37 ms·

I don't see how HFT does any good for anyone. It adds no real value, and serves no purpose except to shift money from someone else's pockets, not by clever inve

I don't see how HFT does any good for anyone. It adds no real value, and serves no purpose except to shift money from someone else's pockets, not by clever investment and market knowledge but pure technical advantage. It's a lot like BitCoin, it turns some expensive resource (be it CPU/GPU power or optimized data links) into money, but it doesn't help with earning/generating the money in the first place, so it just extracts it from someone else. It's a scam and should be banned worldwide. I don't know anything about trading, but I guess by making very small changes (make people hold stock for a few seconds?) you could render the whole HFT industry useless without any negative effects to the real economy.

vasilipupkin 12y ago
if you make people hold stock for a few seconds, you will increase bid/ask spreads and that extra cost will be imposed on the real economy. The cutthroat technical competition in HFT space serves the real economy by having HFT firms spend lots of money on technology, fast computers, etc.
- moreentropy 12y ago
  OK, I guessed I don't have any knowledge to propose a solution here. :) I still doubt that HFT serves the real economy in any noticable positive way. Does the HFT firm's spending on technology really outweight their effect on the traded stock? And is it aceptable that they earn money purely by gaming the system?
  - kasey_junk 12y ago
    HFT firms drive down the price of trading stocks by lowering the bid/ask spread, increasing competition amongst exchanges (especially in regards to fees), and spreading technology throughout the trading industry. There is an argument to be made that they also provide needed liquidity but it is a contentious one.
    - chrisbennet 12y ago
      I'm not sure that they actually reduce the cost of anything. I just finished reading "Flash Boys" by Michael Lewis and; as I understand it, this is how HFT works: 1. You the buyer, tell N exchanges that want to buy at a maximum price $X. 2. HFT "watches" the exchange that my bid reaches first (by milliseconds) 3. HFT traders then place themselves between you and the N-1 exchanges and offer to sell you the stock at the maximum bid price. They do this by finding the stock on those other exchanges at less than your max bid price and owning it for a fraction of a second before they sell it to you at a higher price.
      - kasey_junk 12y ago
        This is the single biggest problem with the Michael Lewis book is that it implies that this is happening without ever walking through it. What is actually happening is that: 1. HFT is quoting both buy and sell prices on every exchange. 2. A big buyer sends orders to all of the exchanges trying to buy (or sell) all of the available inventory at a given price. 3. On 1 exchange the big buyers order gets there earlier than on other exchanges, triggering a transaction with the HFT. 4. The HFT uses that transaction as a price signal to change their prices on all the other exchanges and if they are faster than the big buyer, the big buyer cannot take advantage of the lower price. There is no middleman buying from 1 place and selling to another and driving up the price. What this sort of price signaling does is allow the HFT to quote smaller spreads in the more common case, when 1 participant is not trying to wipe out all of the liquidity in the market at a given price point.
        nkurz 12y ago
        I'm ignorant and only working from first principles, while you seem knowledgeable about actual practice. In your explanation, the fastest HFT knows before anyone else that the someone is buying large quantities of a stock at Exchange A at a price higher than the ask at Exchange B. From this, they know to raise their asking price at B, since they (and no one else) know that there is a buyer willing to pay a higher price. This makes sense, and they would make some money doing this. But why wouldn't they also buy up all the stock at B that is priced less than transaction price they observed at A? If they do, they (hopefully) get to quickly resell it for a slightly higher price. If they don't, much of the order from the big buyer they are counting on will be filled with lower priced stock from their slower competitors, and they will make less money. There is no middleman buying from 1 place and selling to another and driving up the price. If they have the knowledge and they ability, why wouldn't they? I'd think it would be in their financial interest to do so. Or is your point that they are indeed doing what would normally be called "frontrunning", but that the knowledge comes from one exchange while the transactions all take place at another?
