4 ms·

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 tre

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.
- zygomega 14y ago
  Yes, very loose terminology. I was thinking of a combination of two events: 1. VWAP based trading of large positions, which creates assymetric momentum effects in volume and price (and which is then somewhat forecastable) 2. Not then recognizing that you are forecastable (as a result of playing the VWAP game). The extra information that someone who looks at intraday price relationships has over someone who doesn't. If you wade into the middle of a market that is short-run forecastable (eg it's trending downwards to a new level and the market maker/HFT guys are battling their battles), and you don't check as to whether it's short-run forecastable, then you're probably the patzy at the poker table.

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.

zygomega 14y ago
Yes, very loose terminology. I was thinking of a combination of two events: 1. VWAP based trading of large positions, which creates assymetric momentum effects in volume and price (and which is then somewhat forecastable) 2. Not then recognizing that you are forecastable (as a result of playing the VWAP game). The extra information that someone who looks at intraday price relationships has over someone who doesn't. If you wade into the middle of a market that is short-run forecastable (eg it's trending downwards to a new level and the market maker/HFT guys are battling their battles), and you don't check as to whether it's short-run forecastable, then you're probably the patzy at the poker table.