7 ms·

I'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. Simpl

I'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 ago
Then why are we seeing market demand for his service?
- mrchicity 11y ago
  Advertising 101: Fear monger. Sell solution to the fear.
- kasey_junk 11y ago
  The 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 ago
Well, 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
  Front running is already illegal.
  - msandford 11y ago
    So is the police killing someone on a "nickel ride" like what recently happened in Baltimore. But if there's no enforcement of the laws, or if the regulators disagree with the sentiment of the rest of the population, the notional illegality of such activities is of little practical value.
    - res0nat0r 11y ago
      So front running is currently rampant in every area of the NYSE and the regulators are looking the other way?
      - msandford 11y ago
        Before you try and suggest that the financial authorities are 100% competent, I would remind you that Bernie Madoff did in fact dupe many people for many years. Financial authorities included. In fact it was a non-governmental person who blew the whistle and starting the whole thing tumbling down. So I'm not saying that it's rampant and everyone is looking the other way. But it's definitely a possibility. What people are SUPPOSED to do and what they ACTUALLY do often don't overlap anywhere near enough.
    - mrchicity 11y ago
      Do you think it should be illegal to look at the order book for a stock (public info), formulate a prediction, and trade on that prediction? Seems much different than a broker trading ahead of his client. Large informed traders and intermediaries like specialists/locals/market makers have been in a cat & mouse game since the dawn of time. Back in the day, big hedge funds would split their orders through multiple brokers or try to make their intentions. It's natural that one seeks to hide his intentions and buy/sell without moving the price the other wants to get the hell out of the way or trade with the big order. That's just competition.
avz 11y ago
The fundamental idea of algorithmic trading doesn't really fall into the category of screwing-people-over. However, some techniques employed by institutions engaged in it can easily be seen as outright cheating. One common example is front running [1] where a player with access to real-time order information exploits the knowledge of pending trades from other players to turn a profit at the other players' expense. These techniques can also be used across exchanges. The issue is a consequence of the lack of market transparency. The exchanges are only required to make order information public with a significant delay. However, they sell the real-time order information to a few market players enabling them to engage in the dubious tactics at the expense of other players. Note that tactics like front running used to be employed by brokers before algorithmic trading and have since been banned. [1] https://en.wikipedia.org/wiki/Front_running https://en.wikipedia.org/wiki/Front_running
- res0nat0r 11y ago
  Front running is already illegal, so if any group is doing that they are already breaking the rules of the game, and should be punished/stopped if found out.
  - JesperRavn 11y ago
    What some HFT traders are doing is economically equivalent to front-running, but is not legally front running since they are not front running the orders of their own clients. All of this is explained in the article, so if you disagree, it would make more sense to read it, find the parts you disagree with, and argue against them, rather than skim the article and then argue with our collective rehashing of the article's argument.
    - deleted 11y ago
      [deleted]
    - mrchicity 11y ago
      That's a huge difference though. A broker owes a duty to his client not to screw him over. He's supposed to be helping the client. A prop trader has no duty to others in the market. He's their adversary. They're both competing to buy underpriced shares and sell overpriced ones.
dkfsls 11y ago
There are a few problems with that. Exchanges make it difficult to know the current price. They sell fast data feeds to HFT shops allowing them to know about price changes before the rest of the market participants. Exchanges have tons of order types, not just limit and market orders. There are order types that specifically benefit HFT shops by allowing them to pick off limit and market orders. If you put in a limit BUY order for $10 and the current price is $9.90. There is a big difference between executing at $10 vs $9.90 on large orders. If a HFT shop is able to push the price up to $10 (there are a few ways to do this), you just lost a lot of money and probably made the HFT a nice paycheck when the price reverts back to $9.90.
- kasey_junk 11y ago
  There are also order types the specifically advantage large block traders at the expense of HFT market makers. IEX only offers those interestingly, while speaking out about the others. There is also a big difference between pricing something at 9.90 when you think there is very little demand for it, and being prevented from changing the price when the demand changes.
deleted 11y ago
[deleted]

sneak 11y ago

Then why are we seeing market demand for his service?

