An interesting data point in the hft rigged market debate I never see is, what do the insiders do with their money? I work at an electronic market maker that trades on colocated servers with fpgas and rents bandwidth on microwaves, so we without a doubt fall under the hft umbrella. My 401k is 100% invested in index funds and my personal brokerage account is split between 80% vanguard index etfs and a few stocks (that I probably shouldn't have invested in, but I didn't know what I was doing when I got started). This is similar to my coworkers and people I know at other firms. Why would we do this if we were knowingly rigging the market against retail investors? To answer my own question, if you're an investor, the microstructure of the exchanges is irrelevant. When I put in an order to by 100 shares of VTI, I'll put in a limit order after the close a half percent above the closing price knowing that it will be sold to citadel or another internalizer who will fill the order at a good price (nbbo, debatable since they're being investigated currently) and take the penny or two spread. I could put in a limit for the close, but either I wouldn't get filled or if I did, it would only be due to the market moving against me and honestly the difference doesn't matter. I have no intent to sell at a particular profit point or watch a screen all day to find some imagined perfect entry point which I wouldn't even know if I saw it. I'm interested to hear if opponents of hft have considered this or think insiders are behaving differently. I won't make the argument that we're looking out for the little guy or we have some mission to benefit society through price discovery. We basically print money when the market goes down, but we're so far removed from the average person that I can only assume that the hatred is based on marketing and false perception.
'Flash Boys' IEX stock exchange opens for business
111–120 of 157 posts
Re: 'Flash Boys' IEX stock exchange opens for business
#112Earlier quoted context omitted.
Do you mind expanding on that last point? I'm interested in your take on how/why a batch auction's advantage is eliminated by the rest of the world trading around them.
Largely because the entirety of latency arb has to do with taking advantage of price differences between exchanges. How those differences are created is largely immaterial. As long as you have multiple exchanges that are not perfectly syncd (a distributed systems problem!) There will be time based arbitrage opportunities.
Not exactly in all products. US equities exchanges have to comply with the nbbo (national best bid offer), so they're required to forward an order to the exchange with the best price. This isn't true for futures, but there aren't any fungible futures in the US. This means that latency arb in US equities isn't true arbitrage. If you see a price level get sweeped at one exchange, you may guess that the others will follow, but it's no guarantee and most sophisticated traders who trade the volume to do this will trade in a dark pool or block trade, so the opportunities are close to non existent. The intent for equities market making is to trade retail orders with the assumption that they they're placed with no knowledge of a true price and won't move the market. The true arb opportunities today are reserved to minis vs futures or cross exchange futures vs indexes
Re: 'Flash Boys' IEX stock exchange opens for business
#113Earlier 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.
HFT firms make something like an order of magnitude less than their prey, the major investment banks.
Even more than that. Going by their 2015 reports, KCG made $885M in revenue, and Virtu made $757M. JPMorgan made $93,543M. If you look at net income, it's even more dramatic since HFT firms generally run on tighter margins.
I've never quite understood the amount of HFT hate here. God's work it ain't, but it's a bunch of nerds using bleeding-edge technology and machine learning to break into and (dare I say) disrupt an industry whose avarice and sense of entitlement is perhaps unparalleled in modern history. It's tailor-made for this crowd, but somehow still gets a bad rap. I truly fail to see how that's less exciting than anything else anyone here gets worked up about.
Re: 'Flash Boys' IEX stock exchange opens for business
#114Earlier quoted context omitted.
In what way could this comment possibly be worthy of a down vote? It's complete and thought-provoking.
Called HFT innovative. Can't say that here.
I think it's inaccurate to put hft in the future tech division with darpa or porn. Maybe it will lead to fpga's/c++/microwaves being widely used for ML, but it seems unlikely that the low latency and minimal cross country transmission has has much value. If you're building a system to process lots of data quickly transmitting a few bytes between the UK and Belgium slightly faster than a wire won't be a constraint. Maybe it will lead to real time instance based learning, but I'm not aware of anyone going in that direction
Re: 'Flash Boys' IEX stock exchange opens for business
#115Earlier quoted context omitted.
This is the thing when I see wall street, and specifically high frequency trading vilified. Income inequality, the plight of the middle class, etc has almost nothing to do with that kind of financial maneuvering. Getting rid of high speed trading won't affect the average person really at all - but yet it's constantly vilified.
The technology put a lot of people out of work and at the same time eliminated a loophole that wealthy people had to take advantage of the markets. That is a recipe for vilification. Think of the wrath of the unemployed truck and taxi drivers that will be aimed at the evil computer programmers and engineers who perfect self-driving cars and trucks. The headlines will be amazing.
I think it put several hundred people out of work at nyse and nasdaq who were also charged with colluding for $.50 tick size. They went quietly. The repercussions have come from institutional investors and banks who we're used to putting in 100,000 lot orders without the market moving against them. I do see some wrath coming from drivers too. The companies they're pissed at are too well known though. People will still see google and tesla as inovators and get behind them
Re: 'Flash Boys' IEX stock exchange opens for business
#116Earlier quoted context omitted.
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 updati…
Like I said in the original comment, it is pointless to get bogged down in the analogy because it doesn't reflect the truth accurately. However, you guys are continuing down the path an down-voting a perfectly legit argument.
The purpose of an analogy is not to maintain fidelity to the original scenario but to simplify it to convey the point of author (otherwise it ends up getting as complicated as the scenario). The analogy is only a coarse approximation of the actual scenario, a best-effort attempt to drive the point across.
I'm disappointed with the unreasonable down-votes and the explanation provided.
Re: 'Flash Boys' IEX stock exchange opens for business
#117Earlier quoted context omitted.
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.
Once the grocers raise their prices, there's no margin left for the Ferrari owner to capture.
There is still a margin if the intended buyer was willing to pay more or would just want to buy the milk at whatever price offered. Of course, the grocers could keep raising the price arbitrarily but there is still a delta that the guy in the Ferrari could overcharge.
I think you understand the point we are trying to get across but just trolling it. I'd have appreciated an honest discussion rather than a trolling attitude.
Re: 'Flash Boys' IEX stock exchange opens for business
#118Earlier quoted context omitted.
Then source it...
http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...
Vanguard runs etfs mostly, so I'm not sure why they care about support small spreads since they probably do a lot of efp trades (I'm not sure how the underlying prices are determined, but I think they can convert at a set price). The mutual funds and hedge funds who are more fundamental will try and buy or sell large blocks, so they're more affected by adverse market moves from trying to dump $1M of apple. I could see VG's attitude change a little since there are more traders engaged in rebalancing arb. If you know that the S&P index has to allocate more money to a certain stock, you can buy it ahead of time and sell to VG for a slightly higher price. If you're a passive fund with $1B in an etf, everyone knows what you're obligated to do. It's basically stat arb with higher probability. I still buy VG funds though
Re: 'Flash Boys' IEX stock exchange opens for business
#119