5 ms·
Complete idiot's guide is right. Exchanges offer price-time priority. A 'better' price (higher bid, lower offer) gives you priority over a 'worse' price. Given
by theorique 13y ago
Complete idiot's guide is right.
Exchanges offer price-time priority. A 'better' price (higher bid, lower offer) gives you priority over a 'worse' price. Given two orders at the same price, an earlier order gives you priority over a later order.
If you spend millions of dollars on computers, data feeds, and salaries to skilled personnel, to predict the motion of markets correctly and work within the system to make money, then you've earned that money fair and square. Companies that don't operate within the rules get shut down fast and hard by the SEC and/or FINRA. This is a highly regulated and policed industry.
HFT is hardly different from Warren Buffett identifying a company with a 10-100 year time horizon. Should we penalize Buffett because he's smarter and better at that game than everyone else in the world? Is he scamming the person from whom he bought shares in 1984?
As Knight Capital showed us two years ago, you can spend those millions, and still screw up and lose $10M per minute for the better part of an hour until your firm is bankrupt. No one is guaranteed to make money.
Posting an order and canceling it is fair game. When the order is in the market, it's a live intent to trade. When it's canceled, it's no longer a live intent to trade. Why is this "moral" when it's a person doing this on a time scale of seconds or minutes, but "fraud on the market" when it's a computer doing it on a time scale of micro or milliseconds? If someone hits that HFT computer's bid, there's an obligation to fill that order - nothing is different about such an order just because it's placed and canceled quickly. The only objection is fear of the unknown. And the only difference here is that it's being done based on an automated strategy, faster than people can react. Your broker has access to HFT tools. Your 401(k) manager has access to HFT tools. If you're a day trader, your order is probably being routed through HFT tools.
- kylebrown 13y ago> Why is this "moral" when it's a person doing this on a time scale of seconds or minutes, but "fraud on the market" when it's a computer doing it on a time scale of micro or milliseconds? Its not always fraud, but some the of tactics get pretty scammy. One highlighted in Flash Boys is a classic bait-and-switch, perpetuated with perverse fee incentives of a "taker rebate" on BATS BYX. I said more here: https://news.ycombinator.com/item?id=7532902 https://news.ycombinator.com/item?id=7532902
- lrm242 13y agoThere's nothing scammy about inverted venues. Those who choose to trade there do so knowing they will get hit first. Buy siders who don't want their brokers to leak information when sweeping should get better brokers. These are professionals we're talking about here. They should have the wherewithal to understand the market they are participating in.
- kylebrown 13y agoSo then, it is basically a bait trap to exploit those without the wherewithal. That's a quite different proposition than the standard claim that HFT benefits everybody (even the mediocre participants) by lowering spreads and making the market more "efficient." "Scammy" might be a loaded word. In any case, I'd like to hear a sensible purpose to the inverted fee structure.
- lrm242 13y agoInverted fee structures allow the maker to value fill priority over rebate. In a maker taker structure the net price paid is higher on an inverted venue therefore implicitly allowing them a higher spot in the virtual cross-venue line (although not guaranteed). Takers who get paid at inverted venues understand and are compensated by rebate for the information they provide to the market. Their net price is less than what they would pay elsewhere and the cost of doing so is less access to liquidity (inverted venues typically show a lot less size) and potentially more information leakage (although, it is time dependent). Bear in mind that if you look at the markets near transition, there is often times no posted orders on the weak side of the NBBO. Makers typically don't like to stand in front of the truck as its rolling towards them. The argument that inverted venues leak as buy side sweeps is fairly weak given this reality.
- kylebrown 13y agoWell who does want to stand in front of a truck? That's the risk every participant takes, "makers" should have to eat it just like everyone else. Not conspire to invent umpteen different order types and fee structures which enable them to shirk the risk and skim off mom & pop's retirement fund any time the market starts to look shaky. And if mom's broker doesn't understand that the taker rebate leaks more information than its worth, that's just tough on mom. Mom can't just get a better broker, she's locked into her IRA through the workplace. This is a zero-sum game with some people on the take while mom & pop get the shaft.
- 001sky 13y agoPosting an order and canceling it is fair game. When the order is in the market, it's a live intent to trade. When it's canceled, it's no longer a live intent to trade. Would you recommend this as advice to YC companies looking to secure VC? Tactic seems ripe for abuse in M&A negotiations as well.
- tptacek 13y agoAre you genuinely asking someone to make a list of the reasons how a VC term sheet differs from a resting limit order?
- 001sky 13y agoNo, I asking why bad faith in purchasing private equity would be any different than public.
- tptacek 13y ago* Because it is incredibly expensive to obtain a term sheet. * Because the term sheet usually has conditions that the entrepreneur is obliged to honor. * Because the term sheet is provided after the VC is given access to all the details of the entrepreneur's financials. * Because the ruthless withdrawal of a term sheet puts the entrepreneur in a distress situation that harms their ability to obtain other term sheets. There are other reasons, but the analogy is, to me, obviously inapplicable.
- 001sky 13y agoThere are other reasons, but the analogy is, to me, obviously inapplicable. Not quite. Use your example of a large block trade. * Because it is incredibly expensive: check * Because the B/D agmt usually has conditions: check * Because the execution is provided after all the details of the trade/'s financials: check * Because the ruthless withdrawal of a term sheet could put the [trader's book] in a distress situation that harms their ability to obtain [another execution]: check.
- a8da6b0c91d 13y agoIt's more like taking a peek at the other players' cards, when only you have the ability to do that. We have a bunch of laws that establish the pretense that everybody in the market is equal. I suspect we should get rid of most of the laws and drop the pretense. Folks should participate with the understanding that there are unfairly advantaged operators at all levels. But until that happens it's hard to morally square aspects of HFT.
- lrm242 13y agoNo one can see the other players cards in trading unless the player shows them. Brokers sending IOIs to dark pools releases info to the market. Hitting venue A and then venue B in a serial fashion will release info the market, letting some traders cancel before you get to B. There is no mechanism on the lit markets for anyone to see an order BEFORE it interacts by either posting to the book or being crossed with another order and generating a trade. Anyone who says otherwise is unfortunately misinformed.
- foobarqux 13y agoFlash orders
- lrm242 13y agoNo longer available on lit US equities. A failed experiment by exchanges to compete with internalizers by providing the opportunity for price improvement to those orders who elect to be shown to participants prior to posting or taking. Can you think of one active in today's market?