'Flash Boys' IEX stock exchange opens for business • Hacker News Board

Re: 'Flash Boys' IEX stock exchange opens for business

#61

Post by fleitz » Fri, Aug 19, 2016, 8:52 PM UTC

modoc wrote: post #34

harryh wrote: post #26

Earlier quoted context omitted.

Rather than seeing HFTs as competing against you, a more accurate model is to see various firms competing against each other to service your needs at the lowest possible cost. These firms used to be staffed with expensive and slow humans, but by automating they are able to deliver a service to you at a much lower cost than was previously possible. The story of automation in the financial markets is similar to the sto…

How does that really help me if I'm buying/selling a specific stock (vs. being in a larger fund, etc...)? My, again very lay, understanding is that the HFT is likely to push my buy price up slightly and make money in the middle of me a non-HFT seller, and push down the price slightly on the sale side, again making money as a very fast middleman. I may have that completely wrong though.

Unless you are exceeding the liquidity on a single exchange HFT will never affect you.

Here how it works... Imagine you want to BUY 10000 MSFT...

You send your order to exchange A, it does a partial fill for 1000 orders, and sends the remainder to exchanges b,c,d. An HFT firm sees your order to exchange A knows its not going to fill and sends its own orders to buy the liquidity on B,C,D and then sends sell orders at a higher price to B,C,D, your order fails to fill and you have to issue a new order at a higher price.

Since retailers will very likely never exceed the liquidity on a single exchange they'll never have any issue with HFT and will just experience increased liquidity and faster fills.

However, if you're a large dinosaur still sending huge orders now you'll need a group of suckers who want to trade only with you, enter IEX, and 'consumer' protection from HFT on their exchanges who now has a large pool of suckers to trade with.

Re: 'Flash Boys' IEX stock exchange opens for business

#62

Post by harryh » Fri, Aug 19, 2016, 8:54 PM UTC

fleitz wrote: post #61

modoc wrote: post #34

Earlier quoted context omitted.

How does that really help me if I'm buying/selling a specific stock (vs. being in a larger fund, etc...)? My, again very lay, understanding is that the HFT is likely to push my buy price up slightly and make money in the middle of me a non-HFT seller, and push down the price slightly on the sale side, again making money as a very fast middleman. I may have that completely wrong though.

Unless you are exceeding the liquidity on a single exchange HFT will never affect you. Here how it works... Imagine you want to BUY 10000 MSFT... You send your order to exchange A, it does a partial fill for 1000 orders, and sends the remainder to exchanges b,c,d. An HFT firm sees your order to exchange A knows its not going to fill and sends its own orders to buy the liquidity on B,C,D and then sends sell orders at…

And how do you convince the suckers to go to IEX? Incredibly cynical marketing!

https://www.youtube.com/watch?v=v2OZkTesSx0

Re: 'Flash Boys' IEX stock exchange opens for business

#63

Post by fleitz » Fri, Aug 19, 2016, 8:56 PM UTC

hm8 wrote: post #53

harryh wrote: post #51

Earlier quoted context omitted.

If you want to by 100,000 gallons of milk you don't have a god given right to do so at the currently posted prices in every grocery store in town. Those grocers are well within their rights to raise prices as soon as they figure out what you're doing.

The grocers' price is irrelevant to the discussion here. The guy with the Ferrari would still outrun you and offer you a new price, with a margin just enough for them to be profitable, yet not substantially large as to talk you out of the deal altogether.

Yeah, so if you're not a fucking idiot, instead of taking out a front page newspaper ad announcing to the world that you want to buy ALL THE MILK.

You should instead send 4 or 5 trucks to each location and buy the available milk, the guy in the Ferrari cannot outrun you because you're already there, and your order filled before he even got there.

Now imagine that you have at your finger tips a giant constantly updating database to the nearest millisecond about how much milk there is at every grocery store, but you still decide to take out a front page ad and announce your plans in advance, instead of breaking up your order into multiple parts and sending each to its own store. If you did this, everyone would laugh at you like they are at IEX and Capital Group.