mrchicity 11y ago
Advertising 101: Fear monger. Sell solution to the fear.
kasey_junk 11y ago
The 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 ago

Well, 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
Front running is already illegal.
- msandford 11y ago
  So is the police killing someone on a "nickel ride" like what recently happened in Baltimore. But if there's no enforcement of the laws, or if the regulators disagree with the sentiment of the rest of the population, the notional illegality of such activities is of little practical value.
  - res0nat0r 11y ago
    So front running is currently rampant in every area of the NYSE and the regulators are looking the other way?
    - msandford 11y ago
      Before you try and suggest that the financial authorities are 100% competent, I would remind you that Bernie Madoff did in fact dupe many people for many years. Financial authorities included. In fact it was a non-governmental person who blew the whistle and starting the whole thing tumbling down. So I'm not saying that it's rampant and everyone is looking the other way. But it's definitely a possibility. What people are SUPPOSED to do and what they ACTUALLY do often don't overlap anywhere near enough.
  - mrchicity 11y ago
    Do you think it should be illegal to look at the order book for a stock (public info), formulate a prediction, and trade on that prediction? Seems much different than a broker trading ahead of his client. Large informed traders and intermediaries like specialists/locals/market makers have been in a cat & mouse game since the dawn of time. Back in the day, big hedge funds would split their orders through multiple brokers or try to make their intentions. It's natural that one seeks to hide his intentions and buy/sell without moving the price the other wants to get the hell out of the way or trade with the big order. That's just competition.

avz 11y ago

The fundamental idea of algorithmic trading doesn't really fall into the category of screwing-people-over. However, some techniques employed by institutions engaged in it can easily be seen as outright cheating. One common example is front running [1] where a player with access to real-time order information exploits the knowledge of pending trades from other players to turn a profit at the other players' expense. These techniques can also be used across exchanges. The issue is a consequence of the lack of market transparency. The exchanges are only required to make order information public with a significant delay. However, they sell the real-time order information to a few market players enabling them to engage in the dubious tactics at the expense of other players. Note that tactics like front running used to be employed by brokers before algorithmic trading and have since been banned. [1] https://en.wikipedia.org/wiki/Front_running https://en.wikipedia.org/wiki/Front_running

res0nat0r 11y ago
Front running is already illegal, so if any group is doing that they are already breaking the rules of the game, and should be punished/stopped if found out.
- JesperRavn 11y ago
  What some HFT traders are doing is economically equivalent to front-running, but is not legally front running since they are not front running the orders of their own clients. All of this is explained in the article, so if you disagree, it would make more sense to read it, find the parts you disagree with, and argue against them, rather than skim the article and then argue with our collective rehashing of the article's argument.
  - deleted 11y ago
    [deleted]
  - mrchicity 11y ago
    That's a huge difference though. A broker owes a duty to his client not to screw him over. He's supposed to be helping the client. A prop trader has no duty to others in the market. He's their adversary. They're both competing to buy underpriced shares and sell overpriced ones.

dkfsls 11y ago

There are a few problems with that. Exchanges make it difficult to know the current price. They sell fast data feeds to HFT shops allowing them to know about price changes before the rest of the market participants. Exchanges have tons of order types, not just limit and market orders. There are order types that specifically benefit HFT shops by allowing them to pick off limit and market orders. If you put in a limit BUY order for $10 and the current price is $9.90. There is a big difference between executing at $10 vs $9.90 on large orders. If a HFT shop is able to push the price up to $10 (there are a few ways to do this), you just lost a lot of money and probably made the HFT a nice paycheck when the price reverts back to $9.90.

kasey_junk 11y ago
There are also order types the specifically advantage large block traders at the expense of HFT market makers. IEX only offers those interestingly, while speaking out about the others. There is also a big difference between pricing something at 9.90 when you think there is very little demand for it, and being prevented from changing the price when the demand changes.

deleted 11y ago

[deleted]