you're coming in with an assumption that HFTs are generally correct in their valuations, and that they are chasing efficiency or proper valuations rather than short term gains. Maybe those would be roughly analogous in a stable situation, but my read is that the big players in the markets today are chasing short term gains despite the signals. I'd point to the housing crisis as a recent example, the biggest banks and funds were massively over valuing real estate and real estate derivatives because they were blind to the actual risks and saw what appeared to be free money.

seanhunter 1y ago
There are so many misconceptions about what HFTs do and if anything they seem worse here than average. HFTs do not (for the most part) have any kind of “valuation” of stocks based on the fundamentals of companies. To a first approximation most HFT strategies are market making- they buy from people who want to sell at 9 and they sell to people who want to buy at 10 and every time they successfully do that round trip they make a dollar. There’s more to it than that because of course there is. Markets are complicated and there are a lot of market participants trying to do lots of things. So sometimes they make use of their knowledge of market microstructure to try to detect and preempt big market moves (eg index rebalances, big portfolio unwind trades etc). But don’t think HFTs have a perspective or care about the value of TSLA or whatever as a company. They basically want people to trade TSLA a lot so they make the vig every time they do. As some sibling has pointed out, they don’t want toxic/directional flow though, they want balanced flow because that means they keep making a clip whereas directional flow leaves them holding a lot of risk one way or the other because they are on the other side of those trades.

barchar 1y ago

HFTs chase two sided order flow, not valuations that are "correct" in the long term. They generally don't add information to the market. Quantitative traders do add information. HFTs probably don't like trading with people that are adding information, that's why order flow from retail traders is valuable.

Fade_Dance 1y ago
>HFTs probably don't like trading with people that are adding information Literally called Toxic Flow in the industry.