5 ms·

Isn't the entire point, that the anti-HFT folks are trying to make, that if HFT is abolished then we will still have liquidity? As in "Liquidity is not created

Isn't the entire point, that the anti-HFT folks are trying to make, that if HFT is abolished then we will still have liquidity? As in "Liquidity is not created by HFT. HFT are just an intermediary between the actual providers of liquidity and the rest of the market". This is a sincere question, because I really do not understand how HFT "creates liquidity" when they are just buying low and selling high.

vbuterin 13y ago
They are nevertheless buying higher than everyone else and selling lower than everyone else. Otherwise their orders would never get filled.
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  - kasey_junk 13y ago
    No exchange in the US allows trading something at $26.107 that is in fact explicitly against the rules. HFTs do not see your buy order before it reaches the market and then buy them ahead of you to sell them back to you. Your understanding of the stock markets and HFT is inaccurate and you are spreading incorrect information.
    - Sniperfish 13y ago
      Retail orders are generally routed to markets using a SOR and do not overage 100% of the full order. There are latency differences between exchanges / ATS'. If you are very fast is possible to post passively on multiple venues and exploit those latency differences to assume if you see a small ping on market x there is more behind it. You can gain book position and the spread with this information, if you are fast.
      - kasey_junk 13y ago
        Sure, but hiding large order flow wasn't invented with the rise of HFT. It has always been the case that a market maker could look at orders coming in and bet that it was the tip of a large order flow and thereby adjust the prices he was offering. It's just that gut instinct, good ole boy networks, and luck have been replaced with network infrastructure, systematic engineering and analytics.
- krastanov 13y ago
  Yeah, but if they (the HFT) are not there the only thing that seems to change (in my naive understanding) is that there is no "tax" on liquidity, but the liquidity is still there.
logfromblammo 13y ago
They don't. "Creating liquidity" is the weasel term they use to justify making money off of trades that would have happened anyway without their help. The trade clearing systems themselves create all the liquidity that anybody needs. If anything, they insititute a tiny tax on larger trades, such that there is a tiny deadweight loss to the market every time they front-run somebody. It isn't enough to be very noticeable on a single asset, but it is a positive and nonzero amount that is destroyed each time, and that can add up. To what, I have no idea.
- harryh 13y ago
  Did you read the blog post? They aren't "creating liquidity" they are "selling liquidity." And if you're asserting that nobody needs it you really need to provide an answer for the question: Then why are people buying it?
  - logfromblammo 13y ago
    Maybe they are not spending their own money?
    - harryh 13y ago
      So the people complaining about being ripped off by HFTers aren't forced to trade with them, but they do so anyways because they don't care because it's not their own money? Then why are they complaining about being ripped off? This comment doesn't make any sense?
      - logfromblammo 13y ago
        If I put $10 into a 401(k) and lose $0.0001 of it because the fund manager didn't bother to protect me from fast middlemen, because it doesn't benefit him at all, am I still entitled to complain?
        harryh 13y ago
jpmattia 13y ago
> This is a sincere question, because I really do not understand how HFT "creates liquidity" when they are just buying low and selling high. It's a complicated issue, but I think the simplified version is: Reduced liquidity results in larger volatility. Shorting is an easier example to look at: When a stock drops, folks with short positions cover their bets ("I've made enough money off this position, it may be near the maximum I'll make") they buy. Others notice that there is buying interest etc. However, when shorting is banned, those buys do not arrive and you would intuitively expect the stock to drop further before buyers believe there is money to be made. You could witness this dynamic during 2008-9, when the SEC banned shorting of banks.

vbuterin 13y ago

They are nevertheless buying higher than everyone else and selling lower than everyone else. Otherwise their orders would never get filled.

deleted 13y ago
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deleted 13y ago
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- kasey_junk 13y ago
  No exchange in the US allows trading something at $26.107 that is in fact explicitly against the rules. HFTs do not see your buy order before it reaches the market and then buy them ahead of you to sell them back to you. Your understanding of the stock markets and HFT is inaccurate and you are spreading incorrect information.
  - Sniperfish 13y ago
    Retail orders are generally routed to markets using a SOR and do not overage 100% of the full order. There are latency differences between exchanges / ATS'. If you are very fast is possible to post passively on multiple venues and exploit those latency differences to assume if you see a small ping on market x there is more behind it. You can gain book position and the spread with this information, if you are fast.
    - kasey_junk 13y ago
      Sure, but hiding large order flow wasn't invented with the rise of HFT. It has always been the case that a market maker could look at orders coming in and bet that it was the tip of a large order flow and thereby adjust the prices he was offering. It's just that gut instinct, good ole boy networks, and luck have been replaced with network infrastructure, systematic engineering and analytics.
krastanov 13y ago
Yeah, but if they (the HFT) are not there the only thing that seems to change (in my naive understanding) is that there is no "tax" on liquidity, but the liquidity is still there.

logfromblammo 13y ago

They don't. "Creating liquidity" is the weasel term they use to justify making money off of trades that would have happened anyway without their help. The trade clearing systems themselves create all the liquidity that anybody needs. If anything, they insititute a tiny tax on larger trades, such that there is a tiny deadweight loss to the market every time they front-run somebody. It isn't enough to be very noticeable on a single asset, but it is a positive and nonzero amount that is destroyed each time, and that can add up. To what, I have no idea.

harryh 13y ago
Did you read the blog post? They aren't "creating liquidity" they are "selling liquidity." And if you're asserting that nobody needs it you really need to provide an answer for the question: Then why are people buying it?
- logfromblammo 13y ago
  Maybe they are not spending their own money?
  - harryh 13y ago
    So the people complaining about being ripped off by HFTers aren't forced to trade with them, but they do so anyways because they don't care because it's not their own money? Then why are they complaining about being ripped off? This comment doesn't make any sense?
    - logfromblammo 13y ago
      If I put $10 into a 401(k) and lose $0.0001 of it because the fund manager didn't bother to protect me from fast middlemen, because it doesn't benefit him at all, am I still entitled to complain?
      - harryh 13y ago

jpmattia 13y ago

> This is a sincere question, because I really do not understand how HFT "creates liquidity" when they are just buying low and selling high. It's a complicated issue, but I think the simplified version is: Reduced liquidity results in larger volatility. Shorting is an easier example to look at: When a stock drops, folks with short positions cover their bets ("I've made enough money off this position, it may be near the maximum I'll make") they buy. Others notice that there is buying interest etc. However, when shorting is banned, those buys do not arrive and you would intuitively expect the stock to drop further before buyers believe there is money to be made. You could witness this dynamic during 2008-9, when the SEC banned shorting of banks.