Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why Do High-Frequency Traders Cancel So Many Orders?

bloombergview.com

Post reply on HN
Print view View original

161–170 of 247 posts

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

#161

Post by tptacek »

crdoconnor wrote: post #151
tptacek wrote: post #131

Earlier quoted context omitted.

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 s…

You've made it very clear how important it is to you that we call benign electronic trading --- and, I infer, electronic market making --- something other than "HFT".

What you haven't made clear is why you believe you're actually arguing with anyone here. I am 100% certain, because I've had the conversation with him multiple times, that 'kasey_junk agrees with you that there is such a thing as malignant electronic trading.

Exactly what is the controversy here? The people who are talking about HFT reducing spreads are talking about benign electronic trading, and none of them appear to be denying that there are other kinds of electronic trading.

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

#162

Post by chollida1 »

dclusin wrote: post #134
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…

Quote stuffing works because you know before hand which orders to filter out and don't need to expend resources considering them while everyone else does. An advanced player can build this into an FPGA to achieve greater performance.

:)

Quote feeds don't work that simply. you still have the following issues:

1) Your quotes are slowed down as the gateway is spammed so legitimate quotes are delayed to you as well as everyone else. So you are still blind as to where the market is just like everyone else.

2) The quote feed doesn't just say, "hey a new order was added and guess what, its yours!!"

You still need to parse the entire message to determine if the order matched one you sent, and even then it won't say its yours, it could be someone else putting in the same 100 share order at the NBBO. I'll admit this can be helped if you have your own number at the exchange to identify the order sender, but then this only applies to exchanges that release that information and even then you still need to parse the order to find out if its yours, so you're basically back to square one.

Now you might say, well then I'll just submit orders far away from the market so that I can more easily identify them as my own, but by doing so you've already outed your self as a quote stuffer and its game over.

It's one thing to rapidly CFO your orders to keep up with the NBBO and changes on other markets, its another to rapidly CFO orders out in the weeds. The latter will get your direct access yanked if abused.

So ignoring your own quote spamming is almost impossible as you still need to assume every order might not be your own.

FPGA's don't help at all here, except to make the parsing faster but they do that regardless of if someone is quote stuffing or not.

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

#163

Post by librvf »

gnaritas wrote: post #121
librvf wrote: post #97

Earlier quoted context omitted.

> HFT has led to a dramatic decrease in the price of market making. How? It seems like this should not be that hard to explain.

> How? It seems like this should not be that hard to explain. Decreased spreads; trading is much cheaper now than it was before HFT.

> Decreased spreads; trading is much cheaper now than it was before HFT.

By how much? And is HFT the cause or is it merely correlated?

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

#164

Post by Mikeb85 »

sjbase wrote: post #149
Mikeb85 wrote: post #91

Earlier quoted context omitted.

> 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…

When incremental gains are no longer worthwhile, institutions will no longer invest in the infrastructure. As long as the profit gained > costs, they will invest in infrastructure, to the benefit of the tech industry.

And you're right, we don't need market makers trading as fast or as frequently as they do, but they see an opportunity, so they go for it, and we benefit anyway.

I'd personally be happy with 10 second execution, but if I can get 1/2 second execution, why would I complain?

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

#165

Post by tptacek »

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…

At what point in the history of the public markets in the United States was market-making of any sort not an activity reserved for an incredibly small minority?

The difference, from what I can tell, between the HFT "elite" and the human market-maker "elite" is that the human elite actively colluded to retain their status. Compare the largest HFT firms to the largest investment bank, and the number of entrances and exits in the market for electronic trading firs.

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

#166

Post by Mikeb85 »

crdoconnor wrote: post #159
Mikeb85 wrote: post #145

Earlier quoted context omitted.

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.

Private trades have existed forever. Dark pools as infrastructure in their current form, of course rely on computers.

It's like the difference between searching for a house on a public database, or a broker's private database...

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

#167

Post by tptacek »

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.

They are not. The largest, best-regarded fund manager in the world (Vanguard) is on the record saying that they've benefited from HFT.

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

#168

Post by [deleted] »

vegabook wrote: post #158
jandrese wrote: post #154

Earlier quoted context omitted.

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.

[deleted]

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

#169

Post by tptacek »

blazespin wrote: post #152

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 volatili…

There is always a temptation to stuff the order book to keep it going in a direction profitable for you (ie, fake volatility).

Is this something you have personal experience in? I ask because a lot of people relate this concern because they read about it in Zero Hedge, which is regarded by people in the industry as (as someone here once put it) "a conspiracy theory site without the theories".

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

#170

Post by KMag »

w23j wrote: post #89
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.

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," [...]'

Perhaps it's time to start calling what Michael Lewis mislabels "front-running" as Lewis-running.
Post reply on HN