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I'm not buying it. Healthy markets are markets where everyone has access to the same information. HFT by definition means some traders have more access to infor

I'm not buying it. Healthy markets are markets where everyone has access to the same information. HFT by definition means some traders have more access to information than others. This is fundamentally unfair and bad for markets and the economy. I don't see how HFT is any different then insider trading and everyone agrees that should be illegal.

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giergirey 13y ago
Where do you draw the line? Some retail investors still rely on reading stock quotes in the financial section of their daily newspaper - should we force everyone to only change prices once a day?
reverend_gonzo 13y ago
HFT does not have more information. They have access to the same public information as everybody else, but they have invested in better technology and are therefore able to parse and utilize that information more efficiently. Insider trading, by its definition, is insiders trading on non-public information, that outsiders simply do not have access to for any amount of money.
- Pxtl 13y ago
  If I tell you that I know privately a piece of news about company XYZ that's about to become public tomorrow, and then you use that knowledge to trade based on how you know its shares will change, that's insider trading. If I tell you that I know privately a piece of news about company XYZ that's about to be come public in 0.25 seconds and your machine is fast-enough to parse and react to this information before that deadline, that seems pretty close to insider-trading, it's just the "insider" is the exchange itself.
  - djoldman 13y ago
    Anytime you act on information that isn't public whether it's a year or a second before it becomes public, your act is illegal. HFT's do NOT have such private information. Everyone has the same information.
  - harryh 13y ago
    If you work for company XYZ, or XYZ has hired you in some capacity only then is it insider trading. And that's because you have a fiduciary duty to XYZ that you have violated by releasing their secrets.
  - reverend_gonzo 13y ago
    If you release private information on an exchange (by for example, buying up a million shares), first, you just committed insider trading, which is illegal, and second, you just made that private information public (showing that their is a much greater demand than the market believed). Once it hits the exchange, it is public information, and anybody is now free to act on that information.
hft_throwaway 13y ago
People have to have different information or views on a market, otherwise no trade would take place except between gamblers. HFTs have no unfair advantage. Everything that they use is available publicly for a cost. It's like saying running a retail store in New York is unfair because rents are high. Is it wrong that some hedge funds or mutual funds are able to build a superior valuation of a stock through hiring more researchers? What about guys counting cars going into walmart parking lots? Everyone can do those things, but most opt not to and are at a disadvantage.
- 001sky 13y ago
  People have to have different information or views on a market, otherwise no trade would take place except between gamblers. This is wrong. The house is not a gambler.
- wavesounds 13y ago
  You could pay Bill Gates a lot of money to wear a wire for you and perhaps if the number was high enough he would do it and you could then argue that anyone could have paid Bill Gates to wear a wire and therefore everything the wire records could be public knowledge you can use to trade MSFT on. But that's illegal and we've all agreed it's illegal and its basically no different then front running in HFT.
  - djoldman 13y ago
    Everyone in this story has the same information or rather the same access to information. Anyone with know-how and the money to colocate servers at matching engine data centers has access to the same information. Aka every pension fund, insurance fund, mutual fund, wall st. bank (including Royal Bank of Canada, RBC), and prop-shop. If your definition of HFT is "people/firms who have access to more information on stocks than others" then HFT doesn't exist; notwithstanding illegal insider trading on private information, which isn't what this blog post describes.
djoldman 13y ago
Everyone in this story has the same information or rather the same access to information. Anyone with know-how and the money to colocate servers at matching engine data centers has access to the same information. Aka every pension fund, insurance fund, mutual fund, wall st. bank (including Royal Bank of Canada, RBC), and prop-shop. If your definition of HFT is "people/firms who have access to more information on stocks than others" then HFT doesn't exist; notwithstanding illegal insider trading on private information, which isn't what this blog post describes.
harryh 13y ago
> Healthy markets are markets where everyone has access to the same information. This is not true at all! People are working really hard all the time to gain information that they are the only ones they have! If I figure something out about a stock that makes me realize it's mispriced that's only valuable to me as long as that information remains non-public.
- wavesounds 13y ago
  I think you are confusing "analyzing public information in a new way" with "getting access to non-public information". The former is what all smart traders do, the latter is illegal.
  - patio11 13y ago
