5 ms·

Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. "They can do it faster, ther

by rgarcia 13y 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 13y 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 13y 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 13y 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 13y 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 13y 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.
      - nhaehnle 13y ago
        If you try to design a system of publicly traded companies from first principles, then the purpose of exchanges should be to provide a service to publicly traded companies. That service would be maintaining the authoritative record of who owns how many shares of the company. Given this notion, competition is a good reason for the existence of multiple exchanges, because it means companies can change which exchanges their shares are traded over. However, it is not a good justification for the fact that trading of the same stock happens on multiple exchanges. As for the social cost, you do realize that HFT does not come for free to society. At a minimum, society must somehow pay for those well-paying jobs to developers. And what do those developers give back to society? Before you answer, please consider whether you should distinguish between algorithmic trading and HFT. I do believe that algorithmic trading is useful to society (because it can do the job that screaming traders used to do better and cheaper), but the subset of HFT is not useful. The only things anyone ever seems to be able to answer for HFT two-fold: one, that stock prices change faster, and two, that the spread is smaller. But one point one, nobody in the real economy cares about that, and to point two, the decrease in spread also doesn't matter to anybody in the real economy, because what you really care about there is the fluctuation of the share price over a larger timescale such as one full day. I have not seen any evidence that this fluctuation is affected by HFT in any way.
  - eru 13y ago
    The exchange could trade in rounds, e.g. permanent auction mode, where orders get matched only ever minute.
    - dominicgs 13y ago
      I believe that Taiwan (TSEC) does this, although I can't find a reference for it now.
      - eru 13y ago
        I heard of that, too, but couldn't find a reference the last time I checked, either.
    - kasey_junk 13y ago
      What happens if there are more buy orders than sell at the same level (or vice versa)? Who gets priority on that fill?
      - tome 13y ago
        This is not a problem that today's electronic markets avoid. They have to answer your question too!
      - kasey_junk 13y ago
        To be clear, the way (most) exchanges solve this problem now is by what's called "queue" priority. The longer an order has been resting at a level the higher it's priority is. This means that those who can respond faster can get into a price level sooner. Breaking this out to minute bounds doesn't mitigate their advantage in any way shape or form. It is hard to know what the results of a change like this would be. I suspect it would make the markets much less stable as there would be less information to make accurate prices, causing huge variances on minute long ticks.
      - eru 13y ago
        Either first-come-first-serve, but that would give you some form of high-frequency again, or you just pro-rate them or fulfil them randomly.
- fixxer 13y ago
  Show me a market where such a restrictive view is mandated and I will show you a failed market. This notion that "trading should benefit the market" is complete and total nonsense propagated by people with no understanding of liquidity. Trading is adversarial by definition. 1987 was caused by portfolio insurance from major funds, not HFT (which didn't really exist then as it does now). HFT also didn't cause the mortgage crisis. That was long term consumer financing & Gov mortgage buyers & pension investors. HFT was definitely involved in the flash crash, but what were the long term implications of that? Zero. The most recent blip was caused my dissemination of bad news via a source that had been compromised. Again, not HFT. Want to hate HFT (I do!)? Hate it because it isn't profitable (which is why I left in 2010) and because it still sucks up engineering talent like a black hole of despair. These anti-HFT articles that occasionally come out are hilarious because the money that put HFT on the public radar simply isn't there anymore. Look at GETCO. The question I have is why is the public so willing to accept disinformation? Residual banker hate?

by rgarcia 13y ago

CJefferson 13y 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 13y 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 13y 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 13y 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 13y 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.
    - nhaehnle 13y ago
      If you try to design a system of publicly traded companies from first principles, then the purpose of exchanges should be to provide a service to publicly traded companies. That service would be maintaining the authoritative record of who owns how many shares of the company. Given this notion, competition is a good reason for the existence of multiple exchanges, because it means companies can change which exchanges their shares are traded over. However, it is not a good justification for the fact that trading of the same stock happens on multiple exchanges. As for the social cost, you do realize that HFT does not come for free to society. At a minimum, society must somehow pay for those well-paying jobs to developers. And what do those developers give back to society? Before you answer, please consider whether you should distinguish between algorithmic trading and HFT. I do believe that algorithmic trading is useful to society (because it can do the job that screaming traders used to do better and cheaper), but the subset of HFT is not useful. The only things anyone ever seems to be able to answer for HFT two-fold: one, that stock prices change faster, and two, that the spread is smaller. But one point one, nobody in the real economy cares about that, and to point two, the decrease in spread also doesn't matter to anybody in the real economy, because what you really care about there is the fluctuation of the share price over a larger timescale such as one full day. I have not seen any evidence that this fluctuation is affected by HFT in any way.
- eru 13y ago
  The exchange could trade in rounds, e.g. permanent auction mode, where orders get matched only ever minute.
  - dominicgs 13y ago
    I believe that Taiwan (TSEC) does this, although I can't find a reference for it now.
    - eru 13y ago
      I heard of that, too, but couldn't find a reference the last time I checked, either.
  - kasey_junk 13y ago
    What happens if there are more buy orders than sell at the same level (or vice versa)? Who gets priority on that fill?
    - tome 13y ago
      This is not a problem that today's electronic markets avoid. They have to answer your question too!
    - kasey_junk 13y ago
      To be clear, the way (most) exchanges solve this problem now is by what's called "queue" priority. The longer an order has been resting at a level the higher it's priority is. This means that those who can respond faster can get into a price level sooner. Breaking this out to minute bounds doesn't mitigate their advantage in any way shape or form. It is hard to know what the results of a change like this would be. I suspect it would make the markets much less stable as there would be less information to make accurate prices, causing huge variances on minute long ticks.
    - eru 13y ago
      Either first-come-first-serve, but that would give you some form of high-frequency again, or you just pro-rate them or fulfil them randomly.
fixxer 13y ago
Show me a market where such a restrictive view is mandated and I will show you a failed market. This notion that "trading should benefit the market" is complete and total nonsense propagated by people with no understanding of liquidity. Trading is adversarial by definition. 1987 was caused by portfolio insurance from major funds, not HFT (which didn't really exist then as it does now). HFT also didn't cause the mortgage crisis. That was long term consumer financing & Gov mortgage buyers & pension investors. HFT was definitely involved in the flash crash, but what were the long term implications of that? Zero. The most recent blip was caused my dissemination of bad news via a source that had been compromised. Again, not HFT. Want to hate HFT (I do!)? Hate it because it isn't profitable (which is why I left in 2010) and because it still sucks up engineering talent like a black hole of despair. These anti-HFT articles that occasionally come out are hilarious because the money that put HFT on the public radar simply isn't there anymore. Look at GETCO. The question I have is why is the public so willing to accept disinformation? Residual banker hate?