4 ms·

I would like to point out this was a theoretical operation done by this professor. It looks to me there are a few errors in his conclusions ( specifically about

by dkhenry 13y ago

I would like to point out this was a theoretical operation done by this professor. It looks to me there are a few errors in his conclusions ( specifically about the risk associated with what he was pretending to do, and the nature of market making ). Also he didn't actually make an algorithm to do the trading and back test it, he just assumed that "with a good algorithm" you could do this. Also the fact that this is represented as a broad threat to the market is just false. This only effects day traders and other HFT's. Yes the long term investor might also be hit by this to the tune of 0.01% per transaction, but the liquidity provided by HFT's almost makes up for that. Make the system better, but do it so that the market functions more efficiently not so that people who aren't you will make less money.

jellicle 13y ago
> It looks to me there are a few errors in his conclusions What errors are those? > Also he didn't actually make an algorithm to do the trading and back test it, he just assumed that "with a good algorithm" you could do this. What kind of algorithm do you need? He's able to buy stock at $100 when he already knows that a second later, the stock WILL BE at $101. The risk is zero. The algorithm is a one-liner. > Also the fact that this is represented as a broad threat to the market is just false. This only effects day traders and other HFT's. Not at all. It's a tax on every other participant in the market, on every transaction they make. Every time you buy or sell anything, you make less profit because someone is front-running you.
- AndrewBissell 13y ago
  > Every time you buy or sell anything, you make less profit because someone is front-running you. The whole front-running charge w.r.t to HFT is such nonsense. When you send a market-taking order to an exchange, there's no way for an HFT trader to see that order before it hits the market and game it. On the other hand, if you want to get cute and work the bid or offer, then yeah, someone who can process and react to the market data feed faster will have an advantage over, say, some overpaid fund manager who's just trying to mimic the S&P 500 and is still getting his data from a Quotron machine.
- dkhenry 13y ago
  You ( like him ) assume that because he see's something at a given point of time, that he can make decision on it. Yes he might see that there is an offer to sell at one exchange that is below the offer to buy at another exchange, but even if you knew that at some time X you can't place a trade at time X you need at least X + <some finite amount of time to get the trade to the correct market>. In that time lots of stuff can happen. That specific order might be filled or canceled by someone else who knew about it sooner or was quicker to act on it. So what do you do ? Do you wait to buy until you can sell ? What if I am in the same business and I send an order and then cancel it an extremely short period later, before that order could even propigate outside the market I placed it in ? I bet I could get you to buy my stock from me at a good price because you think you can turn it around and fence it really quickly. Guess what you might be taking a haircut on that one. And if I can get you to bite once I am sure I can get a computer to make you do it over and over and over again. This isn't made up people have done it [1] ( and gone to jail for it once they got caught ) 1.http://www.securitiestechnologymonitor.com/news/norwegian-day-traders-arrested-25971-1.html http://www.securitiestechnologymonitor.com/news/norwegian-da...

by dkhenry 13y ago

jellicle 13y ago

> It looks to me there are a few errors in his conclusions What errors are those? > Also he didn't actually make an algorithm to do the trading and back test it, he just assumed that "with a good algorithm" you could do this. What kind of algorithm do you need? He's able to buy stock at $100 when he already knows that a second later, the stock WILL BE at $101. The risk is zero. The algorithm is a one-liner. > Also the fact that this is represented as a broad threat to the market is just false. This only effects day traders and other HFT's. Not at all. It's a tax on every other participant in the market, on every transaction they make. Every time you buy or sell anything, you make less profit because someone is front-running you.

AndrewBissell 13y ago
> Every time you buy or sell anything, you make less profit because someone is front-running you. The whole front-running charge w.r.t to HFT is such nonsense. When you send a market-taking order to an exchange, there's no way for an HFT trader to see that order before it hits the market and game it. On the other hand, if you want to get cute and work the bid or offer, then yeah, someone who can process and react to the market data feed faster will have an advantage over, say, some overpaid fund manager who's just trying to mimic the S&P 500 and is still getting his data from a Quotron machine.
dkhenry 13y ago
You ( like him ) assume that because he see's something at a given point of time, that he can make decision on it. Yes he might see that there is an offer to sell at one exchange that is below the offer to buy at another exchange, but even if you knew that at some time X you can't place a trade at time X you need at least X + <some finite amount of time to get the trade to the correct market>. In that time lots of stuff can happen. That specific order might be filled or canceled by someone else who knew about it sooner or was quicker to act on it. So what do you do ? Do you wait to buy until you can sell ? What if I am in the same business and I send an order and then cancel it an extremely short period later, before that order could even propigate outside the market I placed it in ? I bet I could get you to buy my stock from me at a good price because you think you can turn it around and fence it really quickly. Guess what you might be taking a haircut on that one. And if I can get you to bite once I am sure I can get a computer to make you do it over and over and over again. This isn't made up people have done it [1] ( and gone to jail for it once they got caught ) 1.http://www.securitiestechnologymonitor.com/news/norwegian-day-traders-arrested-25971-1.html http://www.securitiestechnologymonitor.com/news/norwegian-da...