4 ms·

Sort of. If you are buying or selling a lot of shares it's quite a bit more expensive. That probably doesn't matter to you or I if we are buying AAPL because it

by jonknee 13y ago

Sort of. If you are buying or selling a lot of shares it's quite a bit more expensive. That probably doesn't matter to you or I if we are buying AAPL because it's a small number of shares, but it does hurt any index/mutual funds you're invested in. Norway's sovereign wealth fund (one of the largest in the world, they own 1% of all US stocks) just came out on this exact topic: http://www.efinancialnews.com/story/2013-09-17/norways-sovereign-wealth-fund-high-frequency-traders?ea9c8a2de0ee111045601ab04d673622#.UjhWQFEEQ0o.twitter http://www.efinancialnews.com/story/2013-09-17/norways-sover... > Next, the paper takes on HFT's usual defence – that they provide the market with much-increased liquidity. Norges Bank worries that this liquidity is "transient" - i.e. HFTs often place large orders only to then cancel them, creating "phantom" liquidity and leaving "buyside traders fac[ing] new challenges in assessing posted liquidity."

harryh 13y ago
So what happens is Norway's sovereign wealth fund wants to buy a kagillion shares of MSFT (or whatever). In the good old days they could probably complete this transaction before the price went up too much. Now, thanks to HFTs, this additional demand is noticed faster, the prices rises faster, and it costs Norway more money. So, bummer for them. But great for you! Because maybe you're the guy selling MSFT shares to them. You get the benefit of the price rising faster. The market is more efficient. Norway can no longer take advantage of the fact that it knows that there's all this additional demand (originating from itself) and it takes a while for everyone else to figure that out.
- fr0sty 13y ago
  Please supply values for the following undefined variables: 1. kagillion (shares, %ADV, notional dollars) 2. good old days (single year or a range) 3. too much (in $ or %)
  - harryh 13y ago
    1. Hrm, ok. So apparently it's a 770B fund. Let's say they want to move .01% of their assets into MSFT. That would be $77M or about 2.2M shares. That would be about 5% of the average daily volume of MSFT. 2. It's not a binary thing but a gradual transition from mostly human market makers in the 80s to mostly algorithmic market makers today. 3. I'm on shakier ground on this one, but a fraction of a % of their cost.
- jonknee 13y ago
  No, it's more like they want to buy a kagillion shares and before they can complete the trade a HFT buys them and sells to Norway for slightly more. It's not good for me, I sold to the HFT. It's just intraday noise that only does the HFT any good.
  - harryh 13y ago
    If that was actually happening it would mean that spreads (the difference between where market makers buy and sell stocks) were large. In fact, the exact opposite is true. Spreads are tiny. Much smaller than they used to be! This is because there's not just one HFT. There are tons. So if one of them tries to do this you won't sell to them, you'll sell to one of the other ones for a better price. Yay competition!
    - crbnw00ts 13y ago
      Exactly. Competition among all the HFT entities has squeezed a lot of the volatility out of the market: "Volatility, a measure of the extent to which a share’s price jumps around, is about half what it was a few years ago." Quoted from here: http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-high-frequency-tradings-rise-and-fall#p2 http://www.businessweek.com/articles/2013-06-06/how-the-robo... Although I wish I could find a better article / source with more info and some hard data to back that up. That sentence is not nearly as compelling as it could be if it had more details.

by jonknee 13y ago

harryh 13y ago

So what happens is Norway's sovereign wealth fund wants to buy a kagillion shares of MSFT (or whatever). In the good old days they could probably complete this transaction before the price went up too much. Now, thanks to HFTs, this additional demand is noticed faster, the prices rises faster, and it costs Norway more money. So, bummer for them. But great for you! Because maybe you're the guy selling MSFT shares to them. You get the benefit of the price rising faster. The market is more efficient. Norway can no longer take advantage of the fact that it knows that there's all this additional demand (originating from itself) and it takes a while for everyone else to figure that out.

fr0sty 13y ago
Please supply values for the following undefined variables: 1. kagillion (shares, %ADV, notional dollars) 2. good old days (single year or a range) 3. too much (in $ or %)
- harryh 13y ago
  1. Hrm, ok. So apparently it's a 770B fund. Let's say they want to move .01% of their assets into MSFT. That would be $77M or about 2.2M shares. That would be about 5% of the average daily volume of MSFT. 2. It's not a binary thing but a gradual transition from mostly human market makers in the 80s to mostly algorithmic market makers today. 3. I'm on shakier ground on this one, but a fraction of a % of their cost.
jonknee 13y ago
No, it's more like they want to buy a kagillion shares and before they can complete the trade a HFT buys them and sells to Norway for slightly more. It's not good for me, I sold to the HFT. It's just intraday noise that only does the HFT any good.
- harryh 13y ago
  If that was actually happening it would mean that spreads (the difference between where market makers buy and sell stocks) were large. In fact, the exact opposite is true. Spreads are tiny. Much smaller than they used to be! This is because there's not just one HFT. There are tons. So if one of them tries to do this you won't sell to them, you'll sell to one of the other ones for a better price. Yay competition!
  - crbnw00ts 13y ago
    Exactly. Competition among all the HFT entities has squeezed a lot of the volatility out of the market: "Volatility, a measure of the extent to which a share’s price jumps around, is about half what it was a few years ago." Quoted from here: http://www.businessweek.com/articles/2013-06-06/how-the-robots-lost-high-frequency-tradings-rise-and-fall#p2 http://www.businessweek.com/articles/2013-06-06/how-the-robo... Although I wish I could find a better article / source with more info and some hard data to back that up. That sentence is not nearly as compelling as it could be if it had more details.