4 ms·

k, I'll bite. Lets say you want to sell your house in 1935. Luckily, there is a buyer, but he won't be ready until 1946 when he gets back from fighting WW2. Lu

by aet 13y ago

k, I'll bite. Lets say you want to sell your house in 1935. Luckily, there is a buyer, but he won't be ready until 1946 when he gets back from fighting WW2. Luckily, there is a real estate investor who is willing to step in an buy from you and sell to him. He'll hold the property from 1935 to 1946. During that time he takes the risk that housing prices may go down. He also has to pay operating costs in the form of his office and assistant. This is essentially what HFTs do. They intermediate markets.They have cost and risks. Some of them take advantage of special knowledge of market organization. They know the hot neighborhood. The real question is: Are market intermediaries being compensated fairly for the risk they take? i.e. do HFTs make too much money for the risk and expense they incur while intermediating markets.

erichocean 13y ago
I get all that, but does that really apply when the time interval is sub-second? It's hard to imagine the discounted value of the trade changing in a sub-second interval, whereas it obviously does selling 11 years later. In other words, sure, definitionally it's liquidity, but since the trade would have gone through a sub-second later anyway, it's not meaningful liquidity: the liquidity was already there on a reasonable timespan (again, sub-second) for the seller. Thus, nothing has been gained. What am I missing here? Do sellers really need additional sub-second liquidity beyond what the market would provide without HFT?
- aet 13y ago
  I think it is just the nature of the market mechanism i.e. the rules of the game. Since markets are continuous there is going to be competition. Tick sizes means that participants have to compete on speed rather than price. It seems to me that competition and continuous markets are maybe the best way to keep prices aligned across markets. And, just maybe, the best way to keep costs low for retail traders.
- hft_throwaway 13y ago
  If you think you don't benefit from someone else providing a quote, place a limit order of your own and update it throughout the day. Buying the market-maker's quote is basically giving them your trading problem. It's specialization like anything else. You get to do what you're best at. He gets to figure out the cheapest way to exit/hedge the position. Also very few HFTs have sub-second average holding periods. There aren't many instances where the market trades both sides so quickly. Probably average in the 10s of seconds at least if not longer.
- harryh 13y ago
  You're missing the fact that the trade would not necessarily have gone through a sub-second later anyways. There is a very real chance that the trade would never happen because the market moves away from you.

by aet 13y ago

erichocean 13y ago

I get all that, but does that really apply when the time interval is sub-second? It's hard to imagine the discounted value of the trade changing in a sub-second interval, whereas it obviously does selling 11 years later. In other words, sure, definitionally it's liquidity, but since the trade would have gone through a sub-second later anyway, it's not meaningful liquidity: the liquidity was already there on a reasonable timespan (again, sub-second) for the seller. Thus, nothing has been gained. What am I missing here? Do sellers really need additional sub-second liquidity beyond what the market would provide without HFT?

aet 13y ago
I think it is just the nature of the market mechanism i.e. the rules of the game. Since markets are continuous there is going to be competition. Tick sizes means that participants have to compete on speed rather than price. It seems to me that competition and continuous markets are maybe the best way to keep prices aligned across markets. And, just maybe, the best way to keep costs low for retail traders.
hft_throwaway 13y ago
If you think you don't benefit from someone else providing a quote, place a limit order of your own and update it throughout the day. Buying the market-maker's quote is basically giving them your trading problem. It's specialization like anything else. You get to do what you're best at. He gets to figure out the cheapest way to exit/hedge the position. Also very few HFTs have sub-second average holding periods. There aren't many instances where the market trades both sides so quickly. Probably average in the 10s of seconds at least if not longer.
harryh 13y ago
You're missing the fact that the trade would not necessarily have gone through a sub-second later anyways. There is a very real chance that the trade would never happen because the market moves away from you.