7 ms·

All in the name of "providing liquidity"...

• purplelobster 13y ago
  As someone who's not too familiar with economics, how is HFT supposed to be good for the economy?
  • dllthomas 13y ago
    If you want to buy/sell at a price, and there's no one ready to sell/buy at that price, a speculator (of any stripe) coming in and making that deal with you means you got the price you asked for. Maybe you could have got better - that's what the speculator is hoping - but you're no longer taking that risk. Statistically, the money going to the trader is similar to an insurance premium then. That's all "in principle" - whether the details work out right is a much deeper question.
    • joezydeco 13y ago
      Aren't these speculators constantly entering and withdrawing these orders from the market on the order of microseconds? It's not like the order book for Johnson and Johnson is completely empty and there is absolutely nobody out there willing to sell shares. If I understand it right, the HFT machines are poking numbers around the current price trying to step ahead of a regular order before it comes in.
      • skylan_q 13y ago
        Yes. That's what it does. If you, as a human, try to trade like this, the computers will destroy you. That's why people shouldn't trade like computers and they should use their experience and judgment to guide them.
        • joezydeco 13y ago
          So you're implying we should all be complacent and let HFT machines take a small parasitic profit off of every stock transaction humans make?
          • skylan_q 13y ago
            Complacent? Get in on HFT if you feel that it's making it unfair for human traders.
            • joezydeco 13y ago
              I'm speaking for the majority of people that can't afford racks of servers and custom-laid transatlantic fiberoptic lines. I'm speaking about typical americans that have their money in 401(k) accounts or maybe buy stocks from an online broker to try and fund their kids' college accounts. These people are all being scraped, very slowly but very surely, by HFT. That's the point I'm making. At least we all admit that the modern stock market has absolutely no connection to the economy or to the interests of long-term investing or capital building. It's just a very large and very legal casino.
              • skylan_q 13y ago
                I'm speaking for the majority of people that can't afford racks of servers and custom-laid transatlantic fiberoptic lines. I'm speaking about typical americans that have their money in 401(k) accounts or maybe buy stocks from an online broker to try and fund their kids' college accounts. Barriers to entry. Cost of business, etc... It's really not a concern to people who actually understand HFT and trade in their own way despite. They generally really don't mind the added liquidity. These people are all being scraped, very slowly but very surely, by HFT. That's the point I'm making. Buy in at $40. Sell at $80. Where does the computer scrape money from the transactions? It doesn't. Like I said, you're only losing if you're trying to trade like a computer. It's like trying to out-robot a robot on an assembly line. At least we all admit that the modern stock market has absolutely no connection to the economy or to the interests of long-term investing or capital building. It's just a very large and very legal casino. I disagree to the first part, and I think the second bit is an oversimplification. It obviously matters, or else people wouldn't be upset by HFT or claim that they're losing money to it. We also have to consider the fact that pretty much all money comes through the bond and stock markets at exchanges. The exchanges are price arbitration centers for the economy. Paying attention to them matters because the exchanges and what happens there matters. A casino is a place you go to lose money. It's all games and the odds are stacked against you. Everything we do in life is a gamble. An exchange is a place for people to make informed decisions about the prices of goods and financial instruments. Everyone loses and wins some. I do relate to the long-term investing/capital building. The central banks keep printing money which funnels into the bond and stock markets. This in turn signals an abundance of actual economic capital, which there isn't. With the communication that there is plenty of excess capital for the long term, we (and especially people dealing in finance) act as if it is the case and start consuming capital. Eventually, facts catch up and we get some sort of terrible economic downturn. As a result of the long-term economic irregularity, actors act for the short-term because the long term is just too undependable.
      • anonymoushn 13y ago
        HFT machines don't get to know about regular orders until it is too late to preempt them. If an order takes liquidity, the first sign of it that an HFT machine will see is the trade executing. If an order adds liquidity, the HFT machine will see the order appear on the book. Assuming that the venue uses time priority, which nearly all of them do, once the HFT machine is aware of the order it cannot get "ahead" of the order because the order has already received a timestamp that is lower than the present timestamp. There may be some very minute portion of the industry that actually dedicates a lot of time to trying to predict specific actions of other market participants, but this seems like an awful idea to me. It would be much easier to try to predict the future price so you can avoid accumulating a large position in the wrong direction (as a market maker) or grab a big position in the right direction (as a speculator). It is also pretty easy to perform arbitrage, although this corner of the industry is harder to break into, since it requires more in the way of pricey hardware and data services and less in the way of strategy and predictive power.
  • harryh 13y ago
    Because it's much cheaper to have computers do this than actual people which is what we used to have.