8 ms·

Every description of an HFT algo seems to fall into one of three categories: * Acting on public information, milliseconds before anybody else - which helps eve

Every description of an HFT algo seems to fall into one of three categories: * Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. * Acting on trading information gleaned from "bid stuffing" (making and canceling orders really quickly) - which helps everybody else about as much as front running does. * Detecting the presence of large trades about to go through or going through and capitalizing on the price movements they cause - i.e. imposing a tax others making large trades in the stock market. In return, they flood the market with liquidity when it is least needed and withdraw it suddenly when it is (e.g. when prices are diving). There's literally nothing to like about HFT.

rgarcia 14y ago
Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. "They can do it faster, therefore it must be illegal." Acting on trading information gleaned from "bid stuffing" (making and canceling orders really quickly) - which helps everybody else about as much as front running does. The only people that notice this behavior are...other people capable of doing this behavior. Why should it matter to you, the long-term investor, the trading tactics computers employ at the millisecond scale? Detecting the presence of large trades about to go through or going through and capitalizing on the price movements they cause - i.e. imposing a tax others making large trades in the stock market This happens in any market at any timescale. Everyone capitalizes on trends.
- CJefferson 14y ago
  You are replying to the wrong points.The question is not are these things illegal, or does everyone do them. question is, do they benefit the market as a whole? Traders do not have a right to perform HFT, and if it destabilise markets, we can take steps to reduce it (of course, there is then the issue of how to take steps without causing different problems)
  - dchichkov 14y ago
    How else would you connect the exchanges? Or you don't want major exchanges to be connected, and say, if you dump a lot of stock at one exchange you don't want that information to propagate to other exchanges? Benefits of having HFT traders, is that at the cost of having them around you can have fair and level ground. So if you come to one exchange to do a transaction, you don't have to think much about exchange intrinsics, like liquidity available there, fee structure, etc. Because these differences are being arbitraged away by HFT traders. And again, what is the alternative? Exchanges that are connected by human traders making phone calls?
    - nhaehnle 14y ago
      The real question is: Why are there multiple exchanges for the same papers to begin with? In the case of stocks, for example, there has to be one ultimately authoritative copy of who owns which stocks anyway. So why not just do all the trading in the place where the authoritative copy is stored? That would certainly seem to be more efficient from the perspective of minimizing the overall social cost.
      - dchichkov 14y ago
        > So why not just do all the trading in the place where the authoritative copy is stored? That would certainly seem to be more efficient from the perspective of minimizing the overall social cost. And what if trading on that exchange will stop for a couple of days for technical reasons? What kind of problems can that create to stock of large company, that can be traded only on that exchange? Or what, if the whole exchange will go out of business? Or decide to charge arbitrary large trading fees? Competition and diversity is generally a good thing. Tend to increase efficiency and minimize overall costs. That's valid for exchanges as well.
      - aitkin 14y ago
        The reason there are multiple exchanges is the same reason you can buy the same pair of shoes at 10 different places: it is competition. Also, what is the social cost you are referring to? There are a lot of people here saying that HFT doesn't provide "social value". Does it somehow provide less social value than traders screaming at each other in the pits? Similar types of trading always existed, except now it's done by computers. For what it's worth, HFT provides well-paying jobs for a lot developers and ops people and often is very supportive of the engineering community.
skorgu 14y ago
> Detecting the presence of large trades about to go through or going through and capitalizing on the price movements they cause Large trades move the market, full stop. That's a feature, not a bug. Moving a lot of size changes the market's estimate of the value of whatever you're moving. Splitting up large orders into smaller pieces is attempting to hide that information, why should that be a privileged operation?
tptacek 14y ago
I don't understand the comparison you're making between "bid stuffing" and frontrunning. Could you expand on that?
harryh 14y ago
You forget that for every buyer there is also a seller. If HFTs push the markets higher slightly faster because of new public info then while it might be bad for you if you are buying on that news, it's great for whoever already owns the stock and is the one selling to you. The same applies to your 3rd point. It might be a tax on whoever initiated the large trade, but it's a benefit to whoever is on the other side of the trade. HFTs put new information into the market much faster than humans ever could making them more efficient. They're also doing it at a lower cost than human market makers ever did.
adambratt 14y ago
Would you rather have a person or a machine serve as the market maker? If anything, HFTs have made it cheaper to trade. Because of the way exchanges are setup, the man in the middle will always be making a cut of the trades. Now though that cut is measured in pennies rather than what used to be often 1/2 dollar spreads. Sure some of the predatory algorithmic trading serves no benefit to anyone, but you will always have people gaming/attacking the system if there's arbitrage potential.

