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Is the U.S. stock market rigged? [video]
- brianbarker 13y agoHahaha. Yes. When big brokers can peek at trade data before the public and do HFT before you can even look at a chart and click "buy," it's pretty damn rigged.
- wdewind 13y agoOk, but this shouldn't really affect anyone but other HFTs, right? Maybe you get a very slightly different price but that shouldn't matter if you are holding investments long enough. If you are trying to outtrade HFTs and losing, I'm not sure that shows the stock market is rigged.
- rosser 13y agoAre you saying you're okay with the price at which you're purchasing a security being driven up (if infinitesimally), at your expense, so that someone else can pocket the delta?
- lotsofpulp 13y agoRegardless of what's fair or not, wouldn't a buy limit at the maximum you're willing to spend solve this problem?
- 001sky 13y agono
- wdewind 13y agoI guess specifically I didn't like the way he phrased it, as if they are stealing data somehow. In fact they bought the access. Other than a clock rate (or 60km limiting box, as shown in the video) I'm not sure how you would create rules against HFT. I'm also not convinced if HFT is a net win or loss for economy, I'm not even sure how to consider it.
- deleted 13y ago[deleted]
- brianbarker 13y agoHow does buying access matter? It's like giving access to see other player's cards in poker (because you're a high roller) and then making bets based on it. The rest of the players only see their cards and the river. That's not a fair game.
- colechristensen 13y agoEffectively it's a tax on you and on the whole economy. Fractions of a penny which end up turning into billions of dollars siphoned out of the economy with little benefit to the rest of society. There are quite a few really smart people earning bundles doing something which is fundamentally mostly useless. If you plug that hole, those really smart people might just drive their attention somewhere else and accomplish something valuable.
- wdewind 13y agoWhat causes you to conclude that there is no benefit to the economy?
- colechristensen 13y agoHF trading provides liquidity and there is some debatable value to that purpose, but using the speed of light to profit from traders who didn't pay the toll to be closer to the marked pretty clearly doesn't benefit anyone but those in on the scam.
- sseveran 13y agoSo should we get rid of trading pits as well? Thats another form of colocation.
- wdewind 13y agoLiterally how do you compare the debatable liquidity value to the debatable cost to those who didn't pay the toll? Why are those who didn't pay the toll more deserving and necessarily more benefitting to the economy? If there is increased liquidity aren't the non-HFTs starting at a lower price than they would've, even if part of their order is more expensive? I'm asking honestly, I don't know either way.
- colechristensen 13y agoHigh frequency trading does lots of things and only a few of them are being highlighted as bad. There are a specific set of legal advantages which can be had by being physically close to an exchange which give unfair advantage. If the speed of light was infinite, these advantages would be clearly and unbeatably illegal: in essence the high frequency traders are paying huge sums of money to impose a delay on every other trader resulting in foreknowledge of events. As a hypothetical high frequency trader, I could see that you have placed an order for a million shares of Apple, because of my positioning I can execute my own order _before_ yours goes through raising the price a tick and then selling those stocks to you. If exchanges allowed this and profited by it by erecting artificial delays it would be extraordinarily immoral, but because it's a natural delay it is still illegal. The problem is that laws didn't catch up with technology, and as stated before the whole thing is complicated and not so easily understood and there are a _lot_ of money in it. This has nothing at all to do with the separate issue of high frequency traders providing liquidity... they can do that without a time delay advantage over everyone else.
- chrisbennet 13y agoTrue, if you hold the investments long enough, a small difference in price would even out. Investor are only trying to "out trade" HFT in same sense that are trying to make a fair trade without the secret tax that front runners extract.
- dredmorbius 13y agoNope. Read the Mark Lewis article also highlighted on HN right now: http://www.reuters.com/article/2014/03/31/us-markets-hft-flashboys-idUSBREA2U03D20140331 http://www.reuters.com/article/2014/03/31/us-markets-hft-fla... With the help of new hire Ronan Ryan, [Brad] Katsuyama[, former head trader in New York for the Royal Bank of Canada], realized that his orders traveled along fiber optic lines and hit the closest exchange first, where high frequency traders would get a glimpse, and then use their speed advantage to beat him to the other 12 U.S. public exchanges and 45 private trading venues. HFT algorithms could then buy the shares Katsuyama wanted, and then sell them to him at a slightly higher price. That's the definition of front-running, and it was hitting large institutional traders, of whom investment and retirement funds are a significant portion -- that's stealing from you and me, friend.
- cperciva 13y agoPlease add "[Autoplaying video w/ audio]" to the submission title.
- dang 13y agoWe usually just add "[video]" when a video autoplays, even when there's an accompanying text article as well. Do I detect an annoyance with autoplaying videos with accompanying audio in your suggestion? If so, I share it.
