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People want to know they have a legitimate shot at getting a fair deal. Ironically, it's articles like this that give them doubt. They could've just as easily
by ggruschow 17y ago
People want to know they have a legitimate shot at getting a fair deal.
Ironically, it's articles like this that give them doubt. They could've just as easily written an article praising high-frequency trading for getting most participants a fairer deal.
High-frequency trading has driven down costs. They're the main reason most people will only pay a 1c bid/ask spread for those Broadcom shares. Before computerized trading, they would've paid over 12x that. Additionally, as they push the systems to scale and force competition between markets, the per order and per share fees are driven down.
They've also made the market more efficient, so most people don't get screwed by some slime taking them for a quarter to a dollar per share doing arbitrage against another market, mismarking the trade, or maybe the worst, an order his friend is holding in their pocket. Those things are now typically limited to less than a cent. High-frequency traders are usually overjoyed to average 1/4 of a cent profit. You'd be amazed at how many losing trades they do. For most orders, most of the screwing happens between the trader and the broker, not the trader and other traders.
It's important to remember that there's two parties involved in every trade. One could easily say the Broadcom buyers described were upset they couldn't screw the sellers as badly anymore.
If you look at the details of the Broadcom trading given in the article, it's likely even more simple than what they conjectured. 56,000 shares of Broadcom really isn't that much. It's only 1/2% of the number of Broadcom shares traded daily.
The issue the buyers probably had was that MOST bids and offers in such stocks (>80%) are from computers running high-frequency trading strategies. If the computers just stop offering to sell more shares (the simplest reason being they hit their margin limit), you could get the same exact situation described.. Except now, there's nothing sinister at all going on. You just get to see how much they're normally helping you, and you'd write an article about how the SEC should increase the margins for high-frequency traders (which would be equally silly.. and meaningless since the large firms ignore the rules on that point anyway).
Disclaimer: I put bread on the table doing this stuff.
- lliiffee 17y agoIf I understand you, you are basically saying that the main effect of HFT is that the people who bought Broadcom paid more to the people who sold Broadcom, with a small percentage going to the HFT middlemen? Thus, HFT decreases the advantage of people who have more knowledge of the market (the buyers in this case) over those with less knowledge (sellers). Correct? > They've also made the market more efficient, so most people don't get screwed by some slime taking them for a quarter to a dollar per share doing arbitrage against another market, mismarking the trade, or maybe the worst, an order his friend is holding in their pocket. If someone is a "slime" to do arbitrage against another market, how come it is suddenly okay when HFT does it?
- ggruschow 17y agoIf I understand you Sorry, probably my error. The main takeaway should've been that the article is skewed, inaccurately presenting traditional traders just as victims, and algorithmic traders as entirely bad. how come it is suddenly okay when HFT does it? I didn't say that. Show me a clean portion of the financial world, and I'll be shocked.
- jimmybot 17y agoYeah, I mean, if anything, I much prefer those acting on knowledge to those acting simply on just observing moves of others. Decreasing the incentives of the smart money doesn't seem to do anyone any favors.
- ynniv 17y agoI don't understand how high frequency trading could be considered beneficial. In the article's example, HFT captures some profit from an unknown trend simply by being faster than the traditional participants. This directly benefits those who can get their software closest to the servers running the markets, to which the average person is limited. Insiders like Goldman Sachs can run their software directly on the routers connecting the markets, and thus benefit from insider access to a natural monopoly on speed. To be clear, this has nothing to do with algorithmic trading. Using computers to detect trends or to plan strategic trades is natural and healthy for the market. I am also not suggesting that computerized trading and reduced fees are bad - they have made the market far more efficient. > One could easily say the Broadcom buyers described were upset they couldn't screw the sellers as badly anymore. But in this case, the Broadcom sellers AND buyers were both screwed by a third party, who bought at a price that hurt sellers and sold at a price that hurt buyers, on the order of milliseconds. This third party runs the same scheme all day, every day, taking money out of everyone's pocket without doing any real work. This is why people would distrust the market.
- tptacek 17y agoIt's the same benefit as normal traders provide: by constantly trading, HFT engines are providing liquidity and cutting the bid/ask spread. The "unfairness" here is limited to other traders who'd be trying to profit by selling the same liquidity, and now can't compete. But your occasional market order benefits.
- ynniv 17y agoHow does this HFT practice provide additional liquidity? The only time they purchase shares is right before someone else is going to. It is the ultimate man in the middle, taking a little bit of every single transaction in an exchange. It raises the cost of doing business for everyone (except the HFT trader), and is a net inefficiency in the system, like energy lost to heat in a poor electrical conductor.
- tptacek 17y ago
- Dilpil 17y agoOn a side note, any tips for the hoards of eager younguns dying to get into the biz?
- ad 17y agoI left a startup for a regular hedgefund first; I think having a lot of outside interest in finance helped. Then the HFT firm hired me because now I had some finance experience, and I knew C++. Another approach would be to look at the career pages of getco, citadel,etc, and diff your resume against what they want. Edit: but really, why are you dying to get in? I would guess startups are a better bet for most readers of HN, anyway.
- ggruschow 17y agoInvent a body swapping machine. I know plenty dieing to get out. If you must, stake out a table at Starbucks for a month, and read every post on elitetrader.com, nuclearphynance.com, and seekingalpha.com. That'll at least teach you enough to know what the steps you should take are. I just don't recommend many of them, except, for the right individual, breast implants. In some cases, they can be a great investment.