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Why Do High-Frequency Traders Cancel So Many Orders?

bloombergview.com

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

#111

Post by hueving »

jameshart wrote: post #44
mkinitcpio wrote: post #30

Earlier quoted context omitted.

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'.

No, there is rarely a fine line. It's a very obvious line of "are you trading on information on the market". An HFT doesn't even have the ability to front-run unless they are also providing a brokerage service.

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

#112

Post by kasey_junk »

crdoconnor wrote: post #106
kasey_junk wrote: post #100

Earlier quoted context omitted.

Link in the posted article: http://www.bloombergview.com/articles/2014-03-31/michael-lew... . Quote from the posted article: " it should be said that market makers have existed in the stock market for a long time and that electronic market makers do the job waaaaaaaaaay cheaper than their human predecessors."

I was wondering when some HFT shill was going to try and pretend that electronic market making and HFT were the same thing. Every damn time...

Given that the posted article made that comparison and it matches my experience in the industry it seemed ok to "pretend" that electronic market making was a subset of HFT.

I understand that these terms are used differently by different people, so maybe you can define what you mean to make it more clear what you think the distinctions are.

[edit] You've edited your comment since I replied to call me a shill. Full disclosure, I have worked in HFT and make no secret of it. I do not currently.

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

#113

Post by harryh »

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.

You're confusing the order of operations for this pepper middle man. He can't place an order for peppers contingent on me buying them. He has to buy them or not. Ignoring this key difference fundamentally misrepresents the risk he is taking and the utility (price discovery) he is providing to the market.

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

#114

Post by harryh »

Retric wrote: post #64
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?

Grocery stores trade low cost bulk purchases for lot's of little transactions. However, stock markets already preform this function.

Yes, and in order the markets to perform this function they needs lots of active participants with differing investing time horizons. Without market makers markets tend to be very inefficient at their job.

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

#115

Post by CyberDildonics »

Rimpinths wrote: post #62
CyberDildonics wrote: post #8

Earlier quoted context omitted.

Fragmented exchanges are better for everyone except for high frequency traders. Then they actually have to do low latency arbitration to make money instead of full on front running like they do now. Arbitration between physical locations is something that can't be helped. The other things ways that high frequency traders make money can be helped by better systems, but there are no incentives to make those systems whe…

Some HFT strategies depend on fragmented exchanges. Look up "latency arbitrage" for examples.

Yes that is one way they make money but not the only way and not even the most effective way since they are splitting their profits with anyone that can compete with them and there is only so much to be made.

The fact that there are multiple issues with high frequency trading is one of the reasons it ends up being so polarizing. It ends up being an ambiguous term that sometimes means something that is a natural result of decentralization, and sometime means techniques that would be grating to most people's common sense of what should be legal.

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

#116

Post by crdoconnor »

yummyfajitas wrote: post #101
crdoconnor wrote: post #99

Earlier quoted context omitted.

TABB group estimated HFT income to be $21 billion in 2009. That's about $65 for every man, woman and child in the US. Ballpark figure, of course.

Not quite, that's a theoretical upper bound - it's spread x share volume. Compare that to Apple's actual profit last year of $39B. https://finance.yahoo.com/q/is?s=AAPL+Income+Statement&annua...

Losses due to burglary, by contrast, are around $5 billion a year. For comparison.

Which is probably more relevant than AAPL's net profit.

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

#117

Post by CyberDildonics »

elecengin wrote: post #12
CyberDildonics wrote: post #8

Earlier quoted context omitted.

Fragmented exchanges are better for everyone except for high frequency traders. Then they actually have to do low latency arbitration to make money instead of full on front running like they do now. Arbitration between physical locations is something that can't be helped. The other things ways that high frequency traders make money can be helped by better systems, but there are no incentives to make those systems whe…

> Fragmented exchanges are better for everyone except for high frequency traders. Then they actually have to do low latency arbitration to make money instead of full on front running like they do now. This is a very strong statement with little support. I agree that some competition among exchange operators is important, but how do you justify exchanges like CHX, with approximately 1% market share? I am not sure how…

> how do you justify exchanges like CHX, with approximately 1% market share?

What needs to be justified? It is competition and decentralization.

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

#118

Post by gnaritas »

kasey_junk wrote: post #49
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 o…

> The thing to remember about the markets is that each individual trade is always zero sum

That's simply not true; your premise is flawed.

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

#119

Post by Mikeb85 »

crdoconnor wrote: post #107
harryh wrote: post #102

Earlier quoted context omitted.

HFT has DRAMATICALLY reduced trading costs which has improved the value of my retirement fund.

Electronic trading decreased them. HFT increased trading costs. This is why dark pools are now a thing.

Try trading in a market with low liquidity and no HFT. It's a nightmare.

Anyhow, HFT affects execution, 'electronic trading' affects how you put in orders, both make the process of buying/selling securities cheaper.

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

#120

Post by harryh »

crdoconnor wrote: post #107
harryh wrote: post #102

Earlier quoted context omitted.

HFT has DRAMATICALLY reduced trading costs which has improved the value of my retirement fund.

Electronic trading decreased them. HFT increased trading costs. This is why dark pools are now a thing.

So electronic trading is what? Slow computers? And HFT is faster ones?
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