- cperciva 13y agoWe usually just add "[video]" when a video autoplays Fair enough, I couldn't remember if the usual tag for this was "video", "audio warning" or something else. Do I detect an annoyance with autoplaying videos with accompanying audio in your suggestion? Indeed. I don't care about silent video, but when I've scrolled halfway down the page and then the video at the top of the page starts making noise...
- matt-attack 13y agoConsider using Flashblock. It's heavenly.
- andrewtbham 13y agothe thing i like about this story is that they found a problem (front running) and are trying to create a better company. rather than trying to get the government involved.
- Xdes 13y agoI definitely want to explore the requirements to launch an exchange. Stock market bots seem boring compared to the infrastructure the bots are playing on.
- sseveran 13y agoThey are not front running. Look up what it actually means.
- andrewtbham 13y agoYeh you're right. It's similar to front running, but not illegal.
- lukeqsee 13y agoI understand how HFTs are making their money; however, how does this drive up market? Would they not be able to make the same money in a downmarket (a delta is a delta, whether you are going up or down)? All I can see this affecting is the billions (trillions?) of dollars in HFTs amplifying whatever the market is doing.
- jjoonathan 13y agoThat was an oversimplification done for the audience's benefit. If the video were a math class, he would have said "without loss of generality, assume that the market is going up."
- sseveran 13y agoIt doesn't since most HFTs (and many other systemic traders) are valuation neutral and trade in both directions.
- cavilling_elite 13y agoI always thought that the digital stock market should take a page from the cryptocurrencies and add a digital proof-of-work that will cap the speed of a transition. A "temporal tax" would keep the system from wild swings and reactions, similar to what we saw a few months back.
- Houshalter 13y agoWhat's the point? The first person to get the transaction still makes money, so there is still an incentive to get the information first. Everything will just be on an arbitrary delay. And what's wrong with swings and reactions? That's supposed to happen as new information comes in which changes things. If the people reacting are wrong, they lose money and the people who see it make money.
- drawkbox 13y agoTwo big problems with the market: - Shutting down overnight, lots of schemes happen after hours or pre-market, why don't we have an always on market? - HFT has run amok and they aren't that smart yet or they are too smart: http://buzz.money.cnn.com/2014/03/26/whoops-shares-named-oculus-spike/ http://buzz.money.cnn.com/2014/03/26/whoops-shares-named-ocu... + http://kotaku.com/people-are-accidentally-buying-stocks-with-the-name-oc-1552319497 http://kotaku.com/people-are-accidentally-buying-stocks-with... (people aren't buying these, machines did) It is no longer a market a small investor can make money in except for buying after bad news and long term. Investors need HFT to compete now.
- QuantumChaos 13y ago>It is no longer a market a small investor can make money in except for buying after bad news and long term. Investors need HFT to compete now. How is this a bad thing? A person is still quite able to invest, in the sense of buying an index fund. Why does it matter if a small investor can't profit by trading on news? Isn't this a sign that the market is efficient?
- drawkbox 13y agoYes, but most of the fat is trimmed by the HFT hedge funds, even long term now, the last vestige of growing wealth. It is a very good thing that there is buying on the dip as a natural force of the market. The good news market is almost totally owned by HFT and already pre-baked. But the speed of the algos trims much of what would go to smaller investors that really are needed just like consumers. More volume and movement is always good but being so efficient it takes most of the gains from the support structure of the market harms confidence. Lots of the gaming happens pre-market and post-market where small investors can't always play and where the HFTs own by scraping 80-90% off the top, over time the delta is big. HFT does have benefits being so efficient though, may even help prevent bubbles because it can trade without emotion.
- minimax 13y agoI thought this was going to be interesting but it turns out it was just an advertisement for IEX. They brought out a) guy selling a book about IEX (Michael Lewis) b) CEO of IEX (Brad Katsuyama) c) Chief Strategy Officer of IEX (Ronan Ryan) and d) IEX investor (David Einhorn). No shit they are going to make it sound like the markets are rigged and IEX is the answer.
- xpose2000 13y agoAs far as I know, IEX is of no use for the average joe investor. We aren't buying and selling in blocks of 1000 or 10,000. Believe what you want, but there is a reason companies pay big money for super low latency.
- outside1234 13y agotl;dr If you are buying stocks as an individual for less than 10 years, don't: you are going to get killed. see also: buy index funds
- dferlemann 13y agodon't write programs if you have less than 10 years of programming experience; your horrible code will make programmers all look bad. BTW. no one's gonna hire you if you have less than 10 years of programming experience in a specific language. I always enjoy people's weird logic.
- wdewind 13y agoNo, I think this is more "don't show up at NFL games expecting the coach to throw you on the field because you play in a weekend league."
- outside1234 13y agoProbably because you didn't read the logic. I said individual, not professional. If you want to be a HFT, great, but if you are an individual, non-professional investor, you should stay out of short term (less than 10 year) trades and probably invest in index funds. The analogy to programming is that if you need a spreadsheet, as an individual you should get an app that does that, not write it.
