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How does High Frequency Trading pervert the market? They are acting as middle-men.

by rqebmm 12y ago

nitid_name 12y ago
I think the complaint against is generally that they're acting more akin to front runners than middle men.
- rqebmm 12y ago
  Either way, they're not doing market-making. Don't get me wrong, there's lots of market perverting going on, but HFT isn't party to it.
  - Retric 12y ago
    They if nothing else threy distort the market by adding noise. As in 99.9% of the time no new information is used when they make a trade.
geekpondering 12y ago
...middle-men that aren't providing any service or benefit to anyone except those that profit from those trades. These "middle-men" are injecting themselves between buyer and seller to take their cut simply because they have the money, resources, and -- increasingly these days -- the geographic location to beat someone else to the punch.
- rqebmm 12y ago
  isn't the typical benefit of a middle-man that they have the money, resources, and geographic location to help facilitate transactions?
  - geekpondering 12y ago
    HFT doesn't "facilitate transactions". What is often happening is Seller A wants to sell something for $10. Buyers B, C and D submit an order to buy it for $10. The computer sees this, knows that it might be worth more than $10, and while Buyers B and C get their orders through, the computer buys it out from under Buyer D because their computers are faster. Buyer D now gets a notice that "oh, sorry, that thing you wanted is now $11." It's the same thing as you overhearing your neighbor saying the Apple Store only has one iPhone left for sale at the Apple Store and, because you have a faster car than your neighbor, you get to the store and buy it and then offer it for resale at a higher price. That's not facilitating a transaction, and it certainly is perverting the market. When the people with the fastest computers and best geographical location get items cheapest, that's not a 'free market'. Middle-men have classically existed to provide a _service_, adding value to a previously less valuable or more difficult transaction -- wholesalers or retailers. Wholesalers existed to pare down which goods are offered, and existed primarily because smaller retailers couldn't afford to purchase in bulk. Most 'middle men' of these classes have gone away due to the digital age and/or conglomeration. Grocery stores or websites that provide value by having multiple items in the same place that you can pay for all in one financial transaction.
    - rqebmm 12y ago
      If Buyer D is still willing to spend $11, how is that perverting the market? All HFT does arbitrage, which has been around forever and only serves to make a market more efficient.
      - geekpondering 12y ago
        "If Buyer D is still willing to spend $11, how is that perverting the market?" What if Buyer D isn't willing to spend $11? "only serves to make a market more efficient" I would say it's exploiting inefficiencies. That doesn't make the market any more efficient. In fact, given the sizable number of 'computer errors' leading to significant volatility when they occur, HFT is in fact a destabilizing force in the market at times.
        12y ago

How does High Frequency Trading pervert the market? They are acting as middle-men.

by rqebmm 12y ago

How does High Frequency Trading pervert the market? They are acting as middle-men.

nitid_name 12y ago

I think the complaint against is generally that they're acting more akin to front runners than middle men.

rqebmm 12y ago
Either way, they're not doing market-making. Don't get me wrong, there's lots of market perverting going on, but HFT isn't party to it.
- Retric 12y ago
  They if nothing else threy distort the market by adding noise. As in 99.9% of the time no new information is used when they make a trade.

geekpondering 12y ago

...middle-men that aren't providing any service or benefit to anyone except those that profit from those trades. These "middle-men" are injecting themselves between buyer and seller to take their cut simply because they have the money, resources, and -- increasingly these days -- the geographic location to beat someone else to the punch.

rqebmm 12y ago
isn't the typical benefit of a middle-man that they have the money, resources, and geographic location to help facilitate transactions?
- geekpondering 12y ago
  HFT doesn't "facilitate transactions". What is often happening is Seller A wants to sell something for $10. Buyers B, C and D submit an order to buy it for $10. The computer sees this, knows that it might be worth more than $10, and while Buyers B and C get their orders through, the computer buys it out from under Buyer D because their computers are faster. Buyer D now gets a notice that "oh, sorry, that thing you wanted is now $11." It's the same thing as you overhearing your neighbor saying the Apple Store only has one iPhone left for sale at the Apple Store and, because you have a faster car than your neighbor, you get to the store and buy it and then offer it for resale at a higher price. That's not facilitating a transaction, and it certainly is perverting the market. When the people with the fastest computers and best geographical location get items cheapest, that's not a 'free market'. Middle-men have classically existed to provide a _service_, adding value to a previously less valuable or more difficult transaction -- wholesalers or retailers. Wholesalers existed to pare down which goods are offered, and existed primarily because smaller retailers couldn't afford to purchase in bulk. Most 'middle men' of these classes have gone away due to the digital age and/or conglomeration. Grocery stores or websites that provide value by having multiple items in the same place that you can pay for all in one financial transaction.
  - rqebmm 12y ago
    If Buyer D is still willing to spend $11, how is that perverting the market? All HFT does arbitrage, which has been around forever and only serves to make a market more efficient.
    - geekpondering 12y ago
      "If Buyer D is still willing to spend $11, how is that perverting the market?" What if Buyer D isn't willing to spend $11? "only serves to make a market more efficient" I would say it's exploiting inefficiencies. That doesn't make the market any more efficient. In fact, given the sizable number of 'computer errors' leading to significant volatility when they occur, HFT is in fact a destabilizing force in the market at times.
      - 12y ago