4 ms·

HFT isn't necessarily a scourge - if anything it discourages people from short term investing, which is a Good Thing. Long term investing isn't affected by HFT

by cmdkeen 14y ago

HFT isn't necessarily a scourge - if anything it discourages people from short term investing, which is a Good Thing. Long term investing isn't affected by HFT, except in providing more liquidity at the point you want to exit any position. If you're planning on holding for 5+ years you're competing against relatively few people and can do good research. Any shorter timeframe and you're competing against millions, against computers and against unknowables that will distort the price in the short term.

white_devil 14y ago
It's weird how this "providing liquidity" distraction never seems to go out of fashion. HFT provides liquidity if you happen to be another HFT algorithm. Otherwise, not so much. Why would short term investing be bad, and how long do you think HFT algorithms hold their "investments"? I hope you're not just trying to blow smoke up my ass here.
- cmdkeen 14y ago
  It isn't just about liquidity, though it does. But it also reduces the bid/ask spread, i.e. price discovery. The HFT trader may make a tiny profit when it processes a trade from me, but I've benefited because I can buy/sell at a price close to the quoted exchange price, which didn't use to be the case. In terms of liquidity those trades are available to all, they love buying from non-HFT trades because they can make a small profit from their less accurate pricing. You benefit from the lower spreads and that liquidity. Before HFT you'd have paid a greater cost due to the spread on the price. Short term investing is "bad" because you're not investing in the future success of the company you're trading on the basis of what you think the market is going to do. To the extent to which that is ever knowable it is unlikely you have the skill, experience and data to be able to beat the large number of professionals doing it.
  - white_devil 14y ago
    It sounds like you work for the financial industry too. > The HFT trader You say it like it's a person making trades. > I've benefited because I can buy/sell at a price close to the quoted exchange price, which didn't use to be the case. What's a "quoted exchange price" if it's not the price you actually pay? > Short term investing is "bad" because you're not investing in the future success of the company you're trading on the basis of what you think the market is going to do. Isn't this what HFT is all about? Trading on insider information is bad, of course. But if you're on a level playing field, I don't see anything wrong with profiting from something you correctly predicted short-term.
    - cmdkeen 14y ago
      I do - but a 'proper' long term investor that cares about the price in 20 years time. The quoted exchange price is an average of the buy/sell offers available, there is no guarantee if you try and trade that you will pay that amount. Especially if you are shifting large blocks of stock. There is nothing wrong with "short term predicting" but it isn't investing. It is often a very easy way to lose money, "bad" doesn't just mean morally so. It comes down to time horizons, how much you want to make, and how many people are also trying to predict that event. You can correctly predict that event and still not make money as it is already priced in.
    - TheCoelacanth 14y ago
      > What's a "quoted exchange price" if it's not the price you actually pay? The actual price you have to pay is based on how much you want to buy and how much other people are willing to sell at what price. People who want to buy give a "bid" price and people who want to sell give an "ask" price. Whenever there is an ask price that is lower than a bid price, a sale takes place. This results in the lowest ask price always being higher than the highest bid price. The quoted exchange price will be somewhere in between the two prices. If you want to sell right away, the most you can get is the highest bid price on the books. If you want to buy right away, the cheapest you can get it is the lowest bid price on the books. This means that you have to pay more than the quoted exchange price to buy and receive less than the quoted exchange price to sell.
    - tome 14y ago
      > What's a "quoted exchange price" if it's not the price you actually pay? The mean of the bid and the ask, generally. For a daily close price it can be a fifteen-or-so minute average thereof.
  - zygomega 14y ago
    Investing in company stock is much more about investing with a global pool of liquid capital seeking risky asset exposures these days. When global capital changes it's mind (in whatever direction) those watching the market closely will be the first to know and the first to profit from the market signal. You can go broke investing in companies that look like they have a bright future.
zygomega 14y ago
Long-term investors trade every day. You wake up and the market has gone down a few percent, you're going to rebalance at least. You decide to buy 30 year treasuries you're not going to hold them for thirty years - you're going to sell 29.5 year bonds and buy 30 year bonds in a few months time. And managers turn over long-term investor portfolios quickly. The average holding period for an SP500 company shareholder is 100 days. And every time a trade happens you run the risk of getting clipped by the faster guys who see you coming.
- cmdkeen 14y ago
  But long term investors don't care about the "clip" that HFTs take, they care about the 80% rise in price over the next 5 years. Rebalancing portfolios again isn't something where getting a few basis points off the HFT best execution price is an issue. I work for a proper long term investor, and we trade over a period of days for the big trades. HFTs aren't even an issue apart from their occasional spectacular blowups that cause "could this happen to us?" memos from upstairs. Long term investors don't need to evolve from HFTs, they're more than happy making money not involving computers or trying to compete with them.
- ycombobreaker 14y ago
  > And every time a trade happens you run the risk of getting clipped by the faster guys who see you coming. I think it is natural, but fallacious, to apply line-of-sight properties to trading. If you plan to trade, then there are two ways that another participant can "see you coming": 1. If you don't have direct market access, your order gets routed through a broker. The broker sees your order before it hits the market, and if he jumps in line ahead of you then that is front-running, and a Bad Thing. Your broker can get in a lot of trouble for this sort of thing. 2. If you are trying to move a large position by sending multiple orders to the market (one after another), then all market participants have the chance to react to the first order. It's really a game to try to move a lot of inventory at once, without tipping your hand to anyone else in the room. Thems the breaks. Nobody else gets to see anyone's order before the matching engine has already processed it, so there's no way to jump "ahead" of it. OTOH, maybe your long-term investor is trying to time the market: wait for a signal intraday, and pick that moment to send an order. In that case, if it is a good intraday signal then it is likely that someone else will compete. It is unlikely for a long-term trader to have spent as much on infrastructure as a HF trader, so the juicy signals will result in missed executions that _look_ like front-running.

