4 ms·

So everyone needs to pay several thousand/month for direct access? I don't know why it's bad that people who don't need low latency are allowed to not pay for i

So everyone needs to pay several thousand/month for direct access? I don't know why it's bad that people who don't need low latency are allowed to not pay for it. "Quote Stuffing" is not the nefarious activity that Nanex portrays it as. It's generally the result of your algorithm screwing up. It provides no benefit to the trader and exposes him to risk - specifically, an HFT who is quote stuffing will always be at the bottom of the book. As a result, he won't get any retail fills, he'll only trade with informed traders who are buying up the whole book. It also lowers your fill rate, which can result in a trading halt or financial penalties. As a result, most HFTs put effort into reducing quotes and making their algorithms more stable. I shouldn't have used the term "conspiracy theorists". I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics and a complete unwillingness to be specific. No shortage of moral posturing, however.

001sky 13y ago
I don't know why it's bad that people who don't need low latency are allowed to not pay for it. For years, mil-spec GPS time was masked with randomness and unavail to the public. Why not do this with the markets? The regulators only care about mean prices being unbiased. They should equilibriate just fine with some non-sequential information introduced. Why or why not?
- cpwright 13y ago
  The regulator cares about more than just the mean price. The idea behind Reg NMS is that anyone who places an order at a protected venue should get the best price available, not just something close. It isn't enough for the differences to just average out, because some people get poor execution in one direction, and others get poor execution in the other.
  - 001sky 13y ago
    Agree but consider this: If the timing is perfectly tractable the system is gamed. A small amount of noise that prevents manipulation is a good thing over time for the market. It means the stock is going to have less vol which increases the value of the market equity given constant cash flows. That's another policy goal more broadly. That is, if it works this way.
theorique 13y ago
> I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics and a complete unwillingness to be specific. Not to mention, an abundance of aggressive misuse of terms of art such as "insider trading", "front running", and others. These terms have a well-defined meaning in SEC and FINRA regulations, and it does no one any good to accuse HFT of doing things that it isn't doing.
ThomPete 13y ago
"I don't know why it's bad that people who don't need low latency are allowed to not pay for it." With the prices I am hearing it's not about those who don't need it but rather those who need it and would like to have it but cant afford it.
- dllthomas 13y ago
  If I want to move one lot or ten lots through the market, I don't need low latency. If I want to move 10k lots through the market, I can afford low latency.
  - ThomPete 13y ago
    And why would you want to move 10K lots through the market any others point of view than the HFT traders? It's a genuine question.
    - dllthomas 13y ago
      Your English broke down there, and I'm not sure what you're asking. "Why would anyone but HFT traders want to move 10K lots through the market?"?
      - ThomPete 13y ago
        Sorry English is not my first language and sometimes I end up writing convoluted sentences. Let me rephrase then. Why would anyone but HFT traders need to move 10K lots through the market?
        dllthomas 13y ago
        "Sorry English is not my first language and sometimes I end up writing convoluted sentences." No worries at all. I certainly didn't mean to imply any sort of a judgement; I just needed clarification. "Why would anyone but HFT traders need to move 10K lots through the market?" To a first approximation, it's never the HFT traders that need to move 10K lots. In commodities, it's big producers and consumers - Chevron needs to secure crude stock, ADM needs to buy up a ton of corn, some mega-farm (or co-op of large farms) wants to lock in a price on what they're producing, &c. In equities, it's institutional investors, hedge funds, and possibly exceedingly wealthy individuals, who have decided they want to hold many more or many fewer of something. It's clearly going to be a big player - transacting 10k lots of a stock priced at $10 would be $10 million. Most people - including HFTs - aren't trying to move millions of dollars in one direction in a short time. Those who are have resources, almost by definition.
dvogel 13y ago
One of the core complaints about HFT regulation is that the regulators refuse to update their definitions to include HFT activities that follow the letter of the regulation but clearly violate the spirit of the regulation. Therefore arguing that HFT detractors are not relying on precise definitions does more to show that you're not really listening to their argument but rather just finding something to nitpick. It looks like an avoidance strategy, not an honest defense.
- yummyfajitas 13y ago
  First off, my quibbles about the definition of front running vs predatory trading are unrelated to my defense. The defense I gave was about price discrimination. It doesn't matter what label you apply to the definition - if you want to argue against me then say why price discrimination is bad. Or say I'm wrong about price discrimination. Second, the "spirit of the regulation" about front running is about allowing people to trust their agents. Other regulations in the same spirit are lawyer-client confidentiality and "financial advisers can't take gifts from companies they give advice on" regulations. There are no "you can't kick people's ass in the stock market" regulations, in letter or spirit. If you play the stock market everyone is trying to take your money. You are trying to take theirs.
crdoconnor 13y ago
>So everyone needs to pay several thousand/month for direct access? I think you're overestimating the cost of running an exchange by several billion dollars. >I don't know why it's bad that people who don't need low latency are allowed to not pay for it. FRONT RUNNING >"Quote Stuffing" is not the nefarious activity that Nanex portrays it as. It's generally the result of your algorithm screwing up No, it's generally the result of an HFT intentionally trying to clog up the order stream (in order to push everybody else back), or trying to gain an information advantage. >It provides no benefit to the trader Now you're in cuckoo land. > I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics Yes, i find it frustrating arguing with you too. What's worse is that you think using industry jargon will intimidate others into thinking you know better.
- yummyfajitas 13y ago
  I'm planning to write a blog post on quote stuffing - explaining why it is dangerous for the trader and why it is easily caused by software bugs. I hope you reads it.

