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Trading is the only industry on earth where we even debate whether Joe Schmoe off the street should have a chance at competing with huge institutions, and oddly

Trading is the only industry on earth where we even debate whether Joe Schmoe off the street should have a chance at competing with huge institutions, and oddly enough it's probably one of the most purely competitive things in the world. Most guys who play ball at the local park can't be Lebron James. A guy sitting at home has no shot at market-making liquid stocks, and low latency is only the tip of the iceberg as to why. In any case it is not expensive to start a firm like this relative to most things in finance or even other physical market-making businesses like running a retail store. You could do it with a few million dollars and a dozen technologists/researchers. That's why this debate is so stupid. Banks who are mostly the ones complaining about having trouble executing could easily hire up a team to build better routers and execution algos for them. Most of them have, even, which has cut HFT profitability considerably. The laggards prefer to go on CNBC rather than invest in technology to keep up.

ThomPete 13y ago
So you are comparing startup cost of a ball with the startup cost of a "few million dollars" to start a HFT company? I have no issue with the market in general or people making money providing investment to others who need it. Where I am having problems is when the market becomes it's own closed loop and the money is made inside of that loop. I been on the sideline of this industry for many years now and I have yet to see any company who is successful in the long run be so because they play a fair game. Reading stuff like this: http://moneymorning.com/2012/10/15/the-truth-about-high-frequency-trading-and-the-coming-market-crash/ http://moneymorning.com/2012/10/15/the-truth-about-high-freq... certainly doesn't help. "...What they are doing is trying to influence, I call it manipulate, what other traders and investors do with their bids and offers. They are trying to fake or set-up other market participants to react to the quotes the HFT players fire out onto the exchanges for all the stocks they trade. Only the HFT quotes sent out aren't meant to be acted on. They aren't looking to buy on their bid quotes or sell on their offer quotes. Instead, they are sending out orders to "ping" markets. Ping refers to how sonar works. For example, a submarine sends out a sonar beep which hits a target and sends back a sound (which sounds like a ping) which the sonar operator "reads" to determine the pinged object's distance and shape. HFT players are constantly pinging stocks where their quotes are housed and displayed. They send out their orders to manipulate others to adjust their quotes, which get fed into the HFT algorithms to determine any directionality; then, if an opportunity exists the HFT computers buy or sell shares that someone else has put onto the market. They aren't quoting constantly as bona fide "market-makers" are supposed to do, which they claim they are acting like. They are simply putting out millions of fake bids and offers which they pull almost immediately, just to read the movement of other market participants who react to the HFT come-ons. It isn't illegal. But it is manipulation. The buyers and sellers the HFT crowd trades with aren't forced to trade, they are willing to trade -- it's just that the prices they trade at may have been manipulated..." Can you explain to me how HFT benefits society in general? What would happen if we didn't have HFT? Would the market crash? Would there suddenly be no money to invest with?
- hft_throwaway 13y ago
  There are not many businesses you can start that cost so little. Even a McDonalds franchise would cost more to start than a small trading firm. The activity he describes is illegal. Every order you place must be because of a bona fide interest to trade at that time, and not as an attempt to induce others to act or gather information. If I could get filled on every bid and offer I have in the market I'd be very happy. That's basically what happened to the MMs on the other side of the Knight debacle. HFT moves liquidity across time, place, and product. It drives down spreads by intermediating trades for a lower cost than human market makers had to charge. The market would not crash if HFT went away, but markets would become less efficient, more trades would go off away from fair values since nobody could correct small-scale mispricings, spreads to customers who immediately want to buy and sell would increase, and short-term volatility would go up since nobody would buffer transient pricing errors. It'd be like if all the grocery stores around you folded and you had to trek up to the meat market and buy things in bulk. It would be very inconvenient and expensive, but not the end of the world.
  - ThomPete 13y ago
    In the digital space there is. Comparing it to a McDonalds franchise make little sense IMO both in terms of what the investment is used for and the returns you stand to gain. With regards to the inconvenience and price of not having HFT around. That again sounds like an issue for the traders not for the companies the stockmarket is supposed to help.
    - hft_throwaway 13y ago
      The returns aren't that high though. Even the top firms now barely make anything after costs. The stock market is designed for traders! The primary purpose of a stock market is to let stockholders transfer risk most efficiently. The capital raising was done when the company issued shares. People buying stocks are not investing.
      - ThomPete 13y ago

