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

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

#201

Post by ConfuciusSay » Fri, Oct 09, 2015, 8:51 PM UTC

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…

Well, here's the NY Fed explaining why they think it's bad:

http://libertystreeteconomics.newyorkfed.org/2015/10/the-liq...

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

#202

Post by ctlby » Fri, Oct 09, 2015, 8:55 PM UTC

yummyfajitas wrote: post #178

ctlby wrote: post #137

Earlier quoted context omitted.

Eliminating the sub-penny rule would probably be counter-productive for most US equities. You would not see further spread compression (most stocks' natural spreads are already greater than one cent), and displayed size would likely shrink (this latter bit is exactly what happened when prices decimalized). A better alternative would be a tick-size schedule that's a function of price, as is generally done in Japan and…

The "displayed size" would probably shrink, but so what? You'd just need to look at the book to see it. Decimalization would help even with equities where the natural size > 1c. HFTs who want to get to the top of the book could compete by offering $10.0073 instead of racing to be the fastest at $10.0100. HFTs would compete on price rather than speed.

A more granular tick doesn't just "spread out" the existing liquidity to a bunch of price levels--it meaningfully decreases incentives to post serious size. The spread will end up being marginally tighter, but with thinner books, you still pay more to trade large amounts. The objective function to minimize is transaction costs, not spread.

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

#203

Post by beagle3 » Fri, Oct 09, 2015, 9:04 PM UTC

tptacek wrote: post #169

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".

The description of ZeroHedge is funny and not entirely untrue, but if you regard them as an aggregator of opinions, (which they mostly are, even though they do offer their own opinions), it is unmatched in its breadth of coverage, despite having a rather low signal coverage.

WRT suffing the order book - at least as far back as 2003, in Eurex, there was a swiss trader who would do that in bond futures. There were a lot of comlpaints, and even death threats IIRC, but a Eurex investigation at the time found he did nothing wrong - their main finding was that he would occasionally get those "stuffing" orders executed, which means that (as far as they are concerned) they are not false or misleading in any way.

That's probably the gist of it: as long as you are willing to take the hit if your bluff goes against you, there's nothing "fake" about it. It's been years since, and I know not of any (officially investigated) cases back then, or of any recent cases - but I'd be surprised if it's not very prevalent. (Also, I've been out of the HFT world for a while).

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

#204

Post by beagle3 » Fri, Oct 09, 2015, 9:07 PM UTC

ctlby wrote: post #202

yummyfajitas wrote: post #178

Earlier quoted context omitted.

The "displayed size" would probably shrink, but so what? You'd just need to look at the book to see it. Decimalization would help even with equities where the natural size > 1c. HFTs who want to get to the top of the book could compete by offering $10.0073 instead of racing to be the fastest at $10.0100. HFTs would compete on price rather than speed.

A more granular tick doesn't just "spread out" the existing liquidity to a bunch of price levels--it meaningfully decreases incentives to post serious size. The spread will end up being marginally tighter, but with thinner books, you still pay more to trade large amounts. The objective function to minimize is transaction costs, not spread.

> it meaningfully decreases incentives to post serious size

Do you have support for that claim?

(I don't have an opinion; Trying to form one based on data)

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

#205

Post by shasta » Fri, Oct 09, 2015, 9:13 PM UTC

tptacek wrote: post #185

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.

So how would you fix it if you were in charge?

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

#206

Post by WhoBeI » Fri, Oct 09, 2015, 9:27 PM UTC

norea-armozel wrote: post #179

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…

Oddly this reminds me of station trading in Eve Online where users fight over the price of their goods based on mere cents on an ISK.

Ah, yes, good old Jita. In Eve market bots aren't allowed though, they are considered unfair, so there is some difference.

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

#207

Post by wcummings » Fri, Oct 09, 2015, 9:34 PM UTC

tptacek wrote: post #167

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.

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

Link?

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

#208

Post by MoOmer » Fri, Oct 09, 2015, 9:56 PM UTC

brianwawok wrote: post #156

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...

That timeframe is too long (few ms)

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

#209

Post by kasey_junk » Fri, Oct 09, 2015, 10:06 PM UTC

MoOmer wrote: post #208

brianwawok wrote: post #156

Earlier quoted context omitted.

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...

That timeframe is too long (few ms)

Few ms is for the round trip from the exchange which is right in line with what exchanges tend to provide. I have it on good authority that Brian knows what he talks about in that regard...

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

#210

Post by mjevans » Fri, Oct 09, 2015, 10:10 PM UTC

A better question is why do we even have 'High Frequency Traders'?

Wouldn't the market be better served by a window structure with a scale on a more human timespan? Say a 5 min process in which:

* for 4 min orders are taken in confidential secret.

* there is a 1 min blackout window in which no orders are taken, and in which any results of settling the outcome of orders is not published.

* At the end of that period the new results are published. (It doesn't matter who reacts first, it's who reacts best.)

The profit between what sellers are asking for and what the buyers are willing to pay still needs to be accounted for. This could be the market's operating fee (the cost of the sale's commission), it could be attributed to the government as a form of sales tax, it could be returned in some way to the parties involved (buyers pay less, sellers earn more), other, or some combination of the above.