    Getting access to non-public information is, in fact, not illegal. Using non-public information from sources with a fiduciary duty to the company is illegal. You can create non-public information in arbitrarily complicated ways. For example, you could hire a satellite firm to put spy cams over every WalMart parking lot and then count the cars in them, then produce a report about WalMart's quarterly sales weeks before the market heard about it from WalMart. That report is non-public, right? Totally legit to trade off of. Satellite analysis of WalMart parking lots is, by the way, an actual thing. (It is an actual thing which suggests, among other things, that if you are a retail investor, you should strongly question whether you really have insight into companies which professional investors do not have.)
    - 30thElement 13y ago
      You completely missed his point about the difference between non-public information and new analysis on public information. Anyone can go and count the number of cars in a WalMart parking lot. This is new analysis on public information, not non-public information.
runeks 13y ago
> Healthy markets are markets where everyone has access to the same information. I don't want to sound condescending, but did you read the article? One of the points is that this is exactly what HFT accomplishes: Bob wants to buy a lot of Apple shares. At this point he has more information than all other market participants. He knows that in a few moments, the price of Apple shares will rise. Is the market for Apple shares -- at this point -- an unhealthy market, because Bob has access to more information about it? If Bob's large order is larger than the current number of open orders, then an HFT algorithm might see Bob's trade -- where he buys some of the stock he wants to buy -- and assume he wants to buy more, so it adjusts its orders accordingly. This very act disseminates information into the market about Bob's large order (if the HFT algo is right, if it isn't it loses money). Information about Bob's future order is now more evenly spread between market participants, though a higher ask price, reflecting Bob's large future order. The information that each participant has is now more equal than it was if no orders were adjusted, because the buying price has risen as a result.
- wavesounds 13y ago
  My point is these traders get to know things before other traders, thats not fair, everyone should see Bob's purchase order at the same time and arguing that Bob has an unfair advantage because he knows what he's going to do before the HFT's know what Bob's going to do is just silly.
  - runeks 13y ago
    > My point is these traders get to know things before other traders, thats not fair, everyone should see Bob's purchase order at the same time How is that physically possible? How can an exchange make sure that I, living in Europe, get to see Bob's order at the same time as an HFT set up in a building adjacent to the exchange? > and arguing that Bob has an unfair advantage because he knows what he's going to do before the HFTs know what Bob's going to do is just silly. I'm not arguing it's an "unfair advantage". I'm arguing that your definition of a healthy market as being one where each actor has the same knowledge is not helpful, because this is evidently the case all the time in markets -- even those that seem to work very well. At the same time I'm arguing that HFTs actually improve this situation (of market participants sharing the same information), instead of hinder it.
patio11 13y ago
Healthy markets are markets where everyone has access to the same information. If I want to sell 100,000 shares of Yelp (which is a multi-million dollar transaction), the fact that several million dollars of Yelp is about to hit the market is a really, really important bit of information. I have a reason to hide that from the rest of the market at least until I can complete my sale. HFTs profit by ascertaining my intentions faster than I can complete my intended action and then broadcasting my intentions to other market participants via the ticker tape, whereas previously my intentions were proprietary information locked in my head. An argument against HFT is, necessarily, an argument that I should be allowed to benefit from material non-public information about the near-term state of trading in Yelp.
- wavesounds 13y ago
  Your saying you should be able to front run the market because otherwise its unfair that I know what decision I'm going to make before you know what decision I'm going to make?
  - stephencanon 13y ago
    No; he’s saying that you have to choose: if you really believe that the same information should be equally available to everyone, you need to admit HFT that reacts to that information as it becomes available. It’s perfectly reasonable to argue that shouldn’t be allowed, but then you are (implicitly) arguing that either (a) complete market information should not be publicly available or (b) there should be some mechanism which prevents some individuals from acting on that information as quickly as they would like to.
    - wavesounds 13y ago
      We're talking about different things, actually responding quickly to information is not the problem, gaining access to it before other people can is, which is what Michael Lewis's book was all about. Nobody is saying Algorithmic Trading is wrong, just front-running in HFT that's the problem.
sseveran 13y ago
The trading pit that electronic trading replaced had far more potential information leakage. You can see which broker is demanding what. Also in order to get the "direct feed" you had to be an exchange member, or rent a seat from someone who was. What we have now is a far lower barrier to entry at the cost of all the existing players. And many of those players are mad.
dllthomas 13y ago
"Healthy markets are markets where everyone has access to the same information." If it's not a matter of degrees, then the speed of light means there's no such thing as a healthy market.

