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Is there really a problem here that's worth regulating? They point out flash crashes as being a big problem--those flash crashes quickly correct themselves bac

Is there really a problem here that's worth regulating? They point out flash crashes as being a big problem--those flash crashes quickly correct themselves back to their "true" value (whatever that means), and the people most hurt are the people who were using bad algorithms and took risks they didn't understand, Knight Capital being a recent example. They reference volume being much higher than it ever has been on account of hft, which is true. But what does that have to do with the bubble of the 90s? Higher volume != stock market ruin. Then there's the small time investor getting hurt. But are they really? The whims of the market now occur because of algorithmic trading as opposed to before, when the whims of the market occurred because of--who knows? Small time investors have been winning and losing since the system was invented. Markets can and always will be fickle. So again, what exactly is the problem here?

YouWontSeeThis 14y ago
The point of the stock market is to invest in companies, not extract value from the public. The benefits of HFT have run their course, now it's simply a tax on the small traders who want to get into the market. What is the benefit?
damoncali 14y ago
Knight almost blinked out of existence due to computers screwing up. Why is it a stretch to think that far worse catastrophes are also likely to happen at some point? The systematic risk is large, and the benefit is near zero.
gergles 14y ago
You have 100 shares of FOO. It is trading at $50. You bought it at $40, so you have a stop-loss order to sell it at $35. Some "liquidity provider"'s algorithm goes haywire and the price drops to $30. The exchange's "circuit breakers" halt trading or revert the trades, and then the price quickly goes back up to $50. Unfortunately for you, your brokerage's computer saw the price drop, executed your stop-loss order, and put your shares up for sale, which were then purchased by another 'liquidity provider' (or hell, maybe even the same one that caused the value to drop in the first place). You've now lost $1500 because of HFT. Your trade can't be reverted, because fuck you, that's why, but the holy "market makers" get their trades rolled back so that their rich friends don't suffer anything for their alogrithmic fail.
- pash 14y ago
  The real problem is that your "stop loss" is a standing order to sell, at any price, if the price of your asset falls below some threshold. That is fundamentally a bad idea, and it's just this sort of trading behavior that creates liquidity crises.
  - damoncali 14y ago
    No, the real problem is that one person's program broke and caused real losses for other people who were acting rationally. If you must account for a non-zero chance that some geek's algorithm will go totally batshit and lose you a bunch of money in unpredictable ways, there is a huge problem at the very core of the marketplace.

YouWontSeeThis 14y ago

The point of the stock market is to invest in companies, not extract value from the public. The benefits of HFT have run their course, now it's simply a tax on the small traders who want to get into the market. What is the benefit?

damoncali 14y ago

Knight almost blinked out of existence due to computers screwing up. Why is it a stretch to think that far worse catastrophes are also likely to happen at some point? The systematic risk is large, and the benefit is near zero.

gergles 14y ago

You have 100 shares of FOO. It is trading at $50. You bought it at $40, so you have a stop-loss order to sell it at $35. Some "liquidity provider"'s algorithm goes haywire and the price drops to $30. The exchange's "circuit breakers" halt trading or revert the trades, and then the price quickly goes back up to $50. Unfortunately for you, your brokerage's computer saw the price drop, executed your stop-loss order, and put your shares up for sale, which were then purchased by another 'liquidity provider' (or hell, maybe even the same one that caused the value to drop in the first place). You've now lost $1500 because of HFT. Your trade can't be reverted, because fuck you, that's why, but the holy "market makers" get their trades rolled back so that their rich friends don't suffer anything for their alogrithmic fail.

pash 14y ago
The real problem is that your "stop loss" is a standing order to sell, at any price, if the price of your asset falls below some threshold. That is fundamentally a bad idea, and it's just this sort of trading behavior that creates liquidity crises.
- damoncali 14y ago
  No, the real problem is that one person's program broke and caused real losses for other people who were acting rationally. If you must account for a non-zero chance that some geek's algorithm will go totally batshit and lose you a bunch of money in unpredictable ways, there is a huge problem at the very core of the marketplace.