4 ms·

> some old friends are in HFT and the one thing they all say, and I hear repeated everywhere, is that they provide liquidity to the market. More specifically,

> some old friends are in HFT and the one thing they all say, and I hear repeated everywhere, is that they provide liquidity to the market. More specifically, HFT acts like a market maker in that it will take the other side of trades that other players (HFT or not) want to make. Let's say I own 1000 shares of MSFT, but I need to liquidate them for some reason. A margin call, a new car, or some immediate, unexpected cost has arisen. The more potential counterparties I have -- the more players that will potentially buy my shares -- the more liquidity there is. With more liquidity, I can hold out for a higher price (with a cost in time), or I can sell more quickly (at a slightly lower price -- with a cost in money) than I could otherwise. Whether or not my HFT counterparty is executing profitable trades (which it is, presumably), the very fact of its existence as such is a net benefit to me.

tanzam75 13y ago
There is so much liquidity in MSFT that it'd trade at a penny spread with or without HFTs. Thus, the only advantage is speed. So you got your order filled in 5 milliseconds instead of 6 milliseconds. So what? You're a person. And stocks without enough liquidity to get to a penny spread? The HFTs don't like those stocks, because the "F" is not "H" enough for them to participate. The very nature of HFTs is that they prefer to participate when there is already plenty of liquidity.
- RickHull 13y ago
  > There is so much liquidity in MSFT that it'd trade at a penny spread with or without HFTs. Thus, the only advantage is speed. You're talking to an unabashed proponent of subpenny increments. Smaller spreads, more counterparties, faster execution -- these things cannot possibly hurt. Note that I am talking about the concept of HFT. It's true that there are shady operators who abuse rules and undertake things like quote stuffing. I'm not here to defend any of that. > So you got your order filled in 5 milliseconds instead of 6 milliseconds. So what? You're a person. Still a net benefit even for just market orders. Limit orders benefit much more from HFT, particularly the stop-hunting variety. I think of the randomized price action as similar to quantum noise. No one really knows to the nth decimal what the price should be, but it wanders around where the money thinks it should be. So that noise can help trigger your limit trade at exactly the price you want, whereas the false placidity of more granular enforcement is less likely to hit your limit. Now let's look beyond just me and consider that some firms get more relative benefit from HFT than I do, and that these slivers of benefit sum across market participants. > And stocks without enough liquidity to get to a penny spread? The HFTs don't like those stocks, because the "F" is not "H" enough for them to participate. The very nature of HFTs is that they prefer to participate when there is already plenty of liquidity. Of course -- this should not be surprising in the least to anyone paying attention. The reason HFT practitioners participate is to attempt a profitable strategy. Liquidity is the side effect, not the goal. So while it's fair to say they provide liquidity to the market, or even that providing liquidity is the role they play, it's neither their duty nor their motivation. Similar to how commodities speculators provide counterparties for nervous farmers, they are guided by the invisible hand and not by duty.
  - ckdhtc 13y ago
    The purpose is to make money, as with _all_ businesses. You think Apple want to make products and improve people's lives without making money? If so, why don't they reduce the prices? You think Google is all about search? No, it's about making money -- you get encouraged to go after... and I quote Sergey and Larry here, "markets of at least 1 billion" and make products that could potentially be worth 1 billion per year. Search my ass... it's all about making money as with most companies, including most of the the non-profit ones (non-profit hospitals that charge more than the for-profit, universities, etc)

tanzam75 13y ago

There is so much liquidity in MSFT that it'd trade at a penny spread with or without HFTs. Thus, the only advantage is speed. So you got your order filled in 5 milliseconds instead of 6 milliseconds. So what? You're a person. And stocks without enough liquidity to get to a penny spread? The HFTs don't like those stocks, because the "F" is not "H" enough for them to participate. The very nature of HFTs is that they prefer to participate when there is already plenty of liquidity.

RickHull 13y ago
> There is so much liquidity in MSFT that it'd trade at a penny spread with or without HFTs. Thus, the only advantage is speed. You're talking to an unabashed proponent of subpenny increments. Smaller spreads, more counterparties, faster execution -- these things cannot possibly hurt. Note that I am talking about the concept of HFT. It's true that there are shady operators who abuse rules and undertake things like quote stuffing. I'm not here to defend any of that. > So you got your order filled in 5 milliseconds instead of 6 milliseconds. So what? You're a person. Still a net benefit even for just market orders. Limit orders benefit much more from HFT, particularly the stop-hunting variety. I think of the randomized price action as similar to quantum noise. No one really knows to the nth decimal what the price should be, but it wanders around where the money thinks it should be. So that noise can help trigger your limit trade at exactly the price you want, whereas the false placidity of more granular enforcement is less likely to hit your limit. Now let's look beyond just me and consider that some firms get more relative benefit from HFT than I do, and that these slivers of benefit sum across market participants. > And stocks without enough liquidity to get to a penny spread? The HFTs don't like those stocks, because the "F" is not "H" enough for them to participate. The very nature of HFTs is that they prefer to participate when there is already plenty of liquidity. Of course -- this should not be surprising in the least to anyone paying attention. The reason HFT practitioners participate is to attempt a profitable strategy. Liquidity is the side effect, not the goal. So while it's fair to say they provide liquidity to the market, or even that providing liquidity is the role they play, it's neither their duty nor their motivation. Similar to how commodities speculators provide counterparties for nervous farmers, they are guided by the invisible hand and not by duty.
- ckdhtc 13y ago
  The purpose is to make money, as with _all_ businesses. You think Apple want to make products and improve people's lives without making money? If so, why don't they reduce the prices? You think Google is all about search? No, it's about making money -- you get encouraged to go after... and I quote Sergey and Larry here, "markets of at least 1 billion" and make products that could potentially be worth 1 billion per year. Search my ass... it's all about making money as with most companies, including most of the the non-profit ones (non-profit hospitals that charge more than the for-profit, universities, etc)