  - mlrtime 12y ago
    "I don't know anything about trading" Why do you feel so strongly about banning a practice that you admit know nothing about? Is this just a gut feeling?
    - moreentropy 12y ago
      Actually yes, it's a gut feeling and I think it's justified. I can totally understand the general idea of stock trading and how it helps both those who have good ideas and need money and those who have the money and invest it according to their taste. But it's very hard for me to believe that something like HFT where firms go to unbelievable lengths to implement purely technological trading advantages benefit the real economy. The fact that financial industry as a whole just recently in the 2008/2009 crash and it's aftermath were able to extract obscene amounts of money from our governments (i.e. us) to keep the world's finance system from collapsing makes the suspection that most financial products purely based on a material advantage (be it monetary or technological) are akin to a scam very reasonable.
      - kasey_junk 12y ago
        "I can totally understand the general idea of stock trading and how it helps both those who have good ideas and need money and those who have the money and invest it according to their taste." This is a cognitive bias that is very prevalent (for obvious reasons) on HN. The markets are not primarily vehicles for moving money from investors to enterprises. Another important, and probably dominant, purpose of the markets is to accurately price and allow the buying and selling of risk. This is neither a new or unexpected phenomenon. "But it's very hard for me to believe that something like HFT where firms go to unbelievable lengths to implement purely technological trading advantages benefit the real economy." This is because of your cognitive bias and your ignorance (I mean this in the non-perjorative sense that you haven't investigated this). HFT firms, like any other trading participant, smooth demand curves generated either in time (buying from a participant now and selling later), venue (buying in one place and selling in another), or other ways. This allows other participants, who are not interested in being traders to hedge their risk more efficiently and thus more cheaply. "The fact that financial industry as a whole just recently in the 2008/2009 crash and it's aftermath were able to extract obscene amounts of money from our governments (i.e. us) to keep the world's finance system from collapsing makes the suspection that most financial products purely based on a material advantage (be it monetary or technological) are akin to a scam very reasonable." And now we see why gut feelings are dangerous in this discussion. You rightly feel deeply troubled by the big bailouts that cost all of us to the advantage of a very powerful few, and you correlate that with HFT. When in fact, HFT did not receive any bailouts and for the most part small independent shops without the size or power to engineer them. The 2008/2009 crash was based on non-HFT traded instruments where single deals could dwarf the entirety of the HFT industry.
  - tptacek 12y ago
    What "effect on trading stock"? The benefits of automated trading are not abstract: you can go ask Google for spreads from the 1980s to 2010 and see the impact.
- jal278 12y ago
  Perhaps spreads will increase -- but that 'extra cost' seems pretty trivial: Stock trading worked just fine when those spreads were larger. The average citizen isn't reaping the benefits of lower spreads, perhaps financial firms are, perhaps corporations are? I'd say the larger disservice of HFT is funneling resources away from anything with real concrete meaning into this strange invented money-shuffling game in the financial world. A big drain on the potential of society's best and brightest is that many are drawn to chase money in silicon valley or in the financial world. And both options often serve to create a sort of technological bubble in which the idea of increasing 'real human value' can be lost.
