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HFT seems cancerous regardless of who it helps and who it hurts. Sure it might provide liquidity, but so do traders and the market at large. HFT making money do

by mylons 13y ago

HFT seems cancerous regardless of who it helps and who it hurts. Sure it might provide liquidity, but so do traders and the market at large. HFT making money doesn't really service anyone except the people making money, and more importantly it doesn't create anything or provide a service to society at large.

rayiner 13y ago
> Sure it might provide liquidity, but so do traders and the market at large. What do you think traders get paid in, cupcakes?
- rpedela 13y ago
  I thought they were paid by trading fees? That fee I get charged every time I make a trade.
  - colin_mccabe 13y ago
    Market-makers make money off of the bid-ask spread, even if "trading fees" (i.e. commissions) are zero. Basically, the bid-ask spread is the difference between the price the trader bought the stock at, and the price they sold it to you at.
aetherson 13y ago
HFT could easily be a form of arbitrage. If we understand a wide bid-ask spread and/or a market slow to react to a large order as being essentially a rent for the large trader, then HFT narrowing the bid-ask spread and allowing the market to react more quickly to the large order takes that rent and divides a fraction of it to the HFT and another fraction of it to whoever is ultimately trading against the large trader. So instead of this rent (amount of money X) getting all captured by a single player who is necessarily a large, wealthy trader, it gets divided up more broadly. That sounds like a textbook case of arbitrage being in the public good. HFT does that. Does it also do other things which create rents rather than break them up? Hard for me to say. It's a complicated subject.
- trevelyan 13y ago
  The behavior would be illegal if conducted by the exchange itself. Why is it suddenly not simply because the exchange outsources the business model to a third party in return for super-expensive colocation rights?

by mylons 13y ago

rayiner 13y ago

> Sure it might provide liquidity, but so do traders and the market at large. What do you think traders get paid in, cupcakes?

rpedela 13y ago
I thought they were paid by trading fees? That fee I get charged every time I make a trade.
- colin_mccabe 13y ago
  Market-makers make money off of the bid-ask spread, even if "trading fees" (i.e. commissions) are zero. Basically, the bid-ask spread is the difference between the price the trader bought the stock at, and the price they sold it to you at.

aetherson 13y ago

HFT could easily be a form of arbitrage. If we understand a wide bid-ask spread and/or a market slow to react to a large order as being essentially a rent for the large trader, then HFT narrowing the bid-ask spread and allowing the market to react more quickly to the large order takes that rent and divides a fraction of it to the HFT and another fraction of it to whoever is ultimately trading against the large trader. So instead of this rent (amount of money X) getting all captured by a single player who is necessarily a large, wealthy trader, it gets divided up more broadly. That sounds like a textbook case of arbitrage being in the public good. HFT does that. Does it also do other things which create rents rather than break them up? Hard for me to say. It's a complicated subject.

trevelyan 13y ago
The behavior would be illegal if conducted by the exchange itself. Why is it suddenly not simply because the exchange outsources the business model to a third party in return for super-expensive colocation rights?