7 ms·

I think there should be a new kind of logical fallacy: appeal to grandpa. Today's world is not the same as your grandfathers world, we use computers to do many

by fleitz 13y ago

I think there should be a new kind of logical fallacy: appeal to grandpa. Today's world is not the same as your grandfathers world, we use computers to do many that they are better at than humans, executing trading stragies in submicrosecond latencies is one of them. Submitting an order to a market causes the price to change, submitting a large order means that you are likely trading against an informed trader, by making a bid they are disseminating information about price to the market, if you don't adapt to the new information (by raising your price) you are an missing a huge opportunity. In an ideal market to trade a large block you'd pay a risk premium less than the price of disseminating that information over a longer period and possibly paying more as supply of the stock at a given price evaporated. Everyone can read the order book to see the market depth for a trade of a given size, if you showing your hand all at once is the same as showing it over a prolonged time as you eat through the depth and the market becomes shallow. Essentially what the anti-HFT people are saying is that for a public company it's rational to expect to buy the entire stock are the current market value, as anyone who has seen a takeover go down, the purchaser must offer a premium over the current market cap in order for a bid to be successful. Simply making an offer usually causes the share price of the underlying company rise to a very similar to the offer discounted for likelihood of regulatory approval and the time value of money. HFT is expected market behaviour simply occurring over a time period of nanoseconds rather than minutes and hours.

ubernostrum 13y ago
The issue seems to be that, when you want to buy a somewhat-large amount of stock, regulations exist which: 1. Force you to split up the purchase among multiple exchanges, and 2. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, so that you don't have to deal with an artificially-inflated price on top of artificially-imposed split of your order. But while (1) is enforced, (2) is not. Which means buyers and most sellers have to play by one set of rules while people who want to inject themselves as middlemen get to play by a different set of rules. At least, that's what seems to be being described here, and I certainly can see problems with it. (not to mention that that "liquidity" and "efficiency" arguments fall flat -- the types of HFT schemes being described here work only by creating artificial illiquidity, and I don't know of any rigorous argument that creating more middlemen improves efficiency)
- yummyfajitas 13y ago
  There is no regulation which forces you to split up your order. People split their order because one venue does not have enough liquidity. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, This is simply incorrect. There is a regulation which requires exchanges to transmit news of price changes to the other exchanges as rapidly as possible. The purpose is to ensure that all fills happen at the NBBO. In concrete terms, if BATS has a BUY@$20.00 and ARCA has a BUY@$20.01, BATS is forbidden from filling your order. http://en.wikipedia.org/wiki/National_best_bid_and_offer http://en.wikipedia.org/wiki/National_best_bid_and_offer
  - ubernostrum 13y ago
    If you believe the description is wrong, your issue is with the article. Direct quote from article: With Reg NMS, it essentially took x amount of available stock at one place, and made it one tenth of that x at ten different places. If that isn't a regulation forcing large purchases to split up, then it's on you to explain why.
    - yummyfajitas 13y ago
      The most charitable interpretation of that quote is that after RegNMS, multiple trading venues became legalized. Liquidity providers then chose to spread liquidity out because it was now legal. Here is RegNMS. Find me a place where it says liquidity must be divided between all possible exchanges: https://www.sec.gov/rules/final/34-51808.pdf https://www.sec.gov/rules/final/34-51808.pdf
      - ubernostrum 13y ago
        If you believe the description in the article is wrong, then as I said your problem is with the article.
    - theorique 13y ago
      Seller(s) of stock are not required to place shares on different exchanges. This is a side effect of the process of trading, as the NBBO price bounces around to different venues. If I offer 100,000 AAPL at NBO at exchange X, and you are willing to purchase 100,000 AAPL at NBO, your buy order matches mine exactly and the transaction takes place. This is highly unlikely, of course, that an enormous stock transaction like this ($50M) will take place this way.
1stop 13y ago
HFTs are only accessible to a select few. And are only worth doing over large sums of capital. Is it rigging if my dice has more sixes than yours?
- yummyfajitas 13y ago
  This is incorrect - many HFTs are just one programmer investing his savings. Many of the big guys started this way.
  - crdoconnor 13y ago
    THIS is incorrect. From the article: >A direct feed from one exchange could be $10,000 to $60,000 a month. If the SIP is no longer real-time, it means that people who want to get real-time data have to pay, well, significantly more. It’s no exaggeration here to say you go from $1 a month to well over $100,000, with your own networking staff and a room full of computers just to get real-time pricing. $100k a month is now something you can stump up out of your savings is it?
    - deleted 13y ago
      [deleted]
    - yummyfajitas 13y ago
      You don't need to pay $100,000 month for access. My NDA forbids from revealing pricing info, but I can say I worked for an HFT fund that was just a programmer working out of his living room.
  - 1stop 13y ago
    ... Neither of your statements invalidated my statements. Unless you are saying that programmers are a majority, and their savings are typical of the same majority? EDIT: (And reading the other response, it seems you are in fact incorrect).
    - spikels 13y ago
snarfy 13y ago
I had this long reply about how HFT allowing you to execute large trades, etc is a bullshit argument, but then I deleted it. I weighed in on how it affects pricing, how it affects the seller, re-read your post, and realized something: I'm grandpa.

