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The vast majority of HFT trades are market making - with razor thin margins. The vast majority of profit making trades do not involve market making, however - t

The vast majority of HFT trades are market making - with razor thin margins. The vast majority of profit making trades do not involve market making, however - they usually involve trading on an information advantages, or spearing a whale (large institutional investor trying to buy or sell large amounts of stock). It's good to mix in a large dose of almost-zero-profit market making trades in with your more ethically and legally dubious trades. It helps cover your tracks - both from regulators and other market participants.

kasey_junk 12y ago
Do you have a citation for this? What does "spearing a whale" even mean? What is ethically or legally dubious about electronic market making? Please just come out and say what you think HFT is, how it works and why it is ethically or legally dubious, because your claims in this thread border on the hysterical.
- conistonwater 12y ago
  There was a rather famous incident with a trader nicknamed "London Whale", who accumulated a massive position in the CDS market, which then led JPMorgan Chase to lose immense amounts of money on the trade. The money went to those people that correctly figured out what was going on in the market. In general, if you know important information about someone else's positions, you can sometimes use that information to profitably trade against them.
  - kasey_junk 12y ago
    The London Whale did not involve HFT. In fact, it is a rather good example of how little HFT matters in the world of finance. One division at Chase (and if you believe them 1 man) cost the company more in 1 year than HFT makes in profits. The other sides of that trade were not HFT firms, but other human driven trading funds. So of course information advantages allow you to make money, that's the point of the market and it is no more unethical or illegal when an HFT makes money than it is when those human traders were on the other side of the London Whale.
- crdoconnor 12y ago
  http://www.demos.org/publication/cracks-pipeline-part-two-high-frequency-trading http://www.demos.org/publication/cracks-pipeline-part-two-hi... >A classic aggressive strategy involves hunting and trapping “whales.” It is a good example of aggressive HFT strategy. I apologize for not explaining terminology used by the financial community in laymans' terms.
  - kasey_junk 12y ago
    This blog article has huge technical problems and is not a financial community technical journal. It is in fact a political blog with it's own agenda to push. Even without these giant warning signs what they describe in this article is not illegal or unethical. After reading this article your assertion is that it is unethical and/or illegal for market makers to use standard market orders that are filled in legal and standard ways as price information signals, but it is not illegal and/or unethical for large market participants to hide their order flow with specialized orders and/or venues?
    - crdoconnor 12y ago
      >It is in fact a political blog with it's own agenda to push. It is describing a commonly used HFT trading strategy in objective terms. Your ad hominem attack on their credentials and agenda does not change this. >After reading this article your assertion is that it is unethical and/or illegal for market makers to use standard market orders that are filled in legal and standard ways as price information signals, but it is not illegal and/or unethical for large market participants to hide their order flow with specialized orders and/or venues? What was just described is detecting a large institutional order through the use of 'pinging' trades and then effectively taking advantage of that knowledge by trading ahead of it. That is NOT market making. It is not strictly speaking insider trading or front running either, but it combines features of both practices.
      - kasey_junk 12y ago
        "Your ad hominem attack on their credentials and agenda does not change this." An ad hominem attack assumes that my attack is based on an irrelevant fact about the arguer. That the arguer has no experience in, and cannot articulate a common description of the issue in question is not an ad hominem attack. Just like saying that I have no basis in describing rabbinical law and should therefore not be determining what is and is not kosher, me saying that your source doesn't know what they are talking about when it comes to electronic trading is what is important. "What was just described is detecting a large institutional order through the use of 'pinging' trades and then effectively taking advantage of that knowledge by trading ahead of it." What is described in that article is 1 market participant, using a well known and perfectly legal market means to send in orders that they want to trade and then extrapolating from the completion of those orders, information about another participant that is using highly exclusionary, extra-market venues (dark pools) to hide their desire to change the price of an instrument. That you think the market participant that is most disadvantaged in this relationship should be penalized more says more about your biases than anything else in the market dynamic.

kasey_junk 12y ago

Do you have a citation for this? What does "spearing a whale" even mean? What is ethically or legally dubious about electronic market making? Please just come out and say what you think HFT is, how it works and why it is ethically or legally dubious, because your claims in this thread border on the hysterical.

conistonwater 12y ago
There was a rather famous incident with a trader nicknamed "London Whale", who accumulated a massive position in the CDS market, which then led JPMorgan Chase to lose immense amounts of money on the trade. The money went to those people that correctly figured out what was going on in the market. In general, if you know important information about someone else's positions, you can sometimes use that information to profitably trade against them.
- kasey_junk 12y ago
  The London Whale did not involve HFT. In fact, it is a rather good example of how little HFT matters in the world of finance. One division at Chase (and if you believe them 1 man) cost the company more in 1 year than HFT makes in profits. The other sides of that trade were not HFT firms, but other human driven trading funds. So of course information advantages allow you to make money, that's the point of the market and it is no more unethical or illegal when an HFT makes money than it is when those human traders were on the other side of the London Whale.
crdoconnor 12y ago
http://www.demos.org/publication/cracks-pipeline-part-two-high-frequency-trading http://www.demos.org/publication/cracks-pipeline-part-two-hi... >A classic aggressive strategy involves hunting and trapping “whales.” It is a good example of aggressive HFT strategy. I apologize for not explaining terminology used by the financial community in laymans' terms.
- kasey_junk 12y ago
  This blog article has huge technical problems and is not a financial community technical journal. It is in fact a political blog with it's own agenda to push. Even without these giant warning signs what they describe in this article is not illegal or unethical. After reading this article your assertion is that it is unethical and/or illegal for market makers to use standard market orders that are filled in legal and standard ways as price information signals, but it is not illegal and/or unethical for large market participants to hide their order flow with specialized orders and/or venues?
  - crdoconnor 12y ago
    >It is in fact a political blog with it's own agenda to push. It is describing a commonly used HFT trading strategy in objective terms. Your ad hominem attack on their credentials and agenda does not change this. >After reading this article your assertion is that it is unethical and/or illegal for market makers to use standard market orders that are filled in legal and standard ways as price information signals, but it is not illegal and/or unethical for large market participants to hide their order flow with specialized orders and/or venues? What was just described is detecting a large institutional order through the use of 'pinging' trades and then effectively taking advantage of that knowledge by trading ahead of it. That is NOT market making. It is not strictly speaking insider trading or front running either, but it combines features of both practices.
    - kasey_junk 12y ago
      "Your ad hominem attack on their credentials and agenda does not change this." An ad hominem attack assumes that my attack is based on an irrelevant fact about the arguer. That the arguer has no experience in, and cannot articulate a common description of the issue in question is not an ad hominem attack. Just like saying that I have no basis in describing rabbinical law and should therefore not be determining what is and is not kosher, me saying that your source doesn't know what they are talking about when it comes to electronic trading is what is important. "What was just described is detecting a large institutional order through the use of 'pinging' trades and then effectively taking advantage of that knowledge by trading ahead of it." What is described in that article is 1 market participant, using a well known and perfectly legal market means to send in orders that they want to trade and then extrapolating from the completion of those orders, information about another participant that is using highly exclusionary, extra-market venues (dark pools) to hide their desire to change the price of an instrument. That you think the market participant that is most disadvantaged in this relationship should be penalized more says more about your biases than anything else in the market dynamic.