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

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

#81

Post by kasey_junk » Fri, Oct 09, 2015, 3:18 PM UTC

djyaz1200 wrote: post #71

harryh wrote: post #54

Earlier quoted context omitted.

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.

It's flawed analogies either way, but a better analogy would be you are a store owner with many branches. The worlds largest pepper buyer walks into your store and buys your entire supply. You call your other branches and tell them to change the price on your own inventory because you are assuming that the worlds largest pepper buyer doesnt need just one stores worth of peppers.

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

#82

Post by kasey_junk » Fri, Oct 09, 2015, 3:20 PM UTC

sjbase wrote: post #73

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…

Or you could just get rid of the sub-penny rule and let HFT compete on price.

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

#83

Post by JoeAltmaier » Fri, Oct 09, 2015, 3:21 PM UTC

joosters wrote: post #80

JoeAltmaier wrote: post #74

Earlier quoted context omitted.

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.

Disagree; it is exactly that flag. Other things may be even worse than zero, of course.

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

#84

Post by kasey_junk » Fri, Oct 09, 2015, 3:21 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?

You are right. I shouldn't have used that term when responding to the original poster.

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

#85

Post by yummyfajitas » Fri, Oct 09, 2015, 3:21 PM UTC

crdoconnor wrote: post #66

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?

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

If you pay $100 extra once in your life for the gold iPhone, then Apple has probably cannibalized more of your retirement fund than HFT.

Ballpark esitmate: drop $20k/year into retirement (1 lot of SPY/year) x 1 penny/share being robbed from you x 50 year working career, you've lost $50 to the evil HFTs.

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

#86

Post by crdoconnor » Fri, Oct 09, 2015, 3:21 PM UTC

kasey_junk wrote: post #76

crdoconnor wrote: post #70

Earlier quoted context omitted.

>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. I…

>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?

No, my claim is that market making was made significantly cheaper by electronic trading in the 90s-00s but HFT had very little effect on that.

HFTs do a lot of market making, make almost no profit from it and mainly use it as cover for their more nefarious activities.

>My point about risk management was about the aggregate benefits of the markets, not about HFT providing someone risk management

Great. So even you agree that if we banned HFT we'd be no worse off.

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

#87

Post by Retric » Fri, Oct 09, 2015, 3:22 PM UTC

kasey_junk wrote: post #67

Retric wrote: post #61

Earlier quoted context omitted.

Buying stock is trading future money than money today which is a real and meaningful trade. On the other side, I might want a new car, which means I want money, which means I want to sell stock. Even stock to stock transitions can be meaningful as Bill Gates had a lot of MS stock and wanted a hedge so he sold stock. What he got was probably worth 'less' the diversification was valuable to him making the transaction a…

What you are talking about are precisely the aggregate benefits to the markets I mentioned, liquidity and easy risk management. That the markets provide those behaviors is what makes them valuable but the actual trades that make up those aggregates, your selling of shares when you need a car to someone else is zero sum. Either you would make more by holding or you wouldn't. That something other than that is more impo…

Continuing from the perspective of buying a car:

If I put a sell order on the market at 12:00 the only impact is the sales price. If it executes at 1PM or 2PM it makes zero difference to me as I can only access money at the end of the day. So, I only gain liquidity if I would have been otherwise unable to sell by the end of the day. Therefore, I don't gain liquidity from HFT.

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

#88

Post by yummyfajitas » Fri, Oct 09, 2015, 3:23 PM UTC

sjbase wrote: post #73

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…

There is enough data to declare that a transaction tax is a loser. Canada tried it. The bid/ask spread rose 9%. This resulted in a transfer of wealth from retail investors to institutional ones.

http://qed.econ.queensu.ca/pub/faculty/milne/322/IIROC_FeeCh...

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

#89

Post by w23j » Fri, Oct 09, 2015, 3:23 PM UTC

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.

Yep. Levine's opinion of using the term "front-running" like that is made more explicit here: http://www.bloombergview.com/articles/2015-07-07/can-you-rea...

Liberately quoted:

'[...] man, remember when "front-running" meant something? [...] But then came "Flash Boys," [...] And now, basically any time anyone trades on public information before someone else, it's "front-running," [...]'

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

#90

Post by okegoge » Fri, Oct 09, 2015, 3:25 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…

It's worth remembering that HFTs like yourself define front-running differently than others.

Others often (rightfully) feel that HFTs who engage in latency arbitrage where they take advantage that everyone else is using the NBBO (because they have to), and the NBBO is lagged, are front-running assholes who extract value without creating anything.

And we refer to that thieving, predatory, value-stealing activity as 'front-running', even though technically you're engaging in a slightly different activity.