Re: 'Flash Boys' IEX stock exchange opens for business

#64

Post by [deleted] » Fri, Aug 19, 2016, 8:59 PM UTC

hm8 wrote: post #48

harryh wrote: post #40

Earlier quoted context omitted.

Your intuition about financial markets does not match reality. In financial markets no one knows that you want to buy a gallon of milk (or a share of stock) until your bid has already been submitted. No matter how fast their Ferrari, there is no way for them to get in line ahead of you at the store.

Well, there is in a matter of speaking. To take the analogy further, imagine not buying a gallon of milk but 100,000 1 gallon can of milk. The guy with the Ferrari wouldn't be able to get in front of you at the next door target but they'll loot the most convenient Walgreens, Safeway, Walmart, and Amazon Prime. Of course, the analogy no longer holds for numerous reasons (100000 gallons of milk, driving around, buying…

[deleted]

Re: 'Flash Boys' IEX stock exchange opens for business

#65

Post by moefogs » Fri, Aug 19, 2016, 9:00 PM UTC

harryh wrote: post #26

modoc wrote: post #24

Earlier quoted context omitted.

As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impa…

Rather than seeing HFTs as competing against you, a more accurate model is to see various firms competing against each other to service your needs at the lowest possible cost. These firms used to be staffed with expensive and slow humans, but by automating they are able to deliver a service to you at a much lower cost than was previously possible. The story of automation in the financial markets is similar to the sto…

You've described a valuable part of algorithmic trading. It's a social good, and it creates value for everyone involved. It's a good thing. When informed people want to defend HFT, they often point to this type of activity, because it's automated trading that happens pretty quickly (sounds like HFT), and it's easy to love.

But when informed people criticize HFT, they're talking about other activities. They're criticizing schemes wherein the HFT identifies that a real (read: risk taking) market participant is willing to pay $10.04, that a second real market participant is willing to sell for $10.02, and that those participants will learn of each other's existence in a half millisecond. But instead of allowing that half millisecond to pass, the HFT buys at $10.02, sells at $10.04, and captures a profit before those first two orders can match.

But it doesn't matter. If your wallet is stolen one time in your whole life, that single event will likely cost you more than HFT will.

Re: 'Flash Boys' IEX stock exchange opens for business

#66

Post by [deleted] » Fri, Aug 19, 2016, 9:00 PM UTC

harryh wrote: post #26

modoc wrote: post #24

Earlier quoted context omitted.

As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impa…

Rather than seeing HFTs as competing against you, a more accurate model is to see various firms competing against each other to service your needs at the lowest possible cost. These firms used to be staffed with expensive and slow humans, but by automating they are able to deliver a service to you at a much lower cost than was previously possible. The story of automation in the financial markets is similar to the sto…

[deleted]

Re: 'Flash Boys' IEX stock exchange opens for business

#67

Post by patio11 » Fri, Aug 19, 2016, 9:00 PM UTC

tptacek wrote: post #49

modoc wrote: post #24

Earlier quoted context omitted.

As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impa…

You don't do the kind of trading HFTs do. No matter whether trading is done with hand signals or in FPGAs, you were never going to be making markets. Meanwhile, cost of trading for normal people like us has gone through the floor. And we're only really looking at the last 15 years when we think about trading costs, but even steeper reductions precede that, and it was all brought about by replacing human market makers…

The only disagreement I have with Thomas here is the last line. Securitization groups at the large banks and HFTs aren't adversaries -- they don't interact in any meaningful fashion. Large banks, taken as a whole, have some groups which are in competition with HFTs but have other groups which are their happy customers. (If you're a large bank, and you're taking liquidity, you are either astoundingly bad at your job or you actually desire to be buying what HFTs are selling.)