deleted 13y ago

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deleted 13y ago

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giergirey 13y ago

Where do you draw the line? Some retail investors still rely on reading stock quotes in the financial section of their daily newspaper - should we force everyone to only change prices once a day?

reverend_gonzo 13y ago

HFT does not have more information. They have access to the same public information as everybody else, but they have invested in better technology and are therefore able to parse and utilize that information more efficiently. Insider trading, by its definition, is insiders trading on non-public information, that outsiders simply do not have access to for any amount of money.

Pxtl 13y ago
If I tell you that I know privately a piece of news about company XYZ that's about to become public tomorrow, and then you use that knowledge to trade based on how you know its shares will change, that's insider trading. If I tell you that I know privately a piece of news about company XYZ that's about to be come public in 0.25 seconds and your machine is fast-enough to parse and react to this information before that deadline, that seems pretty close to insider-trading, it's just the "insider" is the exchange itself.
- djoldman 13y ago
  Anytime you act on information that isn't public whether it's a year or a second before it becomes public, your act is illegal. HFT's do NOT have such private information. Everyone has the same information.
- harryh 13y ago
  If you work for company XYZ, or XYZ has hired you in some capacity only then is it insider trading. And that's because you have a fiduciary duty to XYZ that you have violated by releasing their secrets.
- reverend_gonzo 13y ago
  If you release private information on an exchange (by for example, buying up a million shares), first, you just committed insider trading, which is illegal, and second, you just made that private information public (showing that their is a much greater demand than the market believed). Once it hits the exchange, it is public information, and anybody is now free to act on that information.

hft_throwaway 13y ago

People have to have different information or views on a market, otherwise no trade would take place except between gamblers. HFTs have no unfair advantage. Everything that they use is available publicly for a cost. It's like saying running a retail store in New York is unfair because rents are high. Is it wrong that some hedge funds or mutual funds are able to build a superior valuation of a stock through hiring more researchers? What about guys counting cars going into walmart parking lots? Everyone can do those things, but most opt not to and are at a disadvantage.

001sky 13y ago
People have to have different information or views on a market, otherwise no trade would take place except between gamblers. This is wrong. The house is not a gambler.
wavesounds 13y ago
You could pay Bill Gates a lot of money to wear a wire for you and perhaps if the number was high enough he would do it and you could then argue that anyone could have paid Bill Gates to wear a wire and therefore everything the wire records could be public knowledge you can use to trade MSFT on. But that's illegal and we've all agreed it's illegal and its basically no different then front running in HFT.
- djoldman 13y ago
  Everyone in this story has the same information or rather the same access to information. Anyone with know-how and the money to colocate servers at matching engine data centers has access to the same information. Aka every pension fund, insurance fund, mutual fund, wall st. bank (including Royal Bank of Canada, RBC), and prop-shop. If your definition of HFT is "people/firms who have access to more information on stocks than others" then HFT doesn't exist; notwithstanding illegal insider trading on private information, which isn't what this blog post describes.

djoldman 13y ago

Everyone in this story has the same information or rather the same access to information. Anyone with know-how and the money to colocate servers at matching engine data centers has access to the same information. Aka every pension fund, insurance fund, mutual fund, wall st. bank (including Royal Bank of Canada, RBC), and prop-shop. If your definition of HFT is "people/firms who have access to more information on stocks than others" then HFT doesn't exist; notwithstanding illegal insider trading on private information, which isn't what this blog post describes.

harryh 13y ago

> Healthy markets are markets where everyone has access to the same information. This is not true at all! People are working really hard all the time to gain information that they are the only ones they have! If I figure something out about a stock that makes me realize it's mispriced that's only valuable to me as long as that information remains non-public.

