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Why Do High-Frequency Traders Cancel So Many Orders?

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

#151

Post by crdoconnor »

tptacek wrote: post #131
crdoconnor wrote: post #86

Earlier quoted context omitted.

>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…

You are ignoring the context of the article in order to push an ideological point. Levine is explaining how you can get a 95+% cancellation rate simply by running the most brain-dead simple possible market maker strategy: because you're required to post orders at multiple exchanges, and because every price change involves order cancellations (potentially lots of order cancellations, even on a single exchange, because…

>You are ignoring the context of the article

The discussion went off course way before I dived in.

>Comes now 'cdroconnor. You're playing a semantic game. You're defining "HFT" as "bad HFT", and everything else as simple "electronic trading". FINE. Nobody disagrees with you, except on the very boring point of what labels to attach to things.

There is a very substantial non-semantic difference between robot-executed sub-millisecond trades (HFT) and trades which are are just executed electronically.

In every discussion about HFT the probability of someone falsely attributing the decreased transaction costs of "not shouting in a pit" to algorithms that execute sub-millisecond transactions approaches 1.

>But your argument here doesn't make any sense for the thread, because the good simple electronic trading you're condoning is also targeted by the cancellation regulation Clinton proposed

I'm no particular fan of that either. I'd prefer Italian style micro-transaction tax. That wipes out nearly all of the sub-millisecond trading and leaves the rest intact, including market making.

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

#152

Post by blazespin »

Ahem, buried in the middle of the article (I wonder why) "Navinder Sarao is accused of spoofing in the S&P 500 futures market, entering and cancelling lots of orders to create an illusion of demand, in suspicious proximity to the flash crash of 2010."

This happens a lot more than you might think. There is always a temptation to stuff the order book to keep it going in a direction profitable for you (ie, fake volatility).

This is the #1 reason why canceled ordered from HFT are suspect. It's too easy to stuff the order book and cheat a little. You really need highly credible market makers who have proven not to do this sort of thing. Even then, such folks are very rare and hard to appreciate. Your algorithms get so complex and obfuscated it's hard to tell what's stuffing the order book and what's simple market making.

The fact is, everyone is stuffing the order book. Sarao is more a patsy than anything else. His biggest crime wasn't belonging to a Goldman Sachs paying bribes to political entities.

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

#153

Post by vegabook »

droffel wrote: post #148
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…

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 com…

You have summarized it perfectly.

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

#154

Post by jandrese »

vegabook wrote: post #147
TelmoMenezes wrote: post #146

Earlier quoted context omitted.

> 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…

Retirement savers are losing a cut of every paycheck to HFT when they go and add to their account. Likely multiple cuts if they've diversified. It's basically a tax you pay for not having the best access to the fastest server closest to the database.

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

#155

Post by crdoconnor »

harryh wrote: post #120
crdoconnor wrote: post #107

Earlier quoted context omitted.

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?

>So electronic trading is what?

That great innovation where you no longer have to shout in a pit to get your trade executed because, you know, computers.

Virtually all trading these days is electronic.

>And HFT is

Algorithmic trading by computers that's "fast" (usually regarded as sub-second trading, although definitions vary a little).

The more you know...

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

#156

Post by brianwawok »

chollida1 wrote: post #7

I think to understand most HFT market makers you have to understand how the markets pay. Most work on a maker taker model. Which means the trader who initiates the trade pays a small fee and the trader who is the passive side, the one who had their order in the market already, gets paid a small fee. as a side note there are inverted markets but lets leave those aside for now. This means to get paid you want to be at…

I am pretty sure if you have the tech to stuff, you have the same tech to see your own stuff coming back in a few ms...

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

#157

Post by librvf »

harryh wrote: post #143
librvf wrote: post #141

Earlier quoted context omitted.

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.

We're getting off track. The point is that the value of HFT is disputed. You claimed HFT reduced buy/sell spreads by a factor of 10, which is obviously false once one distinguishes HFT and Electronic Trading in general. If you're unwilling to do anything but deny the difference between HFT and Electronic Trading there's no point in having a discussion about HFT's benefits.

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

#158

Post by vegabook »

jandrese wrote: post #154
vegabook wrote: post #147

Earlier quoted context omitted.

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…

Retirement savers are losing a cut of every paycheck to HFT when they go and add to their account. Likely multiple cuts if they've diversified. It's basically a tax you pay for not having the best access to the fastest server closest to the database.

HFT on average narrows the bid offer. Retail (i.e. small) investors benefit. Human market makers lose out. Without HFT your little old lady retirement angel would be paying much more to a rapacious human market maker.

The point is that it is not the end users who are getting hurt. It's the old monopoly - the human market makers.

DISCLAIMER: I (was) a HUMAN market maker.

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

#159

Post by crdoconnor »

Mikeb85 wrote: post #145
crdoconnor wrote: post #142

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 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, seller…

If that were so, dark pools would have been around for as long as we've had public exchanges. Yet they only appeared on the scene after HFT did.

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

#160

Post by blazespin »

chollida1 wrote: post #7

I think to understand most HFT market makers you have to understand how the markets pay. Most work on a maker taker model. Which means the trader who initiates the trade pays a small fee and the trader who is the passive side, the one who had their order in the market already, gets paid a small fee. as a side note there are inverted markets but lets leave those aside for now. This means to get paid you want to be at…

Hillary will come down on the part of the market that hasn't contributed to her campaigns. Structurally, this means she will make it good for GS who will help write the legislation but bad for anyone else that doesn't belong to the financial hegemony.

Politicians say they're protecting the innocent, but really they're just tipping the scales for whoever is backing them. This is how they do.

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