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> As you may well be aware, HFT is a scourge on the world's economy, and it's a game only the biggest and best-connected players benefit from. This is the line

> As you may well be aware, HFT is a scourge on the world's economy, and it's a game only the biggest and best-connected players benefit from. This is the line peddled by the popular press but it isn't true. HFT works to reduce spreads, which benefits both buyers and sellers.

fnordfnordfnord 14y ago
Latency arbing is a scourge, and makes limit orders practically useless. Quote stuffing, would be illegal if trading were still done on little slips of paper. Imagine dumping 10,000 slips of paper on the trading desk, and then shouting "just kidding!" In the words of Lawrence from Office Space, "You'd get your ass kicked" Or even worse, 10,000 empty bids. That's why people hate HFT.
- kasey_junk 14y ago
  I'm not trying to be argumentative, but I am curious why you find latency arb so problematic, and what you think it's impact is on limit orders? I for one think latency arb is one of the bigger net wins for hft. As a market participant, each venue I have to maintain a presence at is a cost to me. I'm willing to pay the latency arb shops their cut to provide me price consistency because for my models it is much cheaper to do so than to continually reevaluate and redeploy to every possible venue. It frees me to shop for venues that provide the best features and fees. As for quote stuffing, you are absolutely right it is awful. That's why almost every venue out there has taken or is taking steps to curtail it. They did so because their customers agree with you.
  - dchichkov 14y ago
    'Quote stuffing' is there, because of absolutely ridiculous SEC rules. If you'd put in fractional prices and remove NBBO rules, there wouldn't be any 'quote stuffing'. And latency arb. What's wrong with latency arb? How else can you move information from one exchange to another fairly? Think of HFT's as of part of the financial network infrastructure. Where exchanges play role of nodes and HFT companies role of links/queues/buffers.
  - ycombobreaker 14y ago
    > I'm not trying to be argumentative, but I am curious why you find latency arb so problematic That is a loaded term. "Latency arb" as you described it is HFT keeping all protected exchanges synchronized, and it is a good thing. It means that everyone else can ignore the 13 exchanges, and send their orders to the market with the most competitive pricing for connectivity. "Latency" arb" as described in most literature critical of HFT is the specific practice of submitting and canceling non-bona-fide quotes to an exchange with the intent of slowing down the matching engine. If you can slow down the matching engine that most other participants are using, you can effectively delay the public response your actions on the other 12 exchanges. A trading strategy that operates on the basis of a DoS attack on one exchange is definitely problematic.
    - kasey_junk 14y ago
      What you are describing is quote stuffing. Nearly every participant in HFT/algo trading agrees that it is a problematic practice. Nearly every venue has either enacted or is enacting policies and procedures to either prevent it or severely penalize it, because that is what all of their customers want.
      - ycombobreaker 14y ago
        > What you are describing is quote stuffing. Yes. Sometimes it is referred to as latency arbitrage. Hence why people _nominally_ talking about that subject may, in fact, be talking about different things. > Nearly every venue has either enacted or is enacting policies and procedures to either prevent it or severely penalize it, because that is what all of their customers want. Regarding penalties to prevent or penalize it, I disagree. NASDAQ's policy uses a ratio weighted by distance from the top-of-book. There is no penalty for excessive order submit-cancel loops at the top-of-book. Their matching engine also operates in a fashion which specifically encourages cancel/resubmit loops at the top-of-book, in that they accept and subsequently display limit orders at a different price than submitted. If they were serious about preventing quote-stuffing, they could fix this simply by rejecting those orders. Presumably they either don't care (because their system doesn't get bogged down), or there is pressure from some big customers to keep the status quo here.
  - fnordfnordfnord 14y ago
    No worries, I'm specifically talking about the folks that are constantly testing for buys with tiny (and fake) orders and incrementing the ask until they find the limit, then buying all they can, holding for only milliseconds and reselling at the higher price. Queue jumping tricks like that which really add no value.

fnordfnordfnord 14y ago

Latency arbing is a scourge, and makes limit orders practically useless. Quote stuffing, would be illegal if trading were still done on little slips of paper. Imagine dumping 10,000 slips of paper on the trading desk, and then shouting "just kidding!" In the words of Lawrence from Office Space, "You'd get your ass kicked" Or even worse, 10,000 empty bids. That's why people hate HFT.

kasey_junk 14y ago
I'm not trying to be argumentative, but I am curious why you find latency arb so problematic, and what you think it's impact is on limit orders? I for one think latency arb is one of the bigger net wins for hft. As a market participant, each venue I have to maintain a presence at is a cost to me. I'm willing to pay the latency arb shops their cut to provide me price consistency because for my models it is much cheaper to do so than to continually reevaluate and redeploy to every possible venue. It frees me to shop for venues that provide the best features and fees. As for quote stuffing, you are absolutely right it is awful. That's why almost every venue out there has taken or is taking steps to curtail it. They did so because their customers agree with you.
- dchichkov 14y ago
  'Quote stuffing' is there, because of absolutely ridiculous SEC rules. If you'd put in fractional prices and remove NBBO rules, there wouldn't be any 'quote stuffing'. And latency arb. What's wrong with latency arb? How else can you move information from one exchange to another fairly? Think of HFT's as of part of the financial network infrastructure. Where exchanges play role of nodes and HFT companies role of links/queues/buffers.
- ycombobreaker 14y ago
  > I'm not trying to be argumentative, but I am curious why you find latency arb so problematic That is a loaded term. "Latency arb" as you described it is HFT keeping all protected exchanges synchronized, and it is a good thing. It means that everyone else can ignore the 13 exchanges, and send their orders to the market with the most competitive pricing for connectivity. "Latency" arb" as described in most literature critical of HFT is the specific practice of submitting and canceling non-bona-fide quotes to an exchange with the intent of slowing down the matching engine. If you can slow down the matching engine that most other participants are using, you can effectively delay the public response your actions on the other 12 exchanges. A trading strategy that operates on the basis of a DoS attack on one exchange is definitely problematic.
  - kasey_junk 14y ago
    What you are describing is quote stuffing. Nearly every participant in HFT/algo trading agrees that it is a problematic practice. Nearly every venue has either enacted or is enacting policies and procedures to either prevent it or severely penalize it, because that is what all of their customers want.
    - ycombobreaker 14y ago
      > What you are describing is quote stuffing. Yes. Sometimes it is referred to as latency arbitrage. Hence why people _nominally_ talking about that subject may, in fact, be talking about different things. > Nearly every venue has either enacted or is enacting policies and procedures to either prevent it or severely penalize it, because that is what all of their customers want. Regarding penalties to prevent or penalize it, I disagree. NASDAQ's policy uses a ratio weighted by distance from the top-of-book. There is no penalty for excessive order submit-cancel loops at the top-of-book. Their matching engine also operates in a fashion which specifically encourages cancel/resubmit loops at the top-of-book, in that they accept and subsequently display limit orders at a different price than submitted. If they were serious about preventing quote-stuffing, they could fix this simply by rejecting those orders. Presumably they either don't care (because their system doesn't get bogged down), or there is pressure from some big customers to keep the status quo here.
- fnordfnordfnord 14y ago
  No worries, I'm specifically talking about the folks that are constantly testing for buys with tiny (and fake) orders and incrementing the ask until they find the limit, then buying all they can, holding for only milliseconds and reselling at the higher price. Queue jumping tricks like that which really add no value.