rgarcia 14y ago

Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. "They can do it faster, therefore it must be illegal." Acting on trading information gleaned from "bid stuffing" (making and canceling orders really quickly) - which helps everybody else about as much as front running does. The only people that notice this behavior are...other people capable of doing this behavior. Why should it matter to you, the long-term investor, the trading tactics computers employ at the millisecond scale? Detecting the presence of large trades about to go through or going through and capitalizing on the price movements they cause - i.e. imposing a tax others making large trades in the stock market This happens in any market at any timescale. Everyone capitalizes on trends.

CJefferson 14y ago
You are replying to the wrong points.The question is not are these things illegal, or does everyone do them. question is, do they benefit the market as a whole? Traders do not have a right to perform HFT, and if it destabilise markets, we can take steps to reduce it (of course, there is then the issue of how to take steps without causing different problems)
- dchichkov 14y ago
  How else would you connect the exchanges? Or you don't want major exchanges to be connected, and say, if you dump a lot of stock at one exchange you don't want that information to propagate to other exchanges? Benefits of having HFT traders, is that at the cost of having them around you can have fair and level ground. So if you come to one exchange to do a transaction, you don't have to think much about exchange intrinsics, like liquidity available there, fee structure, etc. Because these differences are being arbitraged away by HFT traders. And again, what is the alternative? Exchanges that are connected by human traders making phone calls?
  - nhaehnle 14y ago
    The real question is: Why are there multiple exchanges for the same papers to begin with? In the case of stocks, for example, there has to be one ultimately authoritative copy of who owns which stocks anyway. So why not just do all the trading in the place where the authoritative copy is stored? That would certainly seem to be more efficient from the perspective of minimizing the overall social cost.
    - dchichkov 14y ago
      > So why not just do all the trading in the place where the authoritative copy is stored? That would certainly seem to be more efficient from the perspective of minimizing the overall social cost. And what if trading on that exchange will stop for a couple of days for technical reasons? What kind of problems can that create to stock of large company, that can be traded only on that exchange? Or what, if the whole exchange will go out of business? Or decide to charge arbitrary large trading fees? Competition and diversity is generally a good thing. Tend to increase efficiency and minimize overall costs. That's valid for exchanges as well.
    - aitkin 14y ago
      The reason there are multiple exchanges is the same reason you can buy the same pair of shoes at 10 different places: it is competition. Also, what is the social cost you are referring to? There are a lot of people here saying that HFT doesn't provide "social value". Does it somehow provide less social value than traders screaming at each other in the pits? Similar types of trading always existed, except now it's done by computers. For what it's worth, HFT provides well-paying jobs for a lot developers and ops people and often is very supportive of the engineering community.

skorgu 14y ago

> Detecting the presence of large trades about to go through or going through and capitalizing on the price movements they cause Large trades move the market, full stop. That's a feature, not a bug. Moving a lot of size changes the market's estimate of the value of whatever you're moving. Splitting up large orders into smaller pieces is attempting to hide that information, why should that be a privileged operation?

tptacek 14y ago

I don't understand the comparison you're making between "bid stuffing" and frontrunning. Could you expand on that?

harryh 14y ago

You forget that for every buyer there is also a seller. If HFTs push the markets higher slightly faster because of new public info then while it might be bad for you if you are buying on that news, it's great for whoever already owns the stock and is the one selling to you. The same applies to your 3rd point. It might be a tax on whoever initiated the large trade, but it's a benefit to whoever is on the other side of the trade. HFTs put new information into the market much faster than humans ever could making them more efficient. They're also doing it at a lower cost than human market makers ever did.

adambratt 14y ago

Would you rather have a person or a machine serve as the market maker? If anything, HFTs have made it cheaper to trade. Because of the way exchanges are setup, the man in the middle will always be making a cut of the trades. Now though that cut is measured in pennies rather than what used to be often 1/2 dollar spreads. Sure some of the predatory algorithmic trading serves no benefit to anyone, but you will always have people gaming/attacking the system if there's arbitrage potential.