  - rch 12y ago
    It is nice to have a commercially viable use for compelling technology that is separate from the military-industrial complex though. Even well funded development stage pharmaceutical companies can have a hard time investing in speculative ideas on the hardware/software front.
  - icebraining 12y ago
    If the best and brightest are working on it, what makes you more competent to judge that they shouldn't?
    - rasz_pl 12y ago
      best and brightest worked on atom bomb
      - icebraining 12y ago
        And everyone else (85% of the population) supported it. Is your point that a minority of average people should decide?
      - cellis 12y ago
        The invention of the atomic bomb has stopped superpowers armed to the teeth with conventional weapons from fighting each other in massive land wars every 10-20 years.
- diydsp 12y ago
  Yes, and putting everyone in jail serves the real economy by creating jobs building jails. And if we researched ways to torture people, the economy for grails and iron maidens will double maybe triple overnight! ...Just because HFT serves the economic interests of two narrow groups (traders and computer vendors) doesn't it mean it benefits the larger economy, nor does it justify it morally to the remainder of the population whose economic futures are tied up in it.
  - gnaritas 12y ago
    Lowering spreads and creating liquidity helps everyone who participates in the market, not just those two groups.
    - diydsp 12y ago
      > creating liquidity I'd like to point out that is not a fact, but a debatable point. [0] [0] http://www.economist.com/debate/days/view/817/showCommentModule:1 http://www.economist.com/debate/days/view/817/showCommentMod...
      - gnaritas 12y ago
        Actually it's a fact that they're doing that since they're playing the spread and by definition that means offering liquidity. The debatable point of course is whether it counts since they might yank all liquidity in response to unexpected movements and thus weren't offering usable liquidity.
        harry8 12y ago
        Liquidity is that which isn't there when you need it by definition. Unexpected movement always reduces liquidity. The only interesting question is is the spread tighter when I want to trade in the presence of HFT or in its absence. Then you look at all the times that non-liquidity providers may want to buy and sell and determine that. As far as I know it's almost always a tighter spread in the presence of HFT. So when you buy you buy cheaper and when you sell you sell for more money. The profit from market making shifts from know nothing sons of friends of the brokerage's CEO to those who can compete at something real. Everyone except those whose Daddies can get them high paying jobs wins. Financial market function more efficiently making it easer for smart people to get funding to do promising ventures. Incumbents, eh, annoying when the gravy train loses steam, really annoying.
gnaritas 12y ago
> I don't know anything about trading Then why do you have such strong opinions about trading methods like HFT?
lifeformed 12y ago
If I understand it correctly, bitcoin mining power is spent verifying transactions. That's useful, isn't it?
Mikeb85 12y ago
HFT is basically just computerised market making. Market making increases liquidity and reduces spread, which is fantastic for small investors. HFT is the reason I can personally put in an order and have it executed within 10 seconds without the price moving much. I've traded on markets with little to no liquidity, it sucks. You wait half a day for your order to fill only to have the price significantly move against you...
- avn2109 12y ago
  >> "HFT is basically just computerised market making." Except that they are not real-deal market makers, haven't signed those contracts with the exchange, etc. Which means when times are tough, HFT's and their liquidity will vanish very quickly. And that's exactly when we need them.