by cmdkeen 14y ago

white_devil 14y ago

It's weird how this "providing liquidity" distraction never seems to go out of fashion. HFT provides liquidity if you happen to be another HFT algorithm. Otherwise, not so much. Why would short term investing be bad, and how long do you think HFT algorithms hold their "investments"? I hope you're not just trying to blow smoke up my ass here.

cmdkeen 14y ago
It isn't just about liquidity, though it does. But it also reduces the bid/ask spread, i.e. price discovery. The HFT trader may make a tiny profit when it processes a trade from me, but I've benefited because I can buy/sell at a price close to the quoted exchange price, which didn't use to be the case. In terms of liquidity those trades are available to all, they love buying from non-HFT trades because they can make a small profit from their less accurate pricing. You benefit from the lower spreads and that liquidity. Before HFT you'd have paid a greater cost due to the spread on the price. Short term investing is "bad" because you're not investing in the future success of the company you're trading on the basis of what you think the market is going to do. To the extent to which that is ever knowable it is unlikely you have the skill, experience and data to be able to beat the large number of professionals doing it.
- white_devil 14y ago
  It sounds like you work for the financial industry too. > The HFT trader You say it like it's a person making trades. > I've benefited because I can buy/sell at a price close to the quoted exchange price, which didn't use to be the case. What's a "quoted exchange price" if it's not the price you actually pay? > Short term investing is "bad" because you're not investing in the future success of the company you're trading on the basis of what you think the market is going to do. Isn't this what HFT is all about? Trading on insider information is bad, of course. But if you're on a level playing field, I don't see anything wrong with profiting from something you correctly predicted short-term.
  - cmdkeen 14y ago
    I do - but a 'proper' long term investor that cares about the price in 20 years time. The quoted exchange price is an average of the buy/sell offers available, there is no guarantee if you try and trade that you will pay that amount. Especially if you are shifting large blocks of stock. There is nothing wrong with "short term predicting" but it isn't investing. It is often a very easy way to lose money, "bad" doesn't just mean morally so. It comes down to time horizons, how much you want to make, and how many people are also trying to predict that event. You can correctly predict that event and still not make money as it is already priced in.
  - TheCoelacanth 14y ago
    > What's a "quoted exchange price" if it's not the price you actually pay? The actual price you have to pay is based on how much you want to buy and how much other people are willing to sell at what price. People who want to buy give a "bid" price and people who want to sell give an "ask" price. Whenever there is an ask price that is lower than a bid price, a sale takes place. This results in the lowest ask price always being higher than the highest bid price. The quoted exchange price will be somewhere in between the two prices. If you want to sell right away, the most you can get is the highest bid price on the books. If you want to buy right away, the cheapest you can get it is the lowest bid price on the books. This means that you have to pay more than the quoted exchange price to buy and receive less than the quoted exchange price to sell.
  - tome 14y ago
    > What's a "quoted exchange price" if it's not the price you actually pay? The mean of the bid and the ask, generally. For a daily close price it can be a fifteen-or-so minute average thereof.
- zygomega 14y ago
  Investing in company stock is much more about investing with a global pool of liquid capital seeking risky asset exposures these days. When global capital changes it's mind (in whatever direction) those watching the market closely will be the first to know and the first to profit from the market signal. You can go broke investing in companies that look like they have a bright future.

zygomega 14y ago

Long-term investors trade every day. You wake up and the market has gone down a few percent, you're going to rebalance at least. You decide to buy 30 year treasuries you're not going to hold them for thirty years - you're going to sell 29.5 year bonds and buy 30 year bonds in a few months time. And managers turn over long-term investor portfolios quickly. The average holding period for an SP500 company shareholder is 100 days. And every time a trade happens you run the risk of getting clipped by the faster guys who see you coming.

cmdkeen 14y ago
But long term investors don't care about the "clip" that HFTs take, they care about the 80% rise in price over the next 5 years. Rebalancing portfolios again isn't something where getting a few basis points off the HFT best execution price is an issue. I work for a proper long term investor, and we trade over a period of days for the big trades. HFTs aren't even an issue apart from their occasional spectacular blowups that cause "could this happen to us?" memos from upstairs. Long term investors don't need to evolve from HFTs, they're more than happy making money not involving computers or trying to compete with them.
ycombobreaker 14y ago
> And every time a trade happens you run the risk of getting clipped by the faster guys who see you coming. I think it is natural, but fallacious, to apply line-of-sight properties to trading. If you plan to trade, then there are two ways that another participant can "see you coming": 1. If you don't have direct market access, your order gets routed through a broker. The broker sees your order before it hits the market, and if he jumps in line ahead of you then that is front-running, and a Bad Thing. Your broker can get in a lot of trouble for this sort of thing. 2. If you are trying to move a large position by sending multiple orders to the market (one after another), then all market participants have the chance to react to the first order. It's really a game to try to move a lot of inventory at once, without tipping your hand to anyone else in the room. Thems the breaks. Nobody else gets to see anyone's order before the matching engine has already processed it, so there's no way to jump "ahead" of it. OTOH, maybe your long-term investor is trying to time the market: wait for a signal intraday, and pick that moment to send an order. In that case, if it is a good intraday signal then it is likely that someone else will compete. It is unlikely for a long-term trader to have spent as much on infrastructure as a HF trader, so the juicy signals will result in missed executions that _look_ like front-running.