The industry standard for buying/selling mortgage-backed securities or collateralized debt obligations isn't HFT. It isn't even automated. It is one sweating jock yelling at another sweating jock over a recorded telephone call. You can see this dramatized in The Big Short, where to unwind the shorts that the "good guys" have made they have to get their own not-quite-sweating not-quite-jock played-by-Brad-Pitt to do the phone calls on their behalf.

Re: 'Flash Boys' IEX stock exchange opens for business

#68

Post by fleitz » Fri, Aug 19, 2016, 9:02 PM UTC

ocschwar wrote: post #27

wehadfun wrote: post #25

Was the 30 mile cable necessary to create a speed bump. Seems to me a few lines of code would have worked.

30 miles of cable gives your customers proof the speed bump will not go away with a software change.

As long as they don't install a second shorter cable, and have the software route to the second cable. The entire thing is a dog and pony show for retail investors who are even bigger suckers than the idiots running IEX. If the speed bump is for everyone and can't be removed then how do PEG orders bypass it? Are PEG orders some kind of magic that travels faster than light?

Pro Tip: If a large financial institution tells you they are protecting you, they are bald faced lying to you and you are about to get a serious lesson in business.

The same idiots who tell you that IEX is a good thing will also sell you actively managed mutual funds that A) under perform vanguard and B) seriously under perform once you subtract fees.

Re: 'Flash Boys' IEX stock exchange opens for business

#69

Post by moefogs » Fri, Aug 19, 2016, 9:11 PM UTC

tptacek wrote: post #49

modoc wrote: post #24

Earlier quoted context omitted.

As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impa…

You don't do the kind of trading HFTs do. No matter whether trading is done with hand signals or in FPGAs, you were never going to be making markets. Meanwhile, cost of trading for normal people like us has gone through the floor. And we're only really looking at the last 15 years when we think about trading costs, but even steeper reductions precede that, and it was all brought about by replacing human market makers…

> It wasn't HFTs that brought down the economy in '07-'08. It was their adversaries.

That's a cute quote, but it's not true in any meaningful sense.

HFTs weren't trading against the collection of real estate speculators, mortgage originators, mortgage securitizers, ratings agencies, or lazy investment managers who brought down the economy in '07-'08.

You're right that HFT is hardly the worst part of modern finance, but your post is conspiratorial nonsense... suggesting that other parts of finance are trying to villainize HFT so you look over there, instead of at them? That's unfounded, conspiratorial lunacy.

I get that you hate some bankers, or whatever, probably because you were told to... but if you did even the most superficial cui bono analysis, you'd realize there are simpler explanations for the HFT hatred; and that only a nutjob would write your post.

Re: 'Flash Boys' IEX stock exchange opens for business

#70

Post by patio11 » Fri, Aug 19, 2016, 9:15 PM UTC

mmodahl wrote: post #36

lbotos wrote: post #16

Earlier quoted context omitted.

I think it's vilified because for some reason people think that the HFTraders are "stealing" from them in the form of tax avoidance and their exorbitant incomes.

Nerds making money and people gunna hate.

I'm not generally a fan of viewing the world in terms of an extended version of the social struggle from high school, but given that this actually does do a reasonably accurate caricature of human market makers versus HFT firms, this has always confused me regarding HN's reaction to HFT.

In one corner, we have sweaty alpha male jocks [+]. In the other corner, we have geeks with computers. The geeks ran the table on the jocks primarily because the geeks can do math faster. The jocks complain that the geeks are cheating, because how can they be expected to out-math a computer and, also, isn't math just a little suspicious? And HN sides with the jocks?

[+] People might think I'm exaggerating. Videos exist of the daily life of a market maker. Here's a representative day at the office, circa 2000, in Chicago's open outcry options pit: https://www.youtube.com/watch?v=mvx3xM02iUs In stocks and bonds, you generally got to be sweaty in your own office (open plan, frequently) and yell at someone over the telephone rather than straight to their face.