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High Frequency Trading seems so abstract. There's no value created, it seems. It's like something in between imperfect systems, scraping off the margin created
by scrrr 13y ago
High Frequency Trading seems so abstract. There's no value created, it seems. It's like something in between imperfect systems, scraping off the margin created by that imperfection. It's fascinating, and interesting from an algorithmic point of view (like a computer game), but at the same time I don't feel sympathy for this company going out of business.
- marijn 13y agoLooking at systems by considering whether they 'create value' in some generalized utilitarian sense is unproductive. Such systems survive by being able to extract energy somehow, in this case by exploiting properties of the stock trading system. I guess you could say that they create a lot of value—for the people doing it. Very few modern economic activities make sense in a broader perspective, they exist purely because they allow some energy to flow towards the people perpetuating them, on a more local level.
- Peaker 13y agoI disagree completely. You seem to be confusing money/worth with value. If someone manages to redirect money towards themselves without creating a new economic resource, then no new value is made. Avoiding systems that don't create value would help us live in a world with more value in it. That's why considering this is very productive, and helps moral people avoid wasting precious resources on zero sum games.
- marijn 13y agoWhat I'm trying to say is that systems don't exist because they are 'good', they exist because they survive. When trying to interpret the world, 'value' is a much less powerful explainer than survival.
- Peaker 13y agoWho says he tried to interpret the world? He was giving his own value judgement about it. Also, I do think that knowing whether something actually creates value or not (is a positive-sum, negative-sum or zero-sum game) is definitely helpful in understanding large systems. i.e: It helps predicting whether a society will succeed or fail, by seeing how much of it is wasted on negative/zero sum games.
- washedup 13y agoSocieties will always succeed for a while and then fail. It is the cycle of life and energy in the economy. There is "value" created by HFTs that is used by HFTs and their families. It helps them survive and reproduce. This does not mean value is created for society overall, but it certainly makes society more complex. The more complex an ecosystem/economy is, the more likely it will be able to adapt to future environmental changes.
- Peaker 13y agoYou're again using the confused notion of "value". The HFTs are taking value away from others to themselves, not creating new value (at least if we reject the extra liquidity as a positive value). Societies will succeed more or less based on various parameters, one of which is whether they generate value to sustain themselves or not.
- fhars 13y agoLooking at systems by considering whether they 'create value' in some generalized utilitarian sense is unproductive. Such systems survive by being able to extract energy somehow A perfect description of many forms of organized crime.
- D-Coder 13y agoAlso a perfect description of life forms.
- washedup 13y agoTruth! Something that creates value for a certain form of business or life most likely does not create value for society or the ecosystem. It simply is another niche.
- saalweachter 13y agoYou don't even have to create value for your species, or lasting value for your genes. The classic example is -- if I recall correctly -- a mutation sometimes found in mice. The mutation causes a male to only produce male children. This mutation will spread through the population until there are only male mice, and one generation later the mice are all dead.
- crusso 13y agoI would draw a line between systems that rely upon voluntary interaction like stock markets vs systems that rely upon forced coercion like organized crime.
- washedup 13y agoI couldn't agree more. It creates value for the firms that are able to extract energy/money/information from the market environment.
- vecter 13y agoI really hate to go down this road because it's been rehashed thousands of times on Hacker News, but high frequency traders add value to the market by adding liquidity (and therefore reducing spreads --> cost to you for executing) and price discovery.
- mistercow 13y agoIn theory. The debate is about whether that extra liquidity is actually of any practical use.
- confluence 13y agoHFT does not add liquidity, but they do squeeze spreads in liquid contracts. It's some what good for retail, but terrible for institutional investors, which hurt retail on the backend. HFT is just a front running operation in those cases.
- nandemo 13y agoWhat is that definition of adding liquidity that doesn't include "tightening the spread"?
- confluence 13y agoJust because you lowered my home loan fees while the sun shone, doesn't mean that you'll be there when winter comes and the shit hits the fan. Liquidity is always there. Until it ain't.
- andylei 13y agowhat's the alternative? are specialists offering liquidity in markets that HFTs aren't?
- im3w1l 13y agoSomething about being able to buy a decently sized portion without moving the price to much.
- babuskov 13y agoIn theory, HFT should make markets more optimal. But, you know what they say: In theory there's no difference between theory and practice. In practice, there is. ;)
- marincounty 13y agoI think HIgh Frequency Trading will eventually be neutralized through competition. I noticed the their profits aren't as staggering as they were a few years ago. I would like to see a law that limits how close an company(individual) can set up shop next to an exchange though. I think Insider Trading is more of a problem than the public knows?
- strongvigilance 13y agoWhy have a limit on how close people can be to the exchange? For one thing, everyone would just colo at exactly the minimum distance, achieving nothing. For another, ability to colo is not really an issue. If you wanted to create an HFT startup, colo is not going to be a major cost compared to hiring developers.
- vidarh 13y agoA limit on distance is in effect a speed limit. It means anyone that is able to reach the limit has a shot at competing. Whether that is good or not, or makes a difference or not is another discussion, but you can certainly affect the competitive situation massively that way.
- breischl 13y agoBut they're not really competing on the absolute scale of how fast they can execute a trade, but rather on how much faster than everyone else they can execute. If everyone else is slowed by an equal amount, the game doesn't change at all.
- strongvigilance 13y agoCompetition is already high, and colocating is not that expensive for anyone with the ability to compete. A lot of the loudest criticism of HFT is that it's too competitive - a lot of people who used to make a comfortable living from the bid/ask spread are no longer able to due to computers driving down profit margin.
- brazzy 13y ago
- levosmetalo 13y agoI would support idea to just price every transaction with a 0.0001% transaction fee. It should be enough to bring the whole HFT industry out of business while not having any impact on markets themselves.
- koliber 13y agoA lot of the HFT high-frequencyness comes from lots of orders beng sent to market. Only a very small number of these orders result in transactions. A transaction fee would not affect most of the order flow which never gets executed.
- hderms 13y agothere should be a small tax per order put out, even if cancelled and a small percentage-based tax on each trade. If that behavior has been determined to exacerbate price declines that externality should be captured in a tax and de-incentivized properly.
- kylebrown 13y agoRipple works this way, a fraction of an XRP is charged as a fee for each transaction (posting and cancelling offers). As a decentralized bid/ask ledger protocol, the fee is needed to prevent tx spam and DoS attacks.
- KMag 13y agoIf your goal is to reduce the maximum frequency of order inserts/cancels, it makes more sense to directly charge based on frequency. Several exchanges (the Hong Kong Stock Exchange, for one) rate-limit each connection to the exchange, charging fees based on the number of transactions per second allowed on the connection.
- washedup 13y agoThere already are trading fees. Each exchange charges a small fee for every trade. It's how they make money and is why they have an incentive to increase volume. For example, on the CME futures exchange the fee per energy contract is usually 50 cents. Of course, those are only for trades that are actually filled. For quoting there are no transaction costs, but there are often rules to limit quoting (transactions/fills under a certain threshold, a total number of transactions per day, etc.). If these rules are broken, they often come with a fine.
- rafekett 13y agoAll institutional investing today is based off arbitrage. The only thing strange about HFT is that a computer does it.
- corresation 13y agoHow is that related to this story, however? This story is not about HFT -- unless I'm misreading or misunderstanding -- but instead about bog-standard retail order fulfillment. The fulfillment process had a bug that repeatedly kept filling the same orders repeatedly, leading to this issue.
- andylei 13y agoits not. people just like talking about HFT
- lifeformed 13y agoThe weirdest thing about HFT to me is just how far removed it is from the original concept of buying stocks.