7 ms·

Actually HFT does manipulate the overall price of the share. In the public markets. And that's the problem.

by crag 13y ago

yummyfajitas 13y ago
How? Can you explain the specific mechanism (i.e., what orders are placed by which party and when) and the role that "high frequency" plays in the mechanism?
- mschuster91 13y ago
  Just remember that Knight Capital episode. Algorithm ran amok, they lost a decent chunk of money (460M US$!) and were bought out a couple of weeks later (http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock...).
  - hfttrader 13y ago
    That isn't really an example of market manipulation. Market manipulation is an intentional manipulation of the market. (http://en.wikipedia.org/wiki/Market_manipulation http://en.wikipedia.org/wiki/Market_manipulation) The Knight Capital incident was an example of a firm performing bad trades due to an error in their systems. Their behavior certainly wasn't intentional or profitable. HFT isn't based on market manipulation. Some HFT firms perform market manipulation, as do some non HFT firms, but this practice is illegal. (For example, newedge was recently fined for market manipulation)
  - elemeno 13y ago
    The Knight Capital incident isn't unique to HFT firms - any firm that does automated trading can fall foul of similar problems.
    - yummyfajitas 13y ago
      It can even happen to manual traders. If you accidentally screw up and run the wrong strategy (e.g. buying Tweeter Inc. when you intended to buy Twitter), you'll very rapidly lose gigantic piles of money. Losing your money in the stock market != market manipulation.
    - mschuster91 13y ago
      Yeah, but the "HF" part of "HFT" tends to make an elephant out of a fly.
elemeno 13y ago
Manipulate is a weasel word. Every trade will affect the price of a share but that's not manipulation, that's a functioning market. Unless you can explain why a trade made by HFT is somehow more devious or underhanded than a trade made by another actor in the market.

Actually HFT does manipulate the overall price of the share. In the public markets. And that's the problem.

by crag 13y ago

Actually HFT does manipulate the overall price of the share. In the public markets. And that's the problem.

How? Can you explain the specific mechanism (i.e., what orders are placed by which party and when) and the role that "high frequency" plays in the mechanism?

mschuster91 13y ago
Just remember that Knight Capital episode. Algorithm ran amok, they lost a decent chunk of money (460M US$!) and were bought out a couple of weeks later (http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock_trading_disruption http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock...).
- hfttrader 13y ago
  That isn't really an example of market manipulation. Market manipulation is an intentional manipulation of the market. (http://en.wikipedia.org/wiki/Market_manipulation http://en.wikipedia.org/wiki/Market_manipulation) The Knight Capital incident was an example of a firm performing bad trades due to an error in their systems. Their behavior certainly wasn't intentional or profitable. HFT isn't based on market manipulation. Some HFT firms perform market manipulation, as do some non HFT firms, but this practice is illegal. (For example, newedge was recently fined for market manipulation)
- elemeno 13y ago
  The Knight Capital incident isn't unique to HFT firms - any firm that does automated trading can fall foul of similar problems.
  - yummyfajitas 13y ago
    It can even happen to manual traders. If you accidentally screw up and run the wrong strategy (e.g. buying Tweeter Inc. when you intended to buy Twitter), you'll very rapidly lose gigantic piles of money. Losing your money in the stock market != market manipulation.
  - mschuster91 13y ago
    Yeah, but the "HF" part of "HFT" tends to make an elephant out of a fly.

elemeno 13y ago

Manipulate is a weasel word. Every trade will affect the price of a share but that's not manipulation, that's a functioning market. Unless you can explain why a trade made by HFT is somehow more devious or underhanded than a trade made by another actor in the market.