5 ms·

So, the video made it sound like someone was holding a large amount of stocks and very quickly sold all of them (like the flash crash). It didn't lead me to bel

by lojack 14y ago

So, the video made it sound like someone was holding a large amount of stocks and very quickly sold all of them (like the flash crash). It didn't lead me to believe that they were placing orders and pulling them before they could be executed. Was this type of order discovered after the video recording, or am I misunderstanding what they said? Also, in the video they say: "What you're saying is the individual investor has no shot. Mary and Joe sitting out there have no quants on their staff" My assumption was always that the average trader holds their shares over a longer period of time, and thus aren't really affected by these HFT algorithms. Is that assumption incorrect?

tptacek 14y ago
No, it is not incorrect. The impact of HFT on buy & hold investors is probably a wash. Automated trading has cut the bid/ask spread but may contribute to volatility (it is tougher to say than it seems). Either way, Mary and Joe were never competing with market makers and active trading strategies, and still aren't now.
- marshallp 14y ago
  That's not entirely true. I'm an amateur and I want to invest actively using statistics. But getting tick data (covering years/decades) is costly and dealing with it as well. I could handle it if it were daily (if all trades were limited to 9am auction every day. This would also allow room for much more extensive modeling of other data sources and longer term predictions).
  - vecter 14y ago
    That's not a very convincing argument. I'd like to participate in F1 racing, but the research and engineering costs are too high for me as an individual to partake in. If they limited racing to only 4-cylinder non-modded Hondas, it would allow me to compete in their game.
    - marshallp 14y ago
      F1 racing is a game. You're then equating stock trading with a game (a casino) when it should be serving everyone in society. Closing off a large number of people because they lack "sophistication" is called facism. We should be striving for small c capitalism.
      - vecter 14y ago
        That's a false premise. The "purpose" of capital markets isn't to "serve society" any more so than the "purpose" of restaurants is to "serve food". Restaurants (and any other businesses for that matter) exist to generate profits. They merely satisfy that goal by serving food, but it could be done a million other ways. The stock market exists not because of some idealized goal of serving society, but because companies want to sell partial ownership and transfer risk from themselves to the public in exchange for potential future returns on that investment. Anyone member of the public who purchases stock in a company should understand that agreement. It also has secondary benefits like providing liquidity for employees, etc., but the New York Stock Exchange wasn't founded with that purpose in mind. In other words, the stock market doesn't owe you anything. That point aside, could you clarify how HFT hurts you? If your goal is to use stock markets as an investment vehicle, then your time horizon should be on the order of months and years, not seconds. If that's the case, then HFT has no impact on you whatsoever. If you do want to play in the second time range, then my analogy with F1 racing is perfectly applicable and there's no justification for your complaint.
        marshallp 14y ago
        That's not false - capitalism is justified by it's proponents by it's ability to serve the public better than socialism (the majority of the public wants more socialism - entitlements/public services etc). Some aspects of capitalism (copyrights, patents, HFT, pollution) are not serving the public and there are valid arguments from the opposing side. My goal is to trade daily/weekly (in addition to monthly/yearly). I don't want to seconds/minutes/hours (and so can't many others - so the "competitiveness" of markets is actually reduced). Ultimately, stock markets exist to raise funds for projects (exits for entrepreneurs, financing projects in large corps) - they occur on the daily-years timeframe, not seconds/minutes/hours.
  - tptacek 14y ago
    I'm an amateur and I want to start a bank. How upset should I be?
    - marshallp 14y ago
      You should be upset. Why is it that only select few can have reserve requirements and make interest on free loans from the central bank. It's a direct transfer of wealth to the chosen few.