ThomPete 13y ago

So you are comparing startup cost of a ball with the startup cost of a "few million dollars" to start a HFT company? I have no issue with the market in general or people making money providing investment to others who need it. Where I am having problems is when the market becomes it's own closed loop and the money is made inside of that loop. I been on the sideline of this industry for many years now and I have yet to see any company who is successful in the long run be so because they play a fair game. Reading stuff like this: http://moneymorning.com/2012/10/15/the-truth-about-high-frequency-trading-and-the-coming-market-crash/ http://moneymorning.com/2012/10/15/the-truth-about-high-freq... certainly doesn't help. "...What they are doing is trying to influence, I call it manipulate, what other traders and investors do with their bids and offers. They are trying to fake or set-up other market participants to react to the quotes the HFT players fire out onto the exchanges for all the stocks they trade. Only the HFT quotes sent out aren't meant to be acted on. They aren't looking to buy on their bid quotes or sell on their offer quotes. Instead, they are sending out orders to "ping" markets. Ping refers to how sonar works. For example, a submarine sends out a sonar beep which hits a target and sends back a sound (which sounds like a ping) which the sonar operator "reads" to determine the pinged object's distance and shape. HFT players are constantly pinging stocks where their quotes are housed and displayed. They send out their orders to manipulate others to adjust their quotes, which get fed into the HFT algorithms to determine any directionality; then, if an opportunity exists the HFT computers buy or sell shares that someone else has put onto the market. They aren't quoting constantly as bona fide "market-makers" are supposed to do, which they claim they are acting like. They are simply putting out millions of fake bids and offers which they pull almost immediately, just to read the movement of other market participants who react to the HFT come-ons. It isn't illegal. But it is manipulation. The buyers and sellers the HFT crowd trades with aren't forced to trade, they are willing to trade -- it's just that the prices they trade at may have been manipulated..." Can you explain to me how HFT benefits society in general? What would happen if we didn't have HFT? Would the market crash? Would there suddenly be no money to invest with?

hft_throwaway 13y ago
There are not many businesses you can start that cost so little. Even a McDonalds franchise would cost more to start than a small trading firm. The activity he describes is illegal. Every order you place must be because of a bona fide interest to trade at that time, and not as an attempt to induce others to act or gather information. If I could get filled on every bid and offer I have in the market I'd be very happy. That's basically what happened to the MMs on the other side of the Knight debacle. HFT moves liquidity across time, place, and product. It drives down spreads by intermediating trades for a lower cost than human market makers had to charge. The market would not crash if HFT went away, but markets would become less efficient, more trades would go off away from fair values since nobody could correct small-scale mispricings, spreads to customers who immediately want to buy and sell would increase, and short-term volatility would go up since nobody would buffer transient pricing errors. It'd be like if all the grocery stores around you folded and you had to trek up to the meat market and buy things in bulk. It would be very inconvenient and expensive, but not the end of the world.
- ThomPete 13y ago
  In the digital space there is. Comparing it to a McDonalds franchise make little sense IMO both in terms of what the investment is used for and the returns you stand to gain. With regards to the inconvenience and price of not having HFT around. That again sounds like an issue for the traders not for the companies the stockmarket is supposed to help.
  - hft_throwaway 13y ago
    The returns aren't that high though. Even the top firms now barely make anything after costs. The stock market is designed for traders! The primary purpose of a stock market is to let stockholders transfer risk most efficiently. The capital raising was done when the company issued shares. People buying stocks are not investing.
    - ThomPete 13y ago