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

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

#141

Post by librvf » Fri, Oct 09, 2015, 5:01 PM UTC

harryh wrote: post #135

librvf wrote: post #133

Earlier quoted context omitted.

That's not what High-Frequency Trading means. The terms for what what you describe are the more general "electronic trading" and "automated trading". They enable HFT, but are not HFT. High-Frequency Trading, while also an umbrella term, virtually always refers to a subset of algorithmic trading involving arbitrage over extremely short timeframes. HFT is not about being faster than "slow expensive humans" it's about b…

I believe that you are making a distinction without a difference. Operating over extremely short timeframes is what allows electronic traders to provide such efficient pricing.

The distinction I am making means everything. It enables "Latency Arbitrage." It allows HF traders to see trades that are about to happen before they actually happen and cut in front if it'll be profitable.

http://blogmaverick.com/2014/04/03/the-idiots-guide-to-high-...

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

#142

Post by crdoconnor » Fri, Oct 09, 2015, 5:02 PM UTC

Mikeb85 wrote: post #129

crdoconnor wrote: post #124

Earlier quoted context omitted.

>Try trading in a market with low liquidity and no HFT. It's a nightmare. Such markets are created specifically for the purpose of avoiding HFT: https://en.wikipedia.org/wiki/Dark_liquidity HFT hasn't been around that long, either. Before 2005 it basically didn't exist.

Read your link. Dark pools are created so institutions can trade large blocks without moving the price, or to hide transactions. Dark pools are beneficial to institutions in some circumstances, not to individuals. And yes HFT hasn't always existed, once upon a time you'd have a pit of screaming traders and brokers, and for an individual to buy/sell stocks you'd have to call your broker on the phone, who'd charge you…

>Read your link. Dark pools are created so institutions can trade large blocks without moving the price, or to hide transactions

Yes, to hide them from HFT.

Read on a little.

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

#143

Post by harryh » Fri, Oct 09, 2015, 5:05 PM UTC

librvf wrote: post #141

harryh wrote: post #135

Earlier quoted context omitted.

I believe that you are making a distinction without a difference. Operating over extremely short timeframes is what allows electronic traders to provide such efficient pricing.

The distinction I am making means everything. It enables "Latency Arbitrage." It allows HF traders to see trades that are about to happen before they actually happen and cut in front if it'll be profitable. http://blogmaverick.com/2014/04/03/the-idiots-guide-to-high-...

That blog post does not accurately represent how markets work. It is not possible to see trades that are about to happen that have not happened yet just by being faster. You can react to past trades faster than someone else. But no matter how fast you react, it doesn't mean you can see the future.

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

#144

Post by [deleted] » Fri, Oct 09, 2015, 5:15 PM UTC

[deleted]

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

#145

Post by Mikeb85 » Fri, Oct 09, 2015, 5:20 PM UTC

crdoconnor wrote: post #142

Mikeb85 wrote: post #129

Earlier quoted context omitted.

Read your link. Dark pools are created so institutions can trade large blocks without moving the price, or to hide transactions. Dark pools are beneficial to institutions in some circumstances, not to individuals. And yes HFT hasn't always existed, once upon a time you'd have a pit of screaming traders and brokers, and for an individual to buy/sell stocks you'd have to call your broker on the phone, who'd charge you…

>Read your link. Dark pools are created so institutions can trade large blocks without moving the price, or to hide transactions Yes, to hide them from HFT. Read on a little.

Yes and the bit about 'predatory HFT' is backed up with an article which has no information about what constitutes 'predatory HFT', it merely repeats the words in a small annotion. The article is more about the regulatory concerns over dark pools.

I'll tell you why they use dark pools. On the open market, if you sell lots of shares, buyers will see that, and drop their bids. Likewise if you put in a large bid, sellers will raise their asks. In a dark pool, institutions can move large blocks at a given price without market forces interfering, and reduce trading costs.

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

#146

Post by TelmoMenezes » Fri, Oct 09, 2015, 5:21 PM UTC

vegabook wrote: post #140

okegoge wrote: post #90

Earlier quoted context omitted.

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 'f…

I hope you understand that the thievery has been happening for centuries, millennia. There is no other way to gauge real supply and demand than to put buy and sell orders into the market yourself. HFT is doing at ultra-high speed what human market makers do all day long, and have been doing forever. Now, possibly rightly, market makers in general, through the ages, have had a bad rap. They are indeed trying to get mo…

> HFT is fiercely competitive

For the incredibly small minority of people who can engage in it, and who enjoy special rules, maybe. For the majority of the people who's money is actually extracted by this system, it's an exclusive club.