      - tptacek 14y ago
        If you believe that, why would you want to run an algorithmic automated trading system?
        marshallp 14y ago
        I don't see how that contradicts.
        tptacek 14y ago
        You seem to believe the whole of capitalism is rigged to benefit a fortunate few. Why do you want to trade contracts with them?
      - Evbn 14y ago
        Anyone can start a bank, you just have to do the work to meet the requirements.
        marshallp 14y ago
        Is it as easy as possible? Can you borrow straight from the central bank at the low interest rates? The more regulations/expenses you put in the way the less competitiveness there is and the more unfair it is (hence giving free money to the powerful). (Also, will I get a bailout?)
  - Permit 14y ago
    >That's not entirely true. I'm an amateur and I want to invest actively using statistics. But getting tick data (covering years/decades) is costly and dealing with it as well. I could handle it if it were daily (if all trades were limited to 9am auction every day. This would also allow room for much more extensive modeling of other data sources and longer term predictions). It's not that expensive to get historical data. You can get daily for free. You can get minute data for years for ~$65.00/month and tick data for an extra $25.00/month. The expensive part is direct market access, and even that is reasonable if you've got a successful trading strategy.
    - marshallp 14y ago
      Well, the costs add up. You have to process that data as well afterwards. And all those resources are being diverted away from collecting other data and making longer term predictions. Multiply that by the millions who could be trading but don't (a few hundred dollars a month is a barrier to a lot of people, that might have been the profit of a small strategy that worked).
      - Permit 14y ago
        First of all, you haven't yet told me why high frequency trading is driving up data costs. Secondly, if $100/month is stopping your business from being profitable, that's a fault with your business model, nothing more. It would cost more to get a medium size Windows instance on Amacon EC2 for the month. >Multiply that by the millions who could be trading but don't (a few hundred dollars a month is a barrier to a lot of people, that might have been the profit of a small strategy that worked). I don't think you can claim that millions of people are being locked out of the market because of data costs.
        marshallp 14y ago
        If there's more data, then it's more costly to deal with it - simple as that. What if there's a little appliance that you plug in which makes predictive models (you can think of it as installing software on your laptop). What if millions of people want this appliance but it costs a $100 a month but could have made about $100 dollars a month? They will choose not to invest. This might seem contrived, but it's also the scenario behind the web (lot less blogs when it cost $100 per month). The net effect is that less predictive models of the economy are created. This is bad because that's how capitalism allocates resources. The larger framework is that competition increases quality. Any barrier to business decreases competition.
- greeneggs 14y ago
  1. From what I've heard, all large organizations need to trade with HFT strategies in mind. (Is this wrong?) So if Mary and Joe own index funds or mutual funds, then they are competing with active trading strategies. It is basically a tax. 2. If HFTraders are collectively making money, and presumably they must be, that money must be coming from somewhere. If, for example, the stock market rises 50%, via some sequence of gyrations, then there is only a fixed gain to be divided up. Maybe HFT increases the size of the pie, but that feels like mostly a higher-order effect. Am I wrong?
  - tptacek 14y ago
    That's wrong in the sense that it conflates trading strategies with HFT. It has always been a technical challenge to buy or sell large blocks; it is in fact one of the fundamental basic challenges. The money HFTs collect tends to come from the bid/ask spread. It's money that was already being taxed out of trades, but now robots are competing for it.
jlft 14y ago
HFT is an exploitation technique to extract value from the market. It drives away capital formation and investor participation, and is bad for everybody except the HFT traders themselves. All non-HFT traders are affected negatively.
- Evbn 14y ago
  Citation needed.

