3 ms·

I find this question soooo frustrating. I mean, we live in a free ( relatively speaking ) capitalist society. Why does there have to be use to society for any

I find this question soooo frustrating. I mean, we live in a free ( relatively speaking ) capitalist society. Why does there have to be use to society for anything, unless the issue in question has negative externalities on others ?

pgeorgi 12y ago
HFT may have negative externalities on others. The money they make has to come from somewhere. For example: Buyers pay more or seller get less than they'd get without HFTs acting on the market. The (quite common) liquidity argument isn't a very good one IMHO, given that HFT have no interest in holding positions for any long time, so they won't buy what they're not reasonably sure they can sell quickly (ie. where there already is liquidity). The other argument here is that before HFT, traders wanted even larger fees. HFT can't be the cheapest possible option out there, if they can afford to lay their own fiber between continents to operate. So what is it that makes HFT desirable enough that we (as a society) shouldn't find means to make trading happen without them?
- tptacek 12y ago
  The money they make comes from a premium the market's "officers" used to extract from the market's "customers". Market officers used to scalp dimes and quarters off the price of every share transacted by deliberately quoting wide spreads. Automated traders shrunk those spreads, so much so that they're pushing the boundary of a single penny. The great thing about this is, automated traders don't capture the value they're creating by bidding the spread down: the buy-side does! Automated traders are getting paid to liberate money that used to go to fees for sell-side middle-men. The sell-side is, as you can read subtextually from _Flash Boys_, pretty furious about this.
  - pgeorgi 12y ago
    So what specific part of HFT operation makes them able to do that? Is it their own (really public) instance of Core War (https://en.wikipedia.org/wiki/Core_War https://en.wikipedia.org/wiki/Core_War)? Is it the milliseconds advantage gained through custom transatlantic fiber? If either of these aren't core to what enables them to dump prices, we could get them down even more by getting rid of these toys.
    - deleted 12y ago
      [deleted]
    - lmm 12y ago
      > So what specific part of HFT operation makes them able to do that? Lower costs by having computer programs rather than human traders. Two or three programmers can do the trading that would previously have taken a hundred traders, and there's a corresponding saving in salary/bonuses/etc. > If either of these aren't core to what enables them to dump prices, we could get them down even more by getting rid of these toys. How would you do that? Having algorithms is core to it. Having custom fiber is only core to beating the other HFTs (they can't compete on price so they compete on latency), but what are you going to do, pass a law against installing optical fibres? Prices are already as low as they're legally allowed to be (sub-penny rule). Which is what causes a lot of the weird millisecond-chasing.
- vasilipupkin 12y ago
  "The money they make has to come from somewhere" - yes, it comes from willing participants engaging in voluntary transactions. "May impose exernalities". That's pretty much true of just about anything, but good evidence is necessary to consider this statement useful

pgeorgi 12y ago

HFT may have negative externalities on others. The money they make has to come from somewhere. For example: Buyers pay more or seller get less than they'd get without HFTs acting on the market. The (quite common) liquidity argument isn't a very good one IMHO, given that HFT have no interest in holding positions for any long time, so they won't buy what they're not reasonably sure they can sell quickly (ie. where there already is liquidity). The other argument here is that before HFT, traders wanted even larger fees. HFT can't be the cheapest possible option out there, if they can afford to lay their own fiber between continents to operate. So what is it that makes HFT desirable enough that we (as a society) shouldn't find means to make trading happen without them?

tptacek 12y ago
The money they make comes from a premium the market's "officers" used to extract from the market's "customers". Market officers used to scalp dimes and quarters off the price of every share transacted by deliberately quoting wide spreads. Automated traders shrunk those spreads, so much so that they're pushing the boundary of a single penny. The great thing about this is, automated traders don't capture the value they're creating by bidding the spread down: the buy-side does! Automated traders are getting paid to liberate money that used to go to fees for sell-side middle-men. The sell-side is, as you can read subtextually from _Flash Boys_, pretty furious about this.
- pgeorgi 12y ago
  So what specific part of HFT operation makes them able to do that? Is it their own (really public) instance of Core War (https://en.wikipedia.org/wiki/Core_War https://en.wikipedia.org/wiki/Core_War)? Is it the milliseconds advantage gained through custom transatlantic fiber? If either of these aren't core to what enables them to dump prices, we could get them down even more by getting rid of these toys.
  - deleted 12y ago
    [deleted]
  - lmm 12y ago
    > So what specific part of HFT operation makes them able to do that? Lower costs by having computer programs rather than human traders. Two or three programmers can do the trading that would previously have taken a hundred traders, and there's a corresponding saving in salary/bonuses/etc. > If either of these aren't core to what enables them to dump prices, we could get them down even more by getting rid of these toys. How would you do that? Having algorithms is core to it. Having custom fiber is only core to beating the other HFTs (they can't compete on price so they compete on latency), but what are you going to do, pass a law against installing optical fibres? Prices are already as low as they're legally allowed to be (sub-penny rule). Which is what causes a lot of the weird millisecond-chasing.
vasilipupkin 12y ago
"The money they make has to come from somewhere" - yes, it comes from willing participants engaging in voluntary transactions. "May impose exernalities". That's pretty much true of just about anything, but good evidence is necessary to consider this statement useful