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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?

#181

Post by tptacek »

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.

I'm confused. Dark pools (ie, private exchanges) are devices used primarily by giant investment banks and hedge funds to try to load or unload large amounts of stock without moving the market.

What point are you trying to make about them? That if we didn't have HFT, we wouldn't need them? That's an argument for HFT, not against.

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

#182

Post by jessaustin »

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…

So you have a very vested interest in being the first to cancel and move your order to the newest price level.

ISTM this would only work in one direction? That is, if you're moving closer to the other side, you can just put in a new order. Cancelling the old one isn't such a priority because no one would pass up the more enticing new price to get to the old price. If they did, free money for you!

If this phenomenon isn't clear from the data, that would argue against the hypothesis that maker-taker accounts for the cancellations.

IANAHFTrader.

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

#183

Post by tptacek »

crdoconnor wrote: post #52
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 a legal distinction. Economically the effect is the same.

How could the economic effect be the same? In its real-world legal sense, front-running is an agent-principal problem. HFTs are not agents brokering for clients; in fact, they're usually proprietary traders.

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

#184

Post by tptacek »

crdoconnor wrote: post #155
harryh wrote: post #120

Earlier quoted context omitted.

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...

You keep saying "shout in a pit" as if that was the primary benefit of electronic trading. But of course, that's not the primary benefit. The major benefit is that with humans out of the loop, it's harder to grift huge amounts of money from people trying to do simple trades.

For instance: Google [odd eighths scandal].

And that's a modern example of humans rigging the markets, exploiting lack of competition and automation. Things get much worse the further back you go in time.

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

#185

Post by tptacek »

shasta wrote: post #48

I guess I see why high frequency trades are necessary in the current trading framework, but looking at the situation from a high level, isn't it obvious that the resources being spent on microsecond level response improvements don't benefit anyone but the winners? Can someone argue otherwise?

You're right, although you should also build into that argument the benefits that accrue to technologists that work at HFT firms, and to technology vendors who sell to them.

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

#186

Post by harryh »

librvf wrote: post #157
harryh wrote: post #143

Earlier quoted context omitted.

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.

No one (including you) has presented any meaningful distinction between HFT and Electronic Trading in general.

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

#187

Post by jsprogrammer »

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…

>This means that if someone is actually slowing down market data for say AAPL then they are also slowing down quotes for AMZN as well but again

Why should one symbol be tied to a completely unrelated symbol? This doesn't engender confidence in the architecture of these markets (which markets are you referring to, specifically)?

>you start to realize that almost all HFT firms aren't quote stuffing, they are just jockeying for position at the top of the order book.

I'm not sure this is an important distinction. What is quote stuffing but position jockeying?

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

#188

Post by jsprogrammer »

arbitrage wrote: post #175
blazespin wrote: post #160

Earlier quoted context omitted.

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.

What you are describing is not reality.

What do you mean?

GS can already bend the FBI and NY State to their will: https://en.wikipedia.org/wiki/Sergey_Aleynikov

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

#189

Post by kasey_junk »

librvf wrote: post #157
harryh wrote: post #143

Earlier quoted context omitted.

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.

For the record, I think the vast majority of people's arguments about HFT are simply about the definitions of what HFT is. It isn't clearly defined anywhere and the blog post you linked earlier certainly doesn't capture any definition I've seen used in the industry.

In my experience though, electronic market making, which I regard as a very good thing, is a direct subset of HFT. To do it properly you must be fully automated, fast, across venue and trade alot. By nearly every definition I've seen that makes you HFT.

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

#190

Post by steven2012 »

tptacek wrote: post #165
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…

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 ex…

Marketing making != HFT. HFT is simply trading like market makers, they're not making markets.
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