by lojack 14y ago

tptacek 14y ago

No, it is not incorrect. The impact of HFT on buy & hold investors is probably a wash. Automated trading has cut the bid/ask spread but may contribute to volatility (it is tougher to say than it seems). Either way, Mary and Joe were never competing with market makers and active trading strategies, and still aren't now.

marshallp 14y ago
That's not entirely true. I'm an amateur and I want to invest actively using statistics. But getting tick data (covering years/decades) is costly and dealing with it as well. I could handle it if it were daily (if all trades were limited to 9am auction every day. This would also allow room for much more extensive modeling of other data sources and longer term predictions).
- vecter 14y ago
  That's not a very convincing argument. I'd like to participate in F1 racing, but the research and engineering costs are too high for me as an individual to partake in. If they limited racing to only 4-cylinder non-modded Hondas, it would allow me to compete in their game.
  - marshallp 14y ago
    F1 racing is a game. You're then equating stock trading with a game (a casino) when it should be serving everyone in society. Closing off a large number of people because they lack "sophistication" is called facism. We should be striving for small c capitalism.
    - vecter 14y ago
      That's a false premise. The "purpose" of capital markets isn't to "serve society" any more so than the "purpose" of restaurants is to "serve food". Restaurants (and any other businesses for that matter) exist to generate profits. They merely satisfy that goal by serving food, but it could be done a million other ways. The stock market exists not because of some idealized goal of serving society, but because companies want to sell partial ownership and transfer risk from themselves to the public in exchange for potential future returns on that investment. Anyone member of the public who purchases stock in a company should understand that agreement. It also has secondary benefits like providing liquidity for employees, etc., but the New York Stock Exchange wasn't founded with that purpose in mind. In other words, the stock market doesn't owe you anything. That point aside, could you clarify how HFT hurts you? If your goal is to use stock markets as an investment vehicle, then your time horizon should be on the order of months and years, not seconds. If that's the case, then HFT has no impact on you whatsoever. If you do want to play in the second time range, then my analogy with F1 racing is perfectly applicable and there's no justification for your complaint.
      - marshallp 14y ago
        That's not false - capitalism is justified by it's proponents by it's ability to serve the public better than socialism (the majority of the public wants more socialism - entitlements/public services etc). Some aspects of capitalism (copyrights, patents, HFT, pollution) are not serving the public and there are valid arguments from the opposing side. My goal is to trade daily/weekly (in addition to monthly/yearly). I don't want to seconds/minutes/hours (and so can't many others - so the "competitiveness" of markets is actually reduced). Ultimately, stock markets exist to raise funds for projects (exits for entrepreneurs, financing projects in large corps) - they occur on the daily-years timeframe, not seconds/minutes/hours.
- tptacek 14y ago
  I'm an amateur and I want to start a bank. How upset should I be?
  - marshallp 14y ago
    You should be upset. Why is it that only select few can have reserve requirements and make interest on free loans from the central bank. It's a direct transfer of wealth to the chosen few.
    - tptacek 14y ago
      If you believe that, why would you want to run an algorithmic automated trading system?
      - marshallp 14y ago
        I don't see how that contradicts.
        tptacek 14y ago
        You seem to believe the whole of capitalism is rigged to benefit a fortunate few. Why do you want to trade contracts with them?
    - Evbn 14y ago
      Anyone can start a bank, you just have to do the work to meet the requirements.
      - marshallp 14y ago
        Is it as easy as possible? Can you borrow straight from the central bank at the low interest rates? The more regulations/expenses you put in the way the less competitiveness there is and the more unfair it is (hence giving free money to the powerful). (Also, will I get a bailout?)
- Permit 14y ago
  >That's not entirely true. I'm an amateur and I want to invest actively using statistics. But getting tick data (covering years/decades) is costly and dealing with it as well. I could handle it if it were daily (if all trades were limited to 9am auction every day. This would also allow room for much more extensive modeling of other data sources and longer term predictions). It's not that expensive to get historical data. You can get daily for free. You can get minute data for years for ~$65.00/month and tick data for an extra $25.00/month. The expensive part is direct market access, and even that is reasonable if you've got a successful trading strategy.
  - marshallp 14y ago
    Well, the costs add up. You have to process that data as well afterwards. And all those resources are being diverted away from collecting other data and making longer term predictions. Multiply that by the millions who could be trading but don't (a few hundred dollars a month is a barrier to a lot of people, that might have been the profit of a small strategy that worked).
    - Permit 14y ago
      First of all, you haven't yet told me why high frequency trading is driving up data costs. Secondly, if $100/month is stopping your business from being profitable, that's a fault with your business model, nothing more. It would cost more to get a medium size Windows instance on Amacon EC2 for the month. >Multiply that by the millions who could be trading but don't (a few hundred dollars a month is a barrier to a lot of people, that might have been the profit of a small strategy that worked). I don't think you can claim that millions of people are being locked out of the market because of data costs.
      - marshallp 14y ago
        If there's more data, then it's more costly to deal with it - simple as that. What if there's a little appliance that you plug in which makes predictive models (you can think of it as installing software on your laptop). What if millions of people want this appliance but it costs a $100 a month but could have made about $100 dollars a month? They will choose not to invest. This might seem contrived, but it's also the scenario behind the web (lot less blogs when it cost $100 per month). The net effect is that less predictive models of the economy are created. This is bad because that's how capitalism allocates resources. The larger framework is that competition increases quality. Any barrier to business decreases competition.
greeneggs 14y ago
1. From what I've heard, all large organizations need to trade with HFT strategies in mind. (Is this wrong?) So if Mary and Joe own index funds or mutual funds, then they are competing with active trading strategies. It is basically a tax. 2. If HFTraders are collectively making money, and presumably they must be, that money must be coming from somewhere. If, for example, the stock market rises 50%, via some sequence of gyrations, then there is only a fixed gain to be divided up. Maybe HFT increases the size of the pie, but that feels like mostly a higher-order effect. Am I wrong?
- tptacek 14y ago
  That's wrong in the sense that it conflates trading strategies with HFT. It has always been a technical challenge to buy or sell large blocks; it is in fact one of the fundamental basic challenges. The money HFTs collect tends to come from the bid/ask spread. It's money that was already being taxed out of trades, but now robots are competing for it.

jlft 14y ago

HFT is an exploitation technique to extract value from the market. It drives away capital formation and investor participation, and is bad for everybody except the HFT traders themselves. All non-HFT traders are affected negatively.

Evbn 14y ago
Citation needed.