vasilipupkin 12y ago

if you make people hold stock for a few seconds, you will increase bid/ask spreads and that extra cost will be imposed on the real economy. The cutthroat technical competition in HFT space serves the real economy by having HFT firms spend lots of money on technology, fast computers, etc.

moreentropy 12y ago
OK, I guessed I don't have any knowledge to propose a solution here. :) I still doubt that HFT serves the real economy in any noticable positive way. Does the HFT firm's spending on technology really outweight their effect on the traded stock? And is it aceptable that they earn money purely by gaming the system?
- kasey_junk 12y ago
  HFT firms drive down the price of trading stocks by lowering the bid/ask spread, increasing competition amongst exchanges (especially in regards to fees), and spreading technology throughout the trading industry. There is an argument to be made that they also provide needed liquidity but it is a contentious one.
  - chrisbennet 12y ago
    I'm not sure that they actually reduce the cost of anything. I just finished reading "Flash Boys" by Michael Lewis and; as I understand it, this is how HFT works: 1. You the buyer, tell N exchanges that want to buy at a maximum price $X. 2. HFT "watches" the exchange that my bid reaches first (by milliseconds) 3. HFT traders then place themselves between you and the N-1 exchanges and offer to sell you the stock at the maximum bid price. They do this by finding the stock on those other exchanges at less than your max bid price and owning it for a fraction of a second before they sell it to you at a higher price.
    - kasey_junk 12y ago
      This is the single biggest problem with the Michael Lewis book is that it implies that this is happening without ever walking through it. What is actually happening is that: 1. HFT is quoting both buy and sell prices on every exchange. 2. A big buyer sends orders to all of the exchanges trying to buy (or sell) all of the available inventory at a given price. 3. On 1 exchange the big buyers order gets there earlier than on other exchanges, triggering a transaction with the HFT. 4. The HFT uses that transaction as a price signal to change their prices on all the other exchanges and if they are faster than the big buyer, the big buyer cannot take advantage of the lower price. There is no middleman buying from 1 place and selling to another and driving up the price. What this sort of price signaling does is allow the HFT to quote smaller spreads in the more common case, when 1 participant is not trying to wipe out all of the liquidity in the market at a given price point.
      - nkurz 12y ago
        I'm ignorant and only working from first principles, while you seem knowledgeable about actual practice. In your explanation, the fastest HFT knows before anyone else that the someone is buying large quantities of a stock at Exchange A at a price higher than the ask at Exchange B. From this, they know to raise their asking price at B, since they (and no one else) know that there is a buyer willing to pay a higher price. This makes sense, and they would make some money doing this. But why wouldn't they also buy up all the stock at B that is priced less than transaction price they observed at A? If they do, they (hopefully) get to quickly resell it for a slightly higher price. If they don't, much of the order from the big buyer they are counting on will be filled with lower priced stock from their slower competitors, and they will make less money. There is no middleman buying from 1 place and selling to another and driving up the price. If they have the knowledge and they ability, why wouldn't they? I'd think it would be in their financial interest to do so. Or is your point that they are indeed doing what would normally be called "frontrunning", but that the knowledge comes from one exchange while the transactions all take place at another?
- mlrtime 12y ago
  "I don't know anything about trading" Why do you feel so strongly about banning a practice that you admit know nothing about? Is this just a gut feeling?
  - moreentropy 12y ago
    Actually yes, it's a gut feeling and I think it's justified. I can totally understand the general idea of stock trading and how it helps both those who have good ideas and need money and those who have the money and invest it according to their taste. But it's very hard for me to believe that something like HFT where firms go to unbelievable lengths to implement purely technological trading advantages benefit the real economy. The fact that financial industry as a whole just recently in the 2008/2009 crash and it's aftermath were able to extract obscene amounts of money from our governments (i.e. us) to keep the world's finance system from collapsing makes the suspection that most financial products purely based on a material advantage (be it monetary or technological) are akin to a scam very reasonable.
    - kasey_junk 12y ago
      "I can totally understand the general idea of stock trading and how it helps both those who have good ideas and need money and those who have the money and invest it according to their taste." This is a cognitive bias that is very prevalent (for obvious reasons) on HN. The markets are not primarily vehicles for moving money from investors to enterprises. Another important, and probably dominant, purpose of the markets is to accurately price and allow the buying and selling of risk. This is neither a new or unexpected phenomenon. "But it's very hard for me to believe that something like HFT where firms go to unbelievable lengths to implement purely technological trading advantages benefit the real economy." This is because of your cognitive bias and your ignorance (I mean this in the non-perjorative sense that you haven't investigated this). HFT firms, like any other trading participant, smooth demand curves generated either in time (buying from a participant