3 ms·

Which the HFT firms have earlier access to and greater ability to respond to. Can this legitimately be called fair?

harryh 13y ago
They get early access because they pay to be colocated on the exchange. Literally anyone can do this. Can you think of a more fair system than this?
- hackinthebochs 13y ago
  A system where no one can do this or that eliminates the ability to profit off of such a position. Some have suggested a minimum limit on how long one can hold a stock. Seems reasonable to me.
  - harryh 13y ago
    What do you think would happen to spreads if there was a non-trivial minimum limit on how long one could hold a stock?
    - hackinthebochs 13y ago
      Obviously they would increase. There seems to be an assumption that reduced spreads at any scale benefits the economy as a whole. On the scale of cents, I don't see how this is necessarily so. On the other hand, I can imagine there being a trivial limit as far as the wider economy is concerned, but still eliminating the benefit that colocation gives HFT firms. Do you disagree?
      - harryh 13y ago
        If you don't think that increasing spreads by a few cents would hurt the economy than why are you worried about the penny a share the HFT firms are making?
        hackinthebochs 13y ago
        Fairness is a fundamental bedrock of systems like this. Even if the amount of money HFT firms extract does not have a measurable effect on the economy, it harms trust which can have serious consequences.
        harryh 13y ago
        But people only think it's unfair because people like Michael Lewis have done such a bad job explaining it to them! They think that HFT makes them materially worse off when it, in fact, does the exact opposite. We should just cave to that misconception?
        hackinthebochs 13y ago
        But if a firm is making a big sell of a stock, as a representative of institutional investors, then it is making regular folks worse off. Misconceptions should certainly be eliminated, but the fact that HFT firms require colocation does not pass the smell test of fairness. No amount of explanations can eliminate that.
        harryh 13y ago
        Regular folks aren't buying into firms with proprietary knowledge that deeply care about trading speed. They're buying into index funds or dumb mutual funds. These sorts of funds are the ones that benefit from more accurate and faster updating prices at the expense of the Bill Ackmans & David Einhorns of the world.
        hackinthebochs 13y ago
        I don't know enough to question your point, so I'll take your word for it. But the smell test is still strong here, even if HFT is neutral or beneficial to regular folk. You'll have a hard time convincing people with a complicated argument in the face of this obvious signal for unfairness.
- nhaehnle 13y ago
  It may be fair in some sense, but it also leads to an arms race that is inherently wasteful.
stephencanon 13y ago
They're paying market rate for that information; you can too if you want to. In the previous version of wall street, it couldn’t be bought—you needed to be part of the old boys club. Are you going to argue that was more “fair”?
logn 13y ago
These aren't bribes to get the information quickly; there are actual costs involved that must be covered to transmit and process the info with high frequency. The alternative would be saying they'll only publish the information slowly (SIP, or say the morning newspaper), in which case there's an imbalance of knowledge between people placing huge orders and everyone else. Suppose we had no weather forecasts and meteorologists hoarded the information. And suppose store owners could only adjust prices each morning. Before a hurricane, meteorologists could buy up every last emergency supply within an afternoon from the stores and then sell them the next day after the hurricane at 10 times the original price. Is that fair?
- hackinthebochs 13y ago
  I don't think I understand the point you're making in your first paragraph. For your meteorology example, if such information didn't have life or death consequences, I might call it fair. But the contexts of the two scenarios are different. The stock market is inherently a bet on future prices, and so using information obtained by yourself through your own efforts cannot be seen as unfair--it is an expected property of the system. Using HFT techniques to profit off of frontrunning your demand is unfair. The "market" for items needed for survival isn't analogous.

They get early access because they pay to be colocated on the exchange. Literally anyone can do this. Can you think of a more fair system than this?

hackinthebochs 13y ago
A system where no one can do this or that eliminates the ability to profit off of such a position. Some have suggested a minimum limit on how long one can hold a stock. Seems reasonable to me.
- harryh 13y ago
  What do you think would happen to spreads if there was a non-trivial minimum limit on how long one could hold a stock?
  - hackinthebochs 13y ago
    Obviously they would increase. There seems to be an assumption that reduced spreads at any scale benefits the economy as a whole. On the scale of cents, I don't see how this is necessarily so. On the other hand, I can imagine there being a trivial limit as far as the wider economy is concerned, but still eliminating the benefit that colocation gives HFT firms. Do you disagree?
    - harryh 13y ago
      If you don't think that increasing spreads by a few cents would hurt the economy than why are you worried about the penny a share the HFT firms are making?
      - hackinthebochs 13y ago
        Fairness is a fundamental bedrock of systems like this. Even if the amount of money HFT firms extract does not have a measurable effect on the economy, it harms trust which can have serious consequences.
        harryh 13y ago
        But people only think it's unfair because people like Michael Lewis have done such a bad job explaining it to them! They think that HFT makes them materially worse off when it, in fact, does the exact opposite. We should just cave to that misconception?
        hackinthebochs 13y ago
        But if a firm is making a big sell of a stock, as a representative of institutional investors, then it is making regular folks worse off. Misconceptions should certainly be eliminated, but the fact that HFT firms require colocation does not pass the smell test of fairness. No amount of explanations can eliminate that.
        harryh 13y ago
        Regular folks aren't buying into firms with proprietary knowledge that deeply care about trading speed. They're buying into index funds or dumb mutual funds. These sorts of funds are the ones that benefit from more accurate and faster updating prices at the expense of the Bill Ackmans & David Einhorns of the world.
        hackinthebochs 13y ago
        I don't know enough to question your point, so I'll take your word for it. But the smell test is still strong here, even if HFT is neutral or beneficial to regular folk. You'll have a hard time convincing people with a complicated argument in the face of this obvious signal for unfairness.
nhaehnle 13y ago
It may be fair in some sense, but it also leads to an arms race that is inherently wasteful.

stephencanon 13y ago

They're paying market rate for that information; you can too if you want to. In the previous version of wall street, it couldn’t be bought—you needed to be part of the old boys club. Are you going to argue that was more “fair”?

logn 13y ago

These aren't bribes to get the information quickly; there are actual costs involved that must be covered to transmit and process the info with high frequency. The alternative would be saying they'll only publish the information slowly (SIP, or say the morning newspaper), in which case there's an imbalance of knowledge between people placing huge orders and everyone else. Suppose we had no weather forecasts and meteorologists hoarded the information. And suppose store owners could only adjust prices each morning. Before a hurricane, meteorologists could buy up every last emergency supply within an afternoon from the stores and then sell them the next day after the hurricane at 10 times the original price. Is that fair?

hackinthebochs 13y ago
I don't think I understand the point you're making in your first paragraph. For your meteorology example, if such information didn't have life or death consequences, I might call it fair. But the contexts of the two scenarios are different. The stock market is inherently a bet on future prices, and so using information obtained by yourself through your own efforts cannot be seen as unfair--it is an expected property of the system. Using HFT techniques to profit off of frontrunning your demand is unfair. The "market" for items needed for survival isn't analogous.