wavesounds 13y ago
I think you are confusing "analyzing public information in a new way" with "getting access to non-public information". The former is what all smart traders do, the latter is illegal.
- patio11 13y ago
  Getting access to non-public information is, in fact, not illegal. Using non-public information from sources with a fiduciary duty to the company is illegal. You can create non-public information in arbitrarily complicated ways. For example, you could hire a satellite firm to put spy cams over every WalMart parking lot and then count the cars in them, then produce a report about WalMart's quarterly sales weeks before the market heard about it from WalMart. That report is non-public, right? Totally legit to trade off of. Satellite analysis of WalMart parking lots is, by the way, an actual thing. (It is an actual thing which suggests, among other things, that if you are a retail investor, you should strongly question whether you really have insight into companies which professional investors do not have.)
  - 30thElement 13y ago
    You completely missed his point about the difference between non-public information and new analysis on public information. Anyone can go and count the number of cars in a WalMart parking lot. This is new analysis on public information, not non-public information.

runeks 13y ago

> Healthy markets are markets where everyone has access to the same information. I don't want to sound condescending, but did you read the article? One of the points is that this is exactly what HFT accomplishes: Bob wants to buy a lot of Apple shares. At this point he has more information than all other market participants. He knows that in a few moments, the price of Apple shares will rise. Is the market for Apple shares -- at this point -- an unhealthy market, because Bob has access to more information about it? If Bob's large order is larger than the current number of open orders, then an HFT algorithm might see Bob's trade -- where he buys some of the stock he wants to buy -- and assume he wants to buy more, so it adjusts its orders accordingly. This very act disseminates information into the market about Bob's large order (if the HFT algo is right, if it isn't it loses money). Information about Bob's future order is now more evenly spread between market participants, though a higher ask price, reflecting Bob's large future order. The information that each participant has is now more equal than it was if no orders were adjusted, because the buying price has risen as a result.

wavesounds 13y ago
My point is these traders get to know things before other traders, thats not fair, everyone should see Bob's purchase order at the same time and arguing that Bob has an unfair advantage because he knows what he's going to do before the HFT's know what Bob's going to do is just silly.
- runeks 13y ago
  > My point is these traders get to know things before other traders, thats not fair, everyone should see Bob's purchase order at the same time How is that physically possible? How can an exchange make sure that I, living in Europe, get to see Bob's order at the same time as an HFT set up in a building adjacent to the exchange? > and arguing that Bob has an unfair advantage because he knows what he's going to do before the HFTs know what Bob's going to do is just silly. I'm not arguing it's an "unfair advantage". I'm arguing that your definition of a healthy market as being one where each actor has the same knowledge is not helpful, because this is evidently the case all the time in markets -- even those that seem to work very well. At the same time I'm arguing that HFTs actually improve this situation (of market participants sharing the same information), instead of hinder it.

patio11 13y ago

Healthy markets are markets where everyone has access to the same information. If I want to sell 100,000 shares of Yelp (which is a multi-million dollar transaction), the fact that several million dollars of Yelp is about to hit the market is a really, really important bit of information. I have a reason to hide that from the rest of the market at least until I can complete my sale. HFTs profit by ascertaining my intentions faster than I can complete my intended action and then broadcasting my intentions to other market participants via the ticker tape, whereas previously my intentions were proprietary information locked in my head. An argument against HFT is, necessarily, an argument that I should be allowed to benefit from material non-public information about the near-term state of trading in Yelp.

wavesounds 13y ago
Your saying you should be able to front run the market because otherwise its unfair that I know what decision I'm going to make before you know what decision I'm going to make?
- stephencanon 13y ago
  No; he’s saying that you have to choose: if you really believe that the same information should be equally available to everyone, you need to admit HFT that reacts to that information as it becomes available. It’s perfectly reasonable to argue that shouldn’t be allowed, but then you are (implicitly) arguing that either (a) complete market information should not be publicly available or (b) there should be some mechanism which prevents some individuals from acting on that information as quickly as they would like to.
  - wavesounds 13y ago
    We're talking about different things, actually responding quickly to information is not the problem, gaining access to it before other people can is, which is what Michael Lewis's book was all about. Nobody is saying Algorithmic Trading is wrong, just front-running in HFT that's the problem.

sseveran 13y ago

The trading pit that electronic trading replaced had far more potential information leakage. You can see which broker is demanding what. Also in order to get the "direct feed" you had to be an exchange member, or rent a seat from someone who was. What we have now is a far lower barrier to entry at the cost of all the existing players. And many of those players are mad.

dllthomas 13y ago

"Healthy markets are markets where everyone has access to the same information." If it's not a matter of degrees, then the speed of light means there's no such thing as a healthy market.