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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

by 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
        While I agree with some of your points, I don't see how they relate to the conversation you stepped into. > The only interesting question is is the spread tighter when I want to trade in the presence of HFT or in its absence. There's never only one interesting question, so that's not correct. If you're seeing liquidity that disappears the second you try and touch it, it's an arguable point that's it's not real liquidity.
        harry8 12y ago
        If you genuinely can't hit a price being shown, ever; I'd call that market a fraud. A spread you literally can't ever trade is not a spread it's a lie. I've never seen any evidence of it. And it should be really easy to spot. Spread width n millis before execution. Spread at execution. IF the latter is consistently wider it's not a market it's a con, take your business elsewhere. Of course with two players vying to be at the front of the queue showing the tightest possible price, well spying on your ioc order and backing off just means you make no money. Competition is good like that. Only one market maker in a market? Yeah that's always been a problem and likely a worse one when it's some rich, fat bastard who knows it, knows you and can rip your face off. And they do. Michael Lewis made a career out of documenting it. In the Big Short, in Liars Poker etc. etc. But it doesn't seem to happen when there's HFT does it because if you quote a market like that you make no trades and someone else gets the pennies on offer. The actual spread that you can actually trade when you want to trade is the only thing that is interesting when discussing liquidity. No really. If that spread that you actually can trade is wider it's more expensive, if it's tighter it's less expensive to transact in the market. The rest is a load of BS. And smelly BS. That spread that you can actually trade has been shown to be consistently tighter in the presence of HFT. Evidence showing otherwise is something, we all will be very interested in.
        gnaritas 12y ago
        > If you genuinely can't hit a price being shown, ever; I'd call that market a fraud. Which is exactly what many are complaining about; welcome to the conversation. > Spread width n millis before execution. Spread at execution. IF the latter is consistently wider it's not a market it's a con, take your business elsewhere. Again, that's the complaint they have, see, you do understand the debate.
exelius 12y ago
HFT doesn't move markets; it simply takes advantage of the lag between information becoming available and the market's response. By doing this, HFT makes the market respond to information faster. This is how arbitrage works. If there is an inefficiency in the market (e.g. the speed with which the market reacts to information), someone can take advantage of it. By taking advantage of it, the inefficiency disappears. Eventually, the arbitrage becomes commoditized and the "value" of the arbitrage situation is a few points above the cost of the solution. You can't apply morality to financial markets. All investments carry risk, and its up to each individual investor to choose securities in line with their personal risk tolerance. If the investor doesn't understand the risks involved in a security, they shouldn't be making investment decisions, full stop. If you're like the majority of US retail investors, you're buying a stock and holding it for a long time. HFT doesn't really affect you in that case, because they play both short and long positions alternated many times throughout the day, yet averaged over a period of time it's a zero sum game. A good analogy to think of are Riemann sums vs. integrals in calculus. The actual movement of the market is the curve, but you don't know the formula of the curve and you need to measure the area under it. So you approximate the curve by sampling a number of points (the current price of the stock at any given moment) and calculating the distance from the axis. HFT effectively allows you to sample more points, getting a more accurate result by removing "arbitrage" (or space between the sampled points and the actual curve).

by diydsp 12y ago

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
      While I agree with some of your points, I don't see how they relate to the conversation you stepped into. > The only interesting question is is the spread tighter when I want to trade in the presence of HFT or in its absence. There's never only one interesting question, so that's not correct. If you're seeing liquidity that disappears the second you try and touch it, it's an arguable point that's it's not real liquidity.
      - harry8 12y ago
        If you genuinely can't hit a price being shown, ever; I'd call that market a fraud. A spread you literally can't ever trade is not a spread it's a lie. I've never seen any evidence of it. And it should be really easy to spot. Spread width n millis before execution. Spread at execution. IF the latter is consistently wider it's not a market it's a con, take your business elsewhere. Of course with two players vying to be at the front of the queue showing the tightest possible price, well spying on your ioc order and backing off just means you make no money. Competition is good like that. Only one market maker in a market? Yeah that's always been a problem and likely a worse one when it's some rich, fat bastard who knows it, knows you and can rip your face off. And they do. Michael Lewis made a career out of documenting it. In the Big Short, in Liars Poker etc. etc. But it doesn't seem to happen when there's HFT does it because if you quote a market like that you make no trades and someone else gets the pennies on offer. The actual spread that you can actually trade when you want to trade is the only thing that is interesting when discussing liquidity. No really. If that spread that you actually can trade is wider it's more expensive, if it's tighter it's less expensive to transact in the market. The rest is a load of BS. And smelly BS. That spread that you can actually trade has been shown to be consistently tighter in the presence of HFT. Evidence showing otherwise is something, we all will be very interested in.
        gnaritas 12y ago
        > If you genuinely can't hit a price being shown, ever; I'd call that market a fraud. Which is exactly what many are complaining about; welcome to the conversation. > Spread width n millis before execution. Spread at execution. IF the latter is consistently wider it's not a market it's a con, take your business elsewhere. Again, that's the complaint they have, see, you do understand the debate.

exelius 12y ago

HFT doesn't move markets; it simply takes advantage of the lag between information becoming available and the market's response. By doing this, HFT makes the market respond to information faster. This is how arbitrage works. If there is an inefficiency in the market (e.g. the speed with which the market reacts to information), someone can take advantage of it. By taking advantage of it, the inefficiency disappears. Eventually, the arbitrage becomes commoditized and the "value" of the arbitrage situation is a few points above the cost of the solution. You can't apply morality to financial markets. All investments carry risk, and its up to each individual investor to choose securities in line with their personal risk tolerance. If the investor doesn't understand the risks involved in a security, they shouldn't be making investment decisions, full stop. If you're like the majority of US retail investors, you're buying a stock and holding it for a long time. HFT doesn't really affect you in that case, because they play both short and long positions alternated many times throughout the day, yet averaged over a period of time it's a zero sum game. A good analogy to think of are Riemann sums vs. integrals in calculus. The actual movement of the market is the curve, but you don't know the formula of the curve and you need to measure the area under it. So you approximate the curve by sampling a number of points (the current price of the stock at any given moment) and calculating the distance from the axis. HFT effectively allows you to sample more points, getting a more accurate result by removing "arbitrage" (or space between the sampled points and the actual curve).