4 ms·

Being faster is rigging the market? How does that work? Also, it isn't called front running, at least not legally. It can't be, HFT don't have any customers. M

by Bootvis 12y ago

Being faster is rigging the market? How does that work? Also, it isn't called front running, at least not legally. It can't be, HFT don't have any customers. Maybe Michael Lewis has a different definition of front running but for the rest of us: words have a meaning. http://en.wikipedia.org/wiki/Front_running http://en.wikipedia.org/wiki/Front_running

spacefight 12y ago
HFT might not have direct customers per se, but if an order matches, they have a counterpart on each trade they make. If you have an unfair advantage for that trade, what would you call that system? Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). On the term, you're right - front running might not have been the correct therm.
- wdewind 12y ago
  > Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). I can't personally afford to have a Bloomberg feed in my living room to trade off of. Why is this any different?
  - spacefight 12y ago
    Neither can I. Do you feel having the same fair market access without the BB terminal at your disposal?
    - tptacek 12y ago
      Does it upset you when you go to buy a car to think that Avis can buy that car at a gigantic discount because they buy in bulk?
      - spacefight 12y ago
        I like where this is going :) I know, I have a choice of buying a car or participating with my own money on the stock market. I have no choice if the pension fund where I work at is investing in blue chips.
        tptacek 12y ago
        Once again, this time with feeling: HFT firms don't prey on pension funds, mutual funds, or value investors. They improve things for those kinds of investors. HFT firms prey on other sell-side firms.
      - ldng 12y ago
        But it does if I have to buy it at higher price just because Avis knew a that I and a few fellows where to buy the car 2 min in advance because he saw us asking about that car, bought the available stock of car we were interested in to the car dealer, propose them at a slight premium to the the car dealer who then finally sell it to me and my fellow 1 minute later at another premium because, you know, it has to make its own margin. The whole thing happening just under my nose. That's how I (unobjectively I concede) feel about HFT.
        tptacek 12y ago
        Ok, now let's take that thought experiment and make it closer to the real world: Imagine that Avis is buying cars in bulk and getting better deals as a result, and then imagine that the knock-on effect of them doing that is that you get better deals on cars because of how they change the way the car market works. Car dealerships are, for obvious reasons, really fucking upset about this. And they are noisy and well-funded. Normal people start getting angry at the giant rental car companies and the unfair advantage they get, unaware of the fact that without those companies, they'd be getting screwed even worse by the dealerships. That's what HFT does to normal investors. You don't have to take my word for it; the Chief Investment Officer at Vanguard, among many other people, has said exactly this.
        jiggy2011 12y ago
- kasey_junk 12y ago
  Every trade that happens in every market in the world can be viewed from a game theory perspective as adversarial. In the absence of other outside factors each trade in isolation is a zero sum game, that is 1 counter party will make money on the trade while another loses (at least in the form of opportunity cost). In this adversarial encounter it is expected and encouraged for all counter parties to strive for unfair advantages. Some do this by using vast swaths of overworked and underpaid ivy league grads to do market research for them. Some do this by using massive amounts of leverage others do it by being fast, some use illegally obtained proprietary information and still others do it via mobbed up boiler rooms. Some of that unfair advantage we have deemed illegal and others we have deemed legal. The point is, the existence of an advantage in a trade is a necessary condition for the market to operate correctly, not evidence of it being rigged. You will notice that the "big" players in HFT are much smaller than the people they are taking advantage of, the giant hedge funds. The HFT competitors have access to the same technology, technologists, exchange access and microwave networks. Further, they have better access to capital and legislative power, not to mention access to best selling authors.

by Bootvis 12y ago

spacefight 12y ago

HFT might not have direct customers per se, but if an order matches, they have a counterpart on each trade they make. If you have an unfair advantage for that trade, what would you call that system? Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). On the term, you're right - front running might not have been the correct therm.

wdewind 12y ago
> Rigged? That's what the big players in the HFT field are doing by using the various tools available (near-location, co-location, fast networks, fast custom hardware and lately microwave networks). I can't personally afford to have a Bloomberg feed in my living room to trade off of. Why is this any different?
- spacefight 12y ago
  Neither can I. Do you feel having the same fair market access without the BB terminal at your disposal?
  - tptacek 12y ago
    Does it upset you when you go to buy a car to think that Avis can buy that car at a gigantic discount because they buy in bulk?
    - spacefight 12y ago
      I like where this is going :) I know, I have a choice of buying a car or participating with my own money on the stock market. I have no choice if the pension fund where I work at is investing in blue chips.
      - tptacek 12y ago
        Once again, this time with feeling: HFT firms don't prey on pension funds, mutual funds, or value investors. They improve things for those kinds of investors. HFT firms prey on other sell-side firms.
    - ldng 12y ago
      But it does if I have to buy it at higher price just because Avis knew a that I and a few fellows where to buy the car 2 min in advance because he saw us asking about that car, bought the available stock of car we were interested in to the car dealer, propose them at a slight premium to the the car dealer who then finally sell it to me and my fellow 1 minute later at another premium because, you know, it has to make its own margin. The whole thing happening just under my nose. That's how I (unobjectively I concede) feel about HFT.
      - tptacek 12y ago
        Ok, now let's take that thought experiment and make it closer to the real world: Imagine that Avis is buying cars in bulk and getting better deals as a result, and then imagine that the knock-on effect of them doing that is that you get better deals on cars because of how they change the way the car market works. Car dealerships are, for obvious reasons, really fucking upset about this. And they are noisy and well-funded. Normal people start getting angry at the giant rental car companies and the unfair advantage they get, unaware of the fact that without those companies, they'd be getting screwed even worse by the dealerships. That's what HFT does to normal investors. You don't have to take my word for it; the Chief Investment Officer at Vanguard, among many other people, has said exactly this.
      - jiggy2011 12y ago
kasey_junk 12y ago
Every trade that happens in every market in the world can be viewed from a game theory perspective as adversarial. In the absence of other outside factors each trade in isolation is a zero sum game, that is 1 counter party will make money on the trade while another loses (at least in the form of opportunity cost). In this adversarial encounter it is expected and encouraged for all counter parties to strive for unfair advantages. Some do this by using vast swaths of overworked and underpaid ivy league grads to do market research for them. Some do this by using massive amounts of leverage others do it by being fast, some use illegally obtained proprietary information and still others do it via mobbed up boiler rooms. Some of that unfair advantage we have deemed illegal and others we have deemed legal. The point is, the existence of an advantage in a trade is a necessary condition for the market to operate correctly, not evidence of it being rigged. You will notice that the "big" players in HFT are much smaller than the people they are taking advantage of, the giant hedge funds. The HFT competitors have access to the same technology, technologists, exchange access and microwave networks. Further, they have better access to capital and legislative power, not to mention access to best selling authors.