now and selling later), venue (buying in one place and selling in another), or other ways. This allows other participants, who are not interested in being traders to hedge their risk more efficiently and thus more cheaply. "The fact that financial industry as a whole just recently in the 2008/2009 crash and it's aftermath were able to extract obscene amounts of money from our governments (i.e. us) to keep the world's finance system from collapsing makes the suspection that most financial products purely based on a material advantage (be it monetary or technological) are akin to a scam very reasonable." And now we see why gut feelings are dangerous in this discussion. You rightly feel deeply troubled by the big bailouts that cost all of us to the advantage of a very powerful few, and you correlate that with HFT. When in fact, HFT did not receive any bailouts and for the most part small independent shops without the size or power to engineer them. The 2008/2009 crash was based on non-HFT traded instruments where single deals could dwarf the entirety of the HFT industry.
- tptacek 12y ago
  What "effect on trading stock"? The benefits of automated trading are not abstract: you can go ask Google for spreads from the 1980s to 2010 and see the impact.
jal278 12y ago
Perhaps spreads will increase -- but that 'extra cost' seems pretty trivial: Stock trading worked just fine when those spreads were larger. The average citizen isn't reaping the benefits of lower spreads, perhaps financial firms are, perhaps corporations are? I'd say the larger disservice of HFT is funneling resources away from anything with real concrete meaning into this strange invented money-shuffling game in the financial world. A big drain on the potential of society's best and brightest is that many are drawn to chase money in silicon valley or in the financial world. And both options often serve to create a sort of technological bubble in which the idea of increasing 'real human value' can be lost.
- rch 12y ago
  It is nice to have a commercially viable use for compelling technology that is separate from the military-industrial complex though. Even well funded development stage pharmaceutical companies can have a hard time investing in speculative ideas on the hardware/software front.
- icebraining 12y ago
  If the best and brightest are working on it, what makes you more competent to judge that they shouldn't?
  - rasz_pl 12y ago
    best and brightest worked on atom bomb
    - icebraining 12y ago
      And everyone else (85% of the population) supported it. Is your point that a minority of average people should decide?
    - cellis 12y ago
      The invention of the atomic bomb has stopped superpowers armed to the teeth with conventional weapons from fighting each other in massive land wars every 10-20 years.
diydsp 12y ago
Yes, and putting everyone in jail serves the real economy by creating jobs building jails. And if we researched ways to torture people, the economy for grails and iron maidens will double maybe triple overnight! ...Just because HFT serves the economic interests of two narrow groups (traders and computer vendors) doesn't it mean it benefits the larger economy, nor does it justify it morally to the remainder of the population whose economic futures are tied up in it.
- gnaritas 12y ago
  Lowering spreads and creating liquidity helps everyone who participates in the market, not just those two groups.
  - diydsp 12y ago
    > creating liquidity I'd like to point out that is not a fact, but a debatable point. [0] [0] http://www.economist.com/debate/days/view/817/showCommentModule:1 http://www.economist.com/debate/days/view/817/showCommentMod...
    - gnaritas 12y ago
      Actually it's a fact that they're doing that since they're playing the spread and by definition that means offering liquidity. The debatable point of course is whether it counts since they might yank all liquidity in response to unexpected movements and thus weren't offering usable liquidity.
      - harry8 12y ago
        Liquidity is that which isn't there when you need it by definition. Unexpected movement always reduces liquidity. The only interesting question is is the spread tighter when I want to trade in the presence of HFT or in its absence. Then you look at all the times that non-liquidity providers may want to buy and sell and determine that. As far as I know it's almost always a tighter spread in the presence of HFT. So when you buy you buy cheaper and when you sell you sell for more money. The profit from market making shifts from know nothing sons of friends of the brokerage's CEO to those who can compete at something real. Everyone except those whose Daddies can get them high paying jobs wins. Financial market function more efficiently making it easer for smart people to get funding to do promising ventures. Incumbents, eh, annoying when the gravy train loses steam, really annoying.

gnaritas 12y ago

> I don't know anything about trading Then why do you have such strong opinions about trading methods like HFT?

lifeformed 12y ago

If I understand it correctly, bitcoin mining power is spent verifying transactions. That's useful, isn't it?

Mikeb85 12y ago

HFT is basically just computerised market making. Market making increases liquidity and reduces spread, which is fantastic for small investors. HFT is the reason I can personally put in an order and have it executed within 10 seconds without the price moving much. I've traded on markets with little to no liquidity, it sucks. You wait half a day for your order to fill only to have the price significantly move against you...

avn2109 12y ago
>> "HFT is basically just computerised market making." Except that they are not real-deal market makers, haven't signed those contracts with the exchange, etc. Which means when times are tough, HFT's and their liquidity will vanish very quickly. And that's exactly when we need them.