Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why Do High-Frequency Traders Cancel So Many Orders?

bloombergview.com

Post reply on HN
Print view View original

41–50 of 247 posts

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#41

Post by RockyMcNuts »

mkinitcpio wrote: post #17

Disclaimer: I work in HFT The article uses the term "front-running" incorrectly. Front-running is where a firm places their own trades ahead of trades they're placing for a client, to capitalize on the price movement that client order might generate. This is illegal. What the market makers in the article are doing isn't front-running. It's just being smart with their orders. And that's generally why HFTs cancel order…

I always assumed it was to obfuscate strategies and mess with other HFTs...kind of like in poker you bet based on probability of what the other guy will do, in conjunction with your hand.

Market conditions of real money players don't change in micro-seconds. For some reason this flapping of HFT strategies is a Nash equilibrium among the HFTs.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#42

Post by gbhn »

Something this article ignores, and which is ignored by most articles on HFT, is that the process is ilegible to the public. "No no we're doing you a favor!" is not reassuring when the activity consumes a bunch of resources on zero sum activity.

Ultimately investing runs on trust. HFT is consuming public trust in the financial system at a prodigious rate. Is it a trillion dollars a year? A billion? Hard to be sure. But it certainly isn't clear the tiny market-making improvements are worth it.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#43

Post by harryh »

gbhn wrote: post #42

Something this article ignores, and which is ignored by most articles on HFT, is that the process is ilegible to the public. "No no we're doing you a favor!" is not reassuring when the activity consumes a bunch of resources on zero sum activity. Ultimately investing runs on trust. HFT is consuming public trust in the financial system at a prodigious rate. Is it a trillion dollars a year? A billion? Hard to be sure. B…

Lots of things are illegible to the public. Explain to me all the processes involved in building the smart phone in your pocket. You can't. I can't. Probably no single person in the world can. Who cares?

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#44

Post by jameshart »

mkinitcpio wrote: post #30
yummyfajitas wrote: post #22

Earlier quoted context omitted.

The author put "front-running" in scare quotes for a reason. See footnote 6, where he explains he's using the term in the Michael Lewis/IEX sense.

Ah, I read that but didn't parse it as the author trying to make the distinction between (misnamed) "front-running" and actual front-running. Probably still worth pointing out, since one of the activities is illegal and harmful (uses non-public information) and the other is just reacting quickly to the public market information.

One of Matt Levine's consistent themes though is that there is often a very fine line between 'just reacting quickly to public market information' and illegal insider activity, so the scare quotes may be intended to imply a degree of 'you decide if you think this is completely above board'.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#45

Post by zeeshanm »

elecengin wrote: post #37
neomantra wrote: post #25

Earlier quoted context omitted.

I would be interested in your source for that comment, as I think it is untrue (at least for US exchanges, I don't know rules in other countries). I am not saying payment-for-order-flow doesn't exist, but the buyers are firms like Citadel and other "internalizers", not exchanges. If by "paying" you are referring to the maker/taker rebate model, that is paid to any market participant, not just retail brokers.

https://www.nyse.com/publicdocs/nyse/markets/liquidity-progr... http://cdn.batstrading.com/resources/release_notes/2012/BATS...

And these exchanges have historically been doing it. BATS has been around for about 10 years. But the initial players like Island ECN, Archipelago, and others (now merged into NSQD, NYSE, etc.) have been paying retail brokers for their flow since late 90s. This is what attracts big fishes to trade at their venues.

When you do the wrong over several times without getting caught it becomes a standard (read: make-or-take rebates)

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#46

Post by lloydde »

Variance wrote: post #24

It's great to see Matt Levine on HN - for those interested in finance, his Money Stuff [0] daily column is absolutely excellent. His writing has a really fantastic funny and informal style. He does a great job presenting a fair and deep view of a lot of finance issues, like HFT or Unicorn valuations. [0] http://www.bloombergview.com/topics/money-stuff

I agree. His Bloomberg articles have been regularly rising to the HN front page in the last months. When I follow the link and see his avatar, I take the time to read the article.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#47

Post by dopamean »

harryh wrote: post #43
gbhn wrote: post #42

Something this article ignores, and which is ignored by most articles on HFT, is that the process is ilegible to the public. "No no we're doing you a favor!" is not reassuring when the activity consumes a bunch of resources on zero sum activity. Ultimately investing runs on trust. HFT is consuming public trust in the financial system at a prodigious rate. Is it a trillion dollars a year? A billion? Hard to be sure. B…

Lots of things are illegible to the public. Explain to me all the processes involved in building the smart phone in your pocket. You can't. I can't. Probably no single person in the world can. Who cares?

I think the illegibility of it is important if it is affecting other people's finances.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#48

Post by shasta »

I guess I see why high frequency trades are necessary in the current trading framework, but looking at the situation from a high level, isn't it obvious that the resources being spent on microsecond level response improvements don't benefit anyone but the winners? Can someone argue otherwise?

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#49

Post by kasey_junk »

gbhn wrote: post #42

Something this article ignores, and which is ignored by most articles on HFT, is that the process is ilegible to the public. "No no we're doing you a favor!" is not reassuring when the activity consumes a bunch of resources on zero sum activity. Ultimately investing runs on trust. HFT is consuming public trust in the financial system at a prodigious rate. Is it a trillion dollars a year? A billion? Hard to be sure. B…

> when the activity consumes a bunch of resources on zero sum activity

The thing to remember about the markets is that each individual trade is always zero sum, but the value of the markets comes from the aggregate total.

The behaviors that we want in our markets, price discovery, liquidity, easy risk management are all outcomes that are enabled by speculative market participants like market makers engaging in lots of zero sum activity.

So instead of decrying the zero sum activity what we want to do is drive down the price of it to the non zero sum participants. And HFT market making has been prodigiously good at that.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#50

Post by harryh »

dopamean wrote: post #47
harryh wrote: post #43

Earlier quoted context omitted.

Lots of things are illegible to the public. Explain to me all the processes involved in building the smart phone in your pocket. You can't. I can't. Probably no single person in the world can. Who cares?

I think the illegibility of it is important if it is affecting other people's finances.

Nearly every good or service that you purchase is backed by a nearly illegible process of global trade. That doesn't affect your finances?
Post reply on HN