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A trading platform that outlaws what it sees as abusive practices
- Donch 11y agoRead "Flash Boys" for a better insight into how much difference variable latency between exchanges and clients makes to the profitability of fast execution of trades. https://en.wikipedia.org/wiki/Flash_Boys https://en.wikipedia.org/wiki/Flash_Boys
- tptacek 11y agoFlash Boys is a god-awful mess. Two better alternatives: Kovacs' _Flash Boys: Not So Fast_ which in the best possible way reads like a long-form ELI5 Reddit post about modern trading and all the WTFWAT moments in Lewis' book: http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F... Patterson's _Dark Pools_ which tells the story of Island and the ECNs and the advent of automated trading. Patterson is more ambivalent about HFT than Kovacs, and does a good job of explaining the Core Wars phenomenon of modern trading from '98 to the mid-'00s.
- res0nat0r 11y agoI'm no stock expert, but I still don't see how people are getting "screwed" by hft. If you are concerned about a price fluxation just place a limit order. Simple as that. If you don't care, then place a market order. There's always been someone out there with more information, smarter people, and now faster connections than you. It's never been a level playing field and will never be.
- sneak 11y agoThen why are we seeing market demand for his service?
- mrchicity 11y agoAdvertising 101: Fear monger. Sell solution to the fear.
- kasey_junk 11y agoThe cynical answer to this is good marketing and savvy backers with a vested interest in getting retail customers to trade at a disadvantage. The less cynical answer is that trading has always been a back and forth between sophisticated actors, some of which make money providing liquidity and some of which make money others ways but buying liquidity is a cost. The cheaper the latter can get from the former the better it is for them. IEX is a dark pool setup directly for the benefit of savvy hedge fund types to move large blocks of trades and pass on those costs to others. Nothing wrong with it, but their moralizing in books is a little off putting.
- blazespin 11y agoWell, you can disable front running with your own exchange which is what he is doing. And it seems to be working (he is getting liquidity, their average market share has tripled from .4% to 1.1%) This is much better than the government stepping in, so I am very glad he is doing it. We'll see if he can keep up the growth.
- res0nat0r 11y ago
- joshu 11y agoif you have continuous trading, you are going to have complicated interactions (such as outlined in the article.) instead, an occasional crossing (once a day? once an hour?) would provide much more "fairness" since everything happens at once, at the expense of "timeliness". back when I worked in this industry (a decade ago) POSIT provided something a lot like this you can't have it both ways, though.
- foobarqux 11y agoThe rest of the world is still continuous.
- JesperRavn 11y agoTheir system is not fundamentally different from discrete trading, since they have delay lines going into and out of their servers. So while everything is continuous, if you want to observe the market, then do a trade, then observe the result of that trade, etc. there is maximum rate you can do this. This is what prevents front running[0], according to my understanding. Once you submit an order, no one can react to that information within a time greater than round trip latency to the servers. The problem with crossing at discrete intervals is that it introduces new kinds of strategic considerations that make it much more complex for people to play the "game". EDIT [0] For the sake of the pedantic, I mean front running in the sense of the article at the top of this page, not the legal sense. The article defines a notion of front running that maybe not everyone agrees with, but that is what I am referring to.
- yummyfajitas 11y ago
- hackuser 11y ago'Safe' markets are valuable even for insiders, because they attract more investors and volume. People naturally want to invest where they won't be cheated. That has been forgotten in the (largely manufactured, IMHO) anti-regulation outrage. Even the big Wall Street firms should benefit from regulation that makes non-insider investors feel the market is safe enough to invest in. That said, I'm confused and my theory fails: Despite the long run of incompetence and fraud on Wall Street, its reputation as the leading place to invest and for expertise seems to persist and it has resisted regulation to a great degree. You don't hear people say, 'don't invest in the stock market because you'll be cheated'; or 'don't hire (some major Wall Street firm) because look how they cheated these other people, and they demonstrated complete incomptence in events X and Y'. Their reputation seems immune. Maybe there are no better options.
- yummyfajitas 11y agoIt's pretty silly to describe IEX as curbing "abusive" practices. What IEX is attempting to do is build a platform where large traders can move lots of shares while their smaller counterparties are stuck absorbing the price impact. This is potentially useful for large traders (e.g. Goldman, JP Morgan and Citi, as mentioned in the article) but bad for small traders. What's actually kind of "abusive" is IEX's marketing - they are encouraging unsophisticated investors to direct liquidity to them rather than having brokers route for best execution. http://www.iextrading.com/insight/letter/ http://www.iextrading.com/insight/letter/ This letter directs your broker to route your trades to IEX, rather than the best available venue. This means you may be stuck paying IEX fees - which could be greater than other venue's fees - and of course, you are providing liquidity to sharks who want to make sure you absorb the price impact of their trades.
