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I'm saying that if anybody can successfully predict your intentions for next year based on your observable actions to date then they have a right to the fruit o

by patio11 13y ago

I'm saying that if anybody can successfully predict your intentions for next year based on your observable actions to date then they have a right to the fruit of those labors, and that you don't have a cognizable interest in "Prevent that person from telling the rest of the world about my intentions for next year", even though that might lead to you making less money than you would but for our friend who reads actions well.

hackinthebochs 13y ago
>I'm saying that if anybody can successfully predict your intentions for next year based on your observable actions to date then they have a right to the fruit of those labors I don't see why this is so. If I have decided through some analysis that I am going to sell X shares at some date, why shouldn't that information be private? Front-running my behavior is essentially front-running my analysis. It would be unethical to hack my computer and read my analysis for yourself, so how is analyzing my behavior to get at that same information any different?
- logn 13y ago
  If you're buying a million dollars of Yelp (as posed in this hypothetical), then it's going to take some time (microseconds, minutes, months, etc) for people to realize that. For as long as no one catches on, the person making this large order has a tremendous advantage because supply-demand is misunderstood by everyone else. The market can't fairly price the stock as a result. The HFTs are saying they'll pay the money to get order info in nano-seconds so they can design algorithms to recognize these large orders and react appropriately. They make money being a middleman but the benefit for the rest of the market would be seeing a price change and also for small orders to be filled at a fairer price to supply-demand.
  - hackinthebochs 13y ago
    >For as long as no one catches on, the person making this large order has a tremendous advantage because supply-demand is misunderstood by everyone else Why is the market entitled to knowledge that I'm currently in the process of making a big order? This knowledge being disseminated clearly doesn't benefit me. Should I not be entitled to the sole benefit of my reasoning in deciding to make a big order? Furthermore, how does this knowledge being disseminated mid-order rather than after the full order has completed benefit the market as a whole?
    - dllthomas 13y ago
      Not that I think any of this outright determines how the argument should go, but a couple points: Your knowledge that you're placing an order of size X, and why you're placing an order of size X, is always going to be more precise than what's gleaned from observing your behavior, and thus you'll still have an advantage. "Furthermore, how does this knowledge being disseminated mid-order rather than after the full order has completed benefit the market as a whole?" For a large enough order in a sufficiently illiquid market, "after the full order has completed" could be days later. More things being priced in means more accurate prices, and that seems to be of some benefit to "the market as a whole." Though to be sure, the longer time frame isn't terribly relevant to the "predatory traders" across exchanges that Chris had been discussing. Edited to add: Also, the market doesn't learn anything about you in particular - orders are anonymous. What we learn directly is "a trade happened for X lots at $Y", along with possibly which side was the aggressor (depending on the exchange).
nhaehnle 13y ago
Maybe my TCS background and dabbling in mechanism design has biased me, but it seems to be that truthfulness is a desirable property from the perspective of society: It would be beneficial to have a system that is designed in a way that allows participants to state their intentions and desires truthfully, without any incentive to lie. Auction theory is all about achieving that for simple, single round auctions. Why not redesign the stock market in a similar way as well? I suppose it could make for a nice PhD thesis (or several).

by patio11 13y ago

hackinthebochs 13y ago

>I'm saying that if anybody can successfully predict your intentions for next year based on your observable actions to date then they have a right to the fruit of those labors I don't see why this is so. If I have decided through some analysis that I am going to sell X shares at some date, why shouldn't that information be private? Front-running my behavior is essentially front-running my analysis. It would be unethical to hack my computer and read my analysis for yourself, so how is analyzing my behavior to get at that same information any different?

logn 13y ago
If you're buying a million dollars of Yelp (as posed in this hypothetical), then it's going to take some time (microseconds, minutes, months, etc) for people to realize that. For as long as no one catches on, the person making this large order has a tremendous advantage because supply-demand is misunderstood by everyone else. The market can't fairly price the stock as a result. The HFTs are saying they'll pay the money to get order info in nano-seconds so they can design algorithms to recognize these large orders and react appropriately. They make money being a middleman but the benefit for the rest of the market would be seeing a price change and also for small orders to be filled at a fairer price to supply-demand.
- hackinthebochs 13y ago
  >For as long as no one catches on, the person making this large order has a tremendous advantage because supply-demand is misunderstood by everyone else Why is the market entitled to knowledge that I'm currently in the process of making a big order? This knowledge being disseminated clearly doesn't benefit me. Should I not be entitled to the sole benefit of my reasoning in deciding to make a big order? Furthermore, how does this knowledge being disseminated mid-order rather than after the full order has completed benefit the market as a whole?
  - dllthomas 13y ago
    Not that I think any of this outright determines how the argument should go, but a couple points: Your knowledge that you're placing an order of size X, and why you're placing an order of size X, is always going to be more precise than what's gleaned from observing your behavior, and thus you'll still have an advantage. "Furthermore, how does this knowledge being disseminated mid-order rather than after the full order has completed benefit the market as a whole?" For a large enough order in a sufficiently illiquid market, "after the full order has completed" could be days later. More things being priced in means more accurate prices, and that seems to be of some benefit to "the market as a whole." Though to be sure, the longer time frame isn't terribly relevant to the "predatory traders" across exchanges that Chris had been discussing. Edited to add: Also, the market doesn't learn anything about you in particular - orders are anonymous. What we learn directly is "a trade happened for X lots at $Y", along with possibly which side was the aggressor (depending on the exchange).

nhaehnle 13y ago

Maybe my TCS background and dabbling in mechanism design has biased me, but it seems to be that truthfulness is a desirable property from the perspective of society: It would be beneficial to have a system that is designed in a way that allows participants to state their intentions and desires truthfully, without any incentive to lie. Auction theory is all about achieving that for simple, single round auctions. Why not redesign the stock market in a similar way as well? I suppose it could make for a nice PhD thesis (or several).