001sky 13y ago

I don't know why it's bad that people who don't need low latency are allowed to not pay for it. For years, mil-spec GPS time was masked with randomness and unavail to the public. Why not do this with the markets? The regulators only care about mean prices being unbiased. They should equilibriate just fine with some non-sequential information introduced. Why or why not?

cpwright 13y ago
The regulator cares about more than just the mean price. The idea behind Reg NMS is that anyone who places an order at a protected venue should get the best price available, not just something close. It isn't enough for the differences to just average out, because some people get poor execution in one direction, and others get poor execution in the other.
- 001sky 13y ago
  Agree but consider this: If the timing is perfectly tractable the system is gamed. A small amount of noise that prevents manipulation is a good thing over time for the market. It means the stock is going to have less vol which increases the value of the market equity given constant cash flows. That's another policy goal more broadly. That is, if it works this way.

theorique 13y ago

> I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics and a complete unwillingness to be specific. Not to mention, an abundance of aggressive misuse of terms of art such as "insider trading", "front running", and others. These terms have a well-defined meaning in SEC and FINRA regulations, and it does no one any good to accuse HFT of doing things that it isn't doing.

ThomPete 13y ago

"I don't know why it's bad that people who don't need low latency are allowed to not pay for it." With the prices I am hearing it's not about those who don't need it but rather those who need it and would like to have it but cant afford it.

dllthomas 13y ago
If I want to move one lot or ten lots through the market, I don't need low latency. If I want to move 10k lots through the market, I can afford low latency.
- ThomPete 13y ago
  And why would you want to move 10K lots through the market any others point of view than the HFT traders? It's a genuine question.
  - dllthomas 13y ago
    Your English broke down there, and I'm not sure what you're asking. "Why would anyone but HFT traders want to move 10K lots through the market?"?
    - ThomPete 13y ago
      Sorry English is not my first language and sometimes I end up writing convoluted sentences. Let me rephrase then. Why would anyone but HFT traders need to move 10K lots through the market?
      - dllthomas 13y ago
        "Sorry English is not my first language and sometimes I end up writing convoluted sentences." No worries at all. I certainly didn't mean to imply any sort of a judgement; I just needed clarification. "Why would anyone but HFT traders need to move 10K lots through the market?" To a first approximation, it's never the HFT traders that need to move 10K lots. In commodities, it's big producers and consumers - Chevron needs to secure crude stock, ADM needs to buy up a ton of corn, some mega-farm (or co-op of large farms) wants to lock in a price on what they're producing, &c. In equities, it's institutional investors, hedge funds, and possibly exceedingly wealthy individuals, who have decided they want to hold many more or many fewer of something. It's clearly going to be a big player - transacting 10k lots of a stock priced at $10 would be $10 million. Most people - including HFTs - aren't trying to move millions of dollars in one direction in a short time. Those who are have resources, almost by definition.

dvogel 13y ago

One of the core complaints about HFT regulation is that the regulators refuse to update their definitions to include HFT activities that follow the letter of the regulation but clearly violate the spirit of the regulation. Therefore arguing that HFT detractors are not relying on precise definitions does more to show that you're not really listening to their argument but rather just finding something to nitpick. It looks like an avoidance strategy, not an honest defense.

yummyfajitas 13y ago
First off, my quibbles about the definition of front running vs predatory trading are unrelated to my defense. The defense I gave was about price discrimination. It doesn't matter what label you apply to the definition - if you want to argue against me then say why price discrimination is bad. Or say I'm wrong about price discrimination. Second, the "spirit of the regulation" about front running is about allowing people to trust their agents. Other regulations in the same spirit are lawyer-client confidentiality and "financial advisers can't take gifts from companies they give advice on" regulations. There are no "you can't kick people's ass in the stock market" regulations, in letter or spirit. If you play the stock market everyone is trying to take your money. You are trying to take theirs.

crdoconnor 13y ago

>So everyone needs to pay several thousand/month for direct access? I think you're overestimating the cost of running an exchange by several billion dollars. >I don't know why it's bad that people who don't need low latency are allowed to not pay for it. FRONT RUNNING >"Quote Stuffing" is not the nefarious activity that Nanex portrays it as. It's generally the result of your algorithm screwing up No, it's generally the result of an HFT intentionally trying to clog up the order stream (in order to push everybody else back), or trying to gain an information advantage. >It provides no benefit to the trader Now you're in cuckoo land. > I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics Yes, i find it frustrating arguing with you too. What's worse is that you think using industry jargon will intimidate others into thinking you know better.

yummyfajitas 13y ago
I'm planning to write a blog post on quote stuffing - explaining why it is dangerous for the trader and why it is easily caused by software bugs. I hope you reads it.