- Aqueous 13y agoTheir solution at IEX was to coil a bunch of fiber so that high speed traders' orders get slowed down...I'd have to know more about why they thought that was necessary, but on its face this seems like complete overkill. Obviously there are probably reasons that I don't understand but it seems like this problem would be really easy to solve in software. For instance, I don't see why they don't just trade on a step interval. Basically everyone who arrives within 1 second of each other should have their trades executed simultaneously. Thus you have step of 1 second - nobody can get ahead of you because the travelling time between any two exchanges for even the slowest person is much, much less than 1 second. Does this make the market too slow? Just make the step interval whatever the slowest latency is for any given round trip at any given moment. That would still be on the order of milliseconds but nobody would be able to front-run you because any trade you make will be ahead of theirs or at the very worst at the same time as theirs.
- kasey_junk 13y agoDiscrete time matching always forgets about the case when there are more buyers than sellers (or vice versa). If 2 people are buying at price X and 3 people are selling at price X, which 2 sellers get "filled"? In most markets currently that is done in FIFO order. Discrete time values do not eliminate the race into/out of a level.
- dredmorbius 13y agoA fair lottery would solve that.
- Aqueous 13y agoYeah - Why does it have to be FIFO? Wouldn't random be just as fair?
- kasey_junk 13y agoThere is a pretty serious bias in the markets against non-repeatable matching algorithms. Explaining to the rest of the market participants why a given trader (or group) had better than average luck is not something that most exchanges are interested in doing.
- kasey_junk 13y agoInstead of being angry about hyperbole and ignorance, my new policy for HN story's touching HFT is to just answer questions. I build HFT systems for a living. My experience is only in commodities futures but I can try to explain equities markets as well. Ask away instead of passing on bad info.
- minimax 13y agoUhh ignorant HNer here. What is your tick to trade latency? What are your fill rates like? Are you doing primarily add or take? Which contracts do you trade? :-)
- kasey_junk 13y ago*I'm not going to answer these questions for the system I currently work on as it would violate IP agreements. Tick to Trade Latency: Are you asking about my average times, my median times, my 2 9s or my 4 9s;)? Basically call it tens of mikes. Fill rates: I've worked on systems that fill on nearly every order they place and other systems that skirt with getting banned. Adding/Taking liquidity: Mostly adding liquidity in my experience, but I have worked on strategies that only take. Contracts: All the ones that make money, none of the ones that don't.
- judk 13y ago> other systems that skirt with getting banned. That sounds a lot like the "price discovery" flavor of securities fraud.
- kasey_junk 13y agoNot to be flippant, but price discovery is not a fraudulent issue in the markets I trade. That said, the exchanges I trade on, are much, much, much more diligent than the relevant governmental agencies. I won't pass a value judgement on that.
- noname123 13y ago
- sixQuarks 13y agoIs the US Stock market rigged? Were you born yesterday? Of course it's rigged. The entire world is rigged.
- dang 13y agoThis is a vacuous statement of indignation. We don't want those on Hacker News. Please don't post them, even when the sentiment itself is justified. Re-read what you've posted and, if it mostly just expresses indignation, delete it. Then feel happy: you just put the signal/noise ratio up a tick for all of us. Not picking on one commenter—this is for everybody.
- stcredzero 13y agoDon't senators and congressperson's portfolios do a whole lot better than the S&P 500?
- aspensmonster 13y agoQuestion for kasey_junk, seeing as s/he is taking questions :D Lewis: "This form of front running is legal. It's legalized front running. It is crazy that it's legal for some people to get advance news on prices and other --[information on] what other investors are doing. It's just nuts. It shouldn't happen." Do you agree or disagree with Lewis' assessment of the state of HFT?
- kasey_junk 13y agoI completely disagree. First as a caveat, I've never traded US equities. That said, the idea that all participants in the markets have the exact same access to information that every other participant has is ludicrous. That has never been the case, and can never be the case. Trading costs as a whole are lower now than they have ever been. Is that entirely due to HFT? No, of course not, but any "fix" you could put in place would most likely have huge negative unintended consequences. Let's all take our cheap investments to the bank and be happy that we don't have to pay 6'8" gorilla's to make our trades.
- ktusznio 13y agoWhy is it that the intermediate exchange in NJ is able to see the desired trade? Shouldn't that information be encrypted?
- avaku 13y agoKatsuyama says: "When I'm trying to place a large order, the price goes up!" So, what's wrong with that? Have we cancelled the laws of supply and demand now? Let's beat up Adam Smith now!
- avaku 13y agoIt was just a strange phrase. The idea with hitting all exchanges at once is not bad at all...
- dredmorbius 13y agoThe explicit problem is that when Katsuyama changed its strategy to time arrival of trades to all exchanges simultaneously, the effect vanished. This isn't a supply and demand issue, it's HFT being able to detect an impending large movement and explicitly front-run it, at other exchanges.