> Without HFT, bid offers would be wider. Fact.

The majority of people who just want to save for retirement would prefer wider bid offers instead of having such a large chunk of money extracted from their future bank accounts. Fact.

The other reason why HFT is non-competitive is that you cannot go and start a market with your own rules without being deeply in bed with the government and the financial status quo. HFT is forced down our throats by a system that calls itself capitalistic but thrives on enjoying custom-made loopholes in heavily-regulated statism.

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

#147

Post by vegabook » Fri, Oct 09, 2015, 5:24 PM UTC

TelmoMenezes wrote: post #146

vegabook wrote: post #140

Earlier quoted context omitted.

I hope you understand that the thievery has been happening for centuries, millennia. There is no other way to gauge real supply and demand than to put buy and sell orders into the market yourself. HFT is doing at ultra-high speed what human market makers do all day long, and have been doing forever. Now, possibly rightly, market makers in general, through the ages, have had a bad rap. They are indeed trying to get mo…

> HFT is fiercely competitive For the incredibly small minority of people who can engage in it, and who enjoy special rules, maybe. For the majority of the people who's money is actually extracted by this system, it's an exclusive club. > Without HFT, bid offers would be wider. Fact. The majority of people who just want to save for retirement would prefer wider bid offers instead of having such a large chunk of money…

Retirement savers are not churning their portfolios and are thus not paying anything to HFT. Not a strong argument.

Making money making markets takes risk capital. i.e. Money. The money makes more money. Fact. I agree. But don't blame HFT. Blame finance. That is how finance works. I see a completely legitimate case for being anti-finance. I don't see a legitimate case for being anti-HFT only. Indeed, the opposite, if HFT reduces the bid/offer paid by the average retail investor. Which it does. Fact.

Do you know who hates HFT even more than the general public? Human market makers. I think that says more than any of my arguments.

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

#148

Post by droffel » Fri, Oct 09, 2015, 5:24 PM UTC

vegabook wrote: post #140

okegoge wrote: post #90

Earlier quoted context omitted.

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 'f…

I hope you understand that the thievery has been happening for centuries, millennia. There is no other way to gauge real supply and demand than to put buy and sell orders into the market yourself. HFT is doing at ultra-high speed what human market makers do all day long, and have been doing forever. Now, possibly rightly, market makers in general, through the ages, have had a bad rap. They are indeed trying to get mo…

I agree. I've always thought of HFT as a way to let liquidity flow between exchanges, with a payoff equal to the degree to which the inter-exchange spread has been decreased. If the inter-exchange spread is wide, there is some value to be extracted from that spread, and HFT provides the (in my opinion) valuable service of extracting that value, making the market more efficient as a whole. The more people that are competing in that market, the smaller the value the HFTs can extract, until the actual market participants on the exchanges are only paying fractions of a penny for the privilege of buying shares "originating" from another market that has higher liquidity. I can't really see how this could be a bad thing (given enough competition).

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

#149

Post by sjbase » Fri, Oct 09, 2015, 5:24 PM UTC

Mikeb85 wrote: post #91

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…

> personally I'm very in favor of slowing down trading... As a retail trader, no. As an example, yesterday I placed a sell order on $90,000HK worth of a stock. Once I hit 'send', my order was fulfilled before my browser could load the confirmation page, and at the market price I was quoted seconds before. This is, in large part, thanks to market makers who use HFT. Before this, the broker/market maker might take a sp…

I completely agree that liquidity is first and foremost, and that in today's market structure HFT drives a lot of it. Retail enjoys a lot of the benefit, because trades in the $1,000s - $100,000s range probably aren't enough to slip the market. But is ultra-low-latency the ONLY way to bring about that liquidity? I have yet to come across any economic or technical reason why that has to be the case.

Also, slowing down trading doesn't mean eliminating HFT, it's a matter of what constitutes "high" frequency... I'd argue we're well past the point where incremental increases in speed result in equal gains in liquidity. And those increments now cost more than ever before.

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

#150

Post by tedunangst » Fri, Oct 09, 2015, 5:26 PM UTC

okegoge wrote: post #90

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 'f…

If we're going to arbitrarily redefine terms, why not go with carpet-bagging? Or baby-mulching? Think how many more people would join you in opposition to "baby-mulching HFT".