Why Do High-Frequency Traders Cancel So Many Orders? • Hacker News Board

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

#71

Post by djyaz1200 » Fri, Oct 09, 2015, 3:12 PM UTC

harryh wrote: post #54

Retric wrote: post #51

Earlier quoted context omitted.

Trading is not a zero sum activity, trades happen because each side want what the other person has more than what they have which is a net positive. aka I want lunch more than money. HFT trading is zero sum because the traders don't actually want or keep stock.

Grocery store owners don't want vegetables either. They just want to hold them a little while before they sell them to you. Are they zero sum?

Haha! :) Clever point but grocery stores provide utility. HFT is more like if you set out to go buy a whole lot of peppers (because you have a pepper index fund :) and some guy saw you doing this at the first store... knew that was your plan, called all around town placing orders to buy all the other peppers in town and offered to sell them to you for a premium, but cancelled those orders if you declined.

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

#72

Post by joosters » Fri, Oct 09, 2015, 3:12 PM UTC

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…

Please please please keep the phrase 'zero sum' out of this. It'll only encourage pointless arguing about whether or not something is zero sum.

It does not matter if trading is/isn't zero sum. Or perhaps you can explain why it matters?

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

#73

Post by sjbase » Fri, Oct 09, 2015, 3:12 PM UTC

The "new" part of this news, which not many have responded to here, is the notion of an HFT tax. The arguments on either side of HFT (liquidity/spread/etc. vs. cost/unfairness/etc.) have been largely unchanged for the last few years. There simply isn't enough data made public to declare a victor.

As far as the tax: personally I'm very in favor of slowing down trading... unfortunately, what's being proposed introduces as much structural game theory as it eliminates. What's the dominant strategy for a trader faced with a rule like "any trades resting for less than 300 micros get taxed"? To be as fast as possible without triggering the tax; staying just above the threshold.

All that economic waste on low-latency tech will just be redirected to low-jitter tech. Those who can reliably land an order within +1 microsecond of the tax line will outperform those who only have an accuracy of +10.

I'd like to see more exchanges experimenting with things like random variance in speed bump size, frequent batch auctions, etc.

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

#74

Post by JoeAltmaier » Fri, Oct 09, 2015, 3:13 PM UTC

joosters wrote: post #72

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…

Please please please keep the phrase 'zero sum' out of this. It'll only encourage pointless arguing about whether or not something is zero sum. It does not matter if trading is/isn't zero sum. Or perhaps you can explain why it matters?

Its a pivotal issue. Zero sum means no value is being added by the process - its entropic. Such processes can be dispensed with, to the benefit of all.

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

#75

Post by joosters » Fri, Oct 09, 2015, 3:14 PM UTC

kevin_thibedeau wrote: post #40

elecengin wrote: post #2

This article brings up something that HF traders have been bemoaning for a long time: the fragmented US market structure. In US equities, you need to monitor almost a dozen exchanges to be competitive. The popular book "Flash Boys" gave the impression that HF traders loved this market structure and used it to extract more money out of the market. In the majority of cases, this is wrong. In fact, the fragmented market…

The HFT guys love the fragmentation. If not they wouldn't be building out private microwave links between Chicago and NY to "beat the market".

I'm sure they'd rather not be paying for microwave links, but they have to because everyone else is doing it. End result: everyone wastes lots of money to get no additional benefit.

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

#76

Post by kasey_junk » Fri, Oct 09, 2015, 3:16 PM UTC

crdoconnor wrote: post #70

kasey_junk wrote: post #49

Earlier quoted context omitted.

> 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 o…

>The behaviors that we want in our markets, price discovery, liquidity, easy risk management None of which we get from HFT. HFT cannibalizes the research done by value investors (oh, but it's not legally front running if they're not your customer!), rendering that a market for lemons, so there goes price discovery. HFT floods the market with more liquidity than it needs during normal periods (there is no benefit to y…

> None of which we get from HFT.

No but we do get it from market makers. HFT has led to a dramatic decrease in the price of market making. Unless your claim is that market making is not something that should be allowed?

> And risk management? Please. They're only managing their own risks.

My point about risk management was about the aggregate benefits of the markets, not about HFT providing someone risk management. If you have some risk that you want to sell, there will be a buyer for it because of the aggregate sum total of all the zero sum transactions available in the markets.

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

#77

Post by djyaz1200 » Fri, Oct 09, 2015, 3:17 PM UTC

joosters wrote: post #69

crdoconnor wrote: post #66

Earlier quoted context omitted.

There's a pretty strong chance that your retirement funds are not being cannibalized by Samsung or Apple. Whereas, with HFT...

Even if we all accept that HFTs are 'stealing' fractions of a penny per trade, just how often do you trade your retirement funds?

Much more often than you might think. Every time we make a deposit (likely monthly/bi/weekly) that money needs to be deployed (aka stock purchased). If we are part of a big fund that fund may need to buy stocks in huge chunks and when the HFT sniffs out what they are buying they will raise the price.

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

#78

Post by crdoconnor » Fri, Oct 09, 2015, 3:17 PM UTC

joosters wrote: post #69

crdoconnor wrote: post #66

Earlier quoted context omitted.

There's a pretty strong chance that your retirement funds are not being cannibalized by Samsung or Apple. Whereas, with HFT...

Even if we all accept that HFTs are 'stealing' fractions of a penny per trade, just how often do you trade your retirement funds?

Usually it's done on your behalf by institutional investors. The costs will be passed on to you in the form of less money once you retire.

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

#79

Post by [deleted] » Fri, Oct 09, 2015, 3:17 PM UTC

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…

[deleted]

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

#80

Post by joosters » Fri, Oct 09, 2015, 3:17 PM UTC

JoeAltmaier wrote: post #74

joosters wrote: post #72

Earlier quoted context omitted.

Please please please keep the phrase 'zero sum' out of this. It'll only encourage pointless arguing about whether or not something is zero sum. It does not matter if trading is/isn't zero sum. Or perhaps you can explain why it matters?

Its a pivotal issue. Zero sum means no value is being added by the process - its entropic. Such processes can be dispensed with, to the benefit of all.

You're missing the point, It doesn't mean that at all. Plenty of things could be dispensed with for the benefit of all, zero-sum or not. ZS is not a magic flag that shows something is worthless.