by fleitz 13y ago

ubernostrum 13y ago

The issue seems to be that, when you want to buy a somewhat-large amount of stock, regulations exist which: 1. Force you to split up the purchase among multiple exchanges, and 2. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, so that you don't have to deal with an artificially-inflated price on top of artificially-imposed split of your order. But while (1) is enforced, (2) is not. Which means buyers and most sellers have to play by one set of rules while people who want to inject themselves as middlemen get to play by a different set of rules. At least, that's what seems to be being described here, and I certainly can see problems with it. (not to mention that that "liquidity" and "efficiency" arguments fall flat -- the types of HFT schemes being described here work only by creating artificial illiquidity, and I don't know of any rigorous argument that creating more middlemen improves efficiency)

yummyfajitas 13y ago
There is no regulation which forces you to split up your order. People split their order because one venue does not have enough liquidity. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, This is simply incorrect. There is a regulation which requires exchanges to transmit news of price changes to the other exchanges as rapidly as possible. The purpose is to ensure that all fills happen at the NBBO. In concrete terms, if BATS has a BUY@$20.00 and ARCA has a BUY@$20.01, BATS is forbidden from filling your order. http://en.wikipedia.org/wiki/National_best_bid_and_offer http://en.wikipedia.org/wiki/National_best_bid_and_offer
- ubernostrum 13y ago
  If you believe the description is wrong, your issue is with the article. Direct quote from article: With Reg NMS, it essentially took x amount of available stock at one place, and made it one tenth of that x at ten different places. If that isn't a regulation forcing large purchases to split up, then it's on you to explain why.
  - yummyfajitas 13y ago
    The most charitable interpretation of that quote is that after RegNMS, multiple trading venues became legalized. Liquidity providers then chose to spread liquidity out because it was now legal. Here is RegNMS. Find me a place where it says liquidity must be divided between all possible exchanges: https://www.sec.gov/rules/final/34-51808.pdf https://www.sec.gov/rules/final/34-51808.pdf
    - ubernostrum 13y ago
      If you believe the description in the article is wrong, then as I said your problem is with the article.
  - theorique 13y ago
    Seller(s) of stock are not required to place shares on different exchanges. This is a side effect of the process of trading, as the NBBO price bounces around to different venues. If I offer 100,000 AAPL at NBO at exchange X, and you are willing to purchase 100,000 AAPL at NBO, your buy order matches mine exactly and the transaction takes place. This is highly unlikely, of course, that an enormous stock transaction like this ($50M) will take place this way.

1stop 13y ago

HFTs are only accessible to a select few. And are only worth doing over large sums of capital. Is it rigging if my dice has more sixes than yours?

yummyfajitas 13y ago
This is incorrect - many HFTs are just one programmer investing his savings. Many of the big guys started this way.
- crdoconnor 13y ago
  THIS is incorrect. From the article: >A direct feed from one exchange could be $10,000 to $60,000 a month. If the SIP is no longer real-time, it means that people who want to get real-time data have to pay, well, significantly more. It’s no exaggeration here to say you go from $1 a month to well over $100,000, with your own networking staff and a room full of computers just to get real-time pricing. $100k a month is now something you can stump up out of your savings is it?
  - deleted 13y ago
    [deleted]
  - yummyfajitas 13y ago
    You don't need to pay $100,000 month for access. My NDA forbids from revealing pricing info, but I can say I worked for an HFT fund that was just a programmer working out of his living room.
- 1stop 13y ago
  ... Neither of your statements invalidated my statements. Unless you are saying that programmers are a majority, and their savings are typical of the same majority? EDIT: (And reading the other response, it seems you are in fact incorrect).
  - spikels 13y ago

snarfy 13y ago

I had this long reply about how HFT allowing you to execute large trades, etc is a bullshit argument, but then I deleted it. I weighed in on how it affects pricing, how it affects the seller, re-read your post, and realized something: I'm grandpa.