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You can say that about any industry that turns a profit. Those philanthropic $MEMBERS_OF_MONEY_MAKING_INDUSTRY just wanted to make $THING_INDUSTRY_DOES better f

You can say that about any industry that turns a profit. Those philanthropic $MEMBERS_OF_MONEY_MAKING_INDUSTRY just wanted to make $THING_INDUSTRY_DOES better for everyone? Sure they did. Sure they did. Making money is not a character flaw. Otherwise, many prominent members of this board would be horrible people.

cma 13y ago
Your caveat doesn't apply if they aren't helping markets be more efficient. HFT is basically a latency arms race ripoff scam. Whoever pays more for faster lines and closer access to the datacenter takes the cake. Thousands of PHDs are working on this instead of real stuff. Say this is the makeup of market participants: all of them are normal merchants buying fruit for their shops but 2 are latency arbitragers. Shipments of fruit don't always come in because sometimes the sail boat crashes into something. The latency arbitragers hire high speed skiffs to go scout for the ship before it arrives. If one of them sees that a shipment of oranges are missing, he rushs back to game the unsuspecting others in the market: orange prices are going to go up so he buys them on the cheap. Because nothing gets better with two competing arbitragers. They simply compete with each other on hiring out more skiffs and paying for elaborate faster ones. Or signaling by latern along a chain of ships. None of this helps the market; all other participants lose out. With competition between the two arbitragers they end up wasting most of the money buying faster ships. Ships that could be used for.. rescuing crashed orange ships? Many other things as well. The worst government bureaucracy couldn't be more wasteful. Markets aren't efficient even in theory if there is an information asymmetry. I hope you can see the analogy between my example and things like: * deploying more and more servers to literally turn our energy into waste heat (they could be simulating protein fold or something) * paying trading exchanges extra for in-house servers (this is just a complete scam) * Digging hundreds of miles of new fiber line to save 2ms of latency over the existing line (with no plausible consumer benefit because the old lines had plenty of dark fiber and the new line is monopolized by whomever pays the most) * Setting up microwave (lantern?) relay towers to get from New York to Chicago a millisecond faster * Making markets more likely to have a major crash by forcing developers to use C++ to eek out a couple milliseconds over safer alternatives You can make a little bit better case for electronic market making.
- minimax 13y ago
  You are conflating market making and latency arb, which are not the same thing. All of your points apply to latency arbitrage and you haven't said anything about market making. As long as there are profitable arbitrage opportunities, people are going to go after them. The profits from latency arb aren't infinite and things will hit an equilibrium when the profits line up with the costs. Incidentally, I don't think latency arb is a bad thing. The arbitrageurs keep prices in line between exchanges, so you don't have to worry as much about getting a crappy price at one exchange when a better price was available at another exchange.
  - foobarqux 13y ago
    Larry Harris, who you recommend, is advocating periodic clearing auctions (non-continuous trading).
  - cma 13y ago
    No I'm not, I clearly said "You can make a little bit better case for electronic market making." But if you think market making has no major latency component, you are living in the 70's.
- Nursie 13y ago
  >> * Making markets more likely to have a major crash by forcing developers to use C++ to eek out a couple milliseconds over safer alternatives Errr... what? Trading logic is trading logic regardless. Maybe making the programs more prone to crashing (if badly written), but making markets prone to crash?
  - cma 13y ago
    Look at what happened to knight, it could have spilled out to the whole market and they would have had to roll back trades or something (I'm not blaming knight's thing on C++).
    - Nursie 13y ago
      That's my point though! Rolling out the wrong systems, bad algorithms etc etc could happen with any language. If there was a memory corruption, or a security error or something, I could see it being attributable (in part) to the language. The knight thing seems more of a human cock-up.

cma 13y ago

Your caveat doesn't apply if they aren't helping markets be more efficient. HFT is basically a latency arms race ripoff scam. Whoever pays more for faster lines and closer access to the datacenter takes the cake. Thousands of PHDs are working on this instead of real stuff. Say this is the makeup of market participants: all of them are normal merchants buying fruit for their shops but 2 are latency arbitragers. Shipments of fruit don't always come in because sometimes the sail boat crashes into something. The latency arbitragers hire high speed skiffs to go scout for the ship before it arrives. If one of them sees that a shipment of oranges are missing, he rushs back to game the unsuspecting others in the market: orange prices are going to go up so he buys them on the cheap. Because nothing gets better with two competing arbitragers. They simply compete with each other on hiring out more skiffs and paying for elaborate faster ones. Or signaling by latern along a chain of ships. None of this helps the market; all other participants lose out. With competition between the two arbitragers they end up wasting most of the money buying faster ships. Ships that could be used for.. rescuing crashed orange ships? Many other things as well. The worst government bureaucracy couldn't be more wasteful. Markets aren't efficient even in theory if there is an information asymmetry. I hope you can see the analogy between my example and things like: * deploying more and more servers to literally turn our energy into waste heat (they could be simulating protein fold or something) * paying trading exchanges extra for in-house servers (this is just a complete scam) * Digging hundreds of miles of new fiber line to save 2ms of latency over the existing line (with no plausible consumer benefit because the old lines had plenty of dark fiber and the new line is monopolized by whomever pays the most) * Setting up microwave (lantern?) relay towers to get from New York to Chicago a millisecond faster * Making markets more likely to have a major crash by forcing developers to use C++ to eek out a couple milliseconds over safer alternatives You can make a little bit better case for electronic market making.

minimax 13y ago
You are conflating market making and latency arb, which are not the same thing. All of your points apply to latency arbitrage and you haven't said anything about market making. As long as there are profitable arbitrage opportunities, people are going to go after them. The profits from latency arb aren't infinite and things will hit an equilibrium when the profits line up with the costs. Incidentally, I don't think latency arb is a bad thing. The arbitrageurs keep prices in line between exchanges, so you don't have to worry as much about getting a crappy price at one exchange when a better price was available at another exchange.
- foobarqux 13y ago
  Larry Harris, who you recommend, is advocating periodic clearing auctions (non-continuous trading).
- cma 13y ago
  No I'm not, I clearly said "You can make a little bit better case for electronic market making." But if you think market making has no major latency component, you are living in the 70's.
Nursie 13y ago
>> * Making markets more likely to have a major crash by forcing developers to use C++ to eek out a couple milliseconds over safer alternatives Errr... what? Trading logic is trading logic regardless. Maybe making the programs more prone to crashing (if badly written), but making markets prone to crash?
- cma 13y ago
  Look at what happened to knight, it could have spilled out to the whole market and they would have had to roll back trades or something (I'm not blaming knight's thing on C++).
  - Nursie 13y ago
    That's my point though! Rolling out the wrong systems, bad algorithms etc etc could happen with any language. If there was a memory corruption, or a security error or something, I could see it being attributable (in part) to the language. The knight thing seems more of a human cock-up.