- jasode 11y agoI think what you're saying is, in essence, IEX's current incarnation of handling stock transactions does not exist in a vacuum -- because they are only a trading technology platform instead of an exchange like NYSE & NASDAQ. As a technology platform, they are really just "clients" of other exchanges and therefore, they're the tail trying to wag the dog. If they become a full-fledged exchange with stocks listings exclusive to IEX, then those stocks would have better "fairness" characteristics that Brad Katsuyama claims. Therefore trading AAPL through IEX may incur a financial penalty for being on the "slow" IEX system but trading YC2019Unicorn stock exclusive to IEX may not.
- yummyfajitas 11y agoActually, what I'm saying is the following. Don't put resting orders out onto IEX - a big player will take your liquidity in a big trade and you'll suffer the inevitable price impact. I.e., putting your orders on IEX rather than the open market is just a way to funnel your money to JP Morgan. It's far better to mingle your orders with HFT orders - that'll keep the big guys honest. You'll probably also pay lower fees.
- tptacek 11y agoIn 2006, if I saw 100,000 shares of AMD offered, and I wanted it, I could go out and buy it. It was a simple as that. In 2007, if I tried to buy 100,000 shares, I would get 80,000. Then in 2008 I would get 60,000. The market is showing me a volume at a price that I can no longer buy or sell at. I can’t buy or sell what I see on my screen. Another way to put this: "Once upon a time, I was paid a fortune by a giant investment bank to move large blocks of stock on behalf of their spectacularly wealthy clients. As recently as 2006, if one of those clients needed me to move a block of 100,000 shares, I could do that at literally the click of a button. This despite the fact that I earned a commission on the trade; it must have been a very expensive button my bank owned! And this despite the fact that my 100,000 share order was bound to move the market, and so I was in effect acting on inside information. But that's just how this is supposed to work, right? "Anyways, the markets evolved, and my giant investment bank could no longer earn massive commissions just by pushing a single button. Even though I knew my giant hedge fund clients were going to dump vast numbers of shares on the market, depressing prices for all the other investors, the markets no longer allowed me to trivially profit from that information! My 100,000 share orders get broken into small numbers of lots just like everyone else's. No fair!" "So I started a new exchange to rewind the markets back to the glorious, equitable, fair, transparent days of 2006."
- x5n1 11y agowhose money do you think is in those hedge funds? it's all a question of what game you want to play. the players are always the same. it's capitalism after all.
- tptacek 11y agoWhose money do I think is in those hedge funds? I don't know, a whole bunch of millionaires? If the direction you're heading is "modern trading is scalping profits from pension funds and mom-and-pop mutual fund retirement plans", you'd probably want to be prepared to refute Vanguard's chief investment officer, who says HFT has in general improved outcomes for one of the world's largest and most trustworthy fund managers.
- 11y ago
- kasey_junk 11y ago> They could see my order at BATS, race me to the next exchange, and cancel all their sell orders and buy whatever is left, buy everything up, then turn around and try and sell stock back to me at a higher price. So that was the game. This is the heart of the problem with IEX's explanation of the markets, and why I think most people view HFT as unfair. But its not how cross exchange market making actually works. The HFTs are not rushing to buy up existing inventory from others who are selling it, in an attempt to screw others. They are the ones who are originally offering to sell it in the first place. They aren't rushing to buy, they are rushing to change the price of their inventory. The metaphor I like to use is that of a chain of gas stations running down a highway, owned by the same people. If a tanker truck pulls up at the first two and buys up all their gasoline, it would be perfectly reasonable for those first 2 to call ahead to the rest down the highway and tell them to raise their prices, as they clearly were being used to supply someone else's industry at lower prices than they should. That phone call is what IEX prevents, so that their customers (guys with big tanker trucks) can buy gas without impacting the price of gasoline.
- bloateddevtards 11y agoWhatever the realities of the market, people have an expectation of "fairness", and are generally against the idea of a party or parties being able to insert themselves into a situation where they can essentially get a speed jump over the rest of the market by virtue of buying a place that enables this (microwave links, colo in the exchange etc.)
- digikata 11y agoWhy would a HFT maintain a huge inventory of stocks? If you make money on the ability to execute trades faster than others on the movement of stocks, you're losing money by holding them. It feels akin to a car maker holding an overlarge inventory of parts - it's just tied up capital that's not making you money. In HFT, don't you maximize the profit by holding as few stocks for a little is possible?
- kasey_junk 11y agoThe short answer is that they have to. Resting orders from yesterday are always faster than microsecond orders from right now. So a market maker that was super fast but didn't rest orders, would be competing with one that is as fast as them and willing to rest orders. So, the resting order ones win and drive out the non-resting order ones.
- dcaisen 11y agoDan from IEX here. For folks genuinely interested in US equity market trading dynamics, this paper out of Columbia is an awesome primer. More objective than flash boys or what you'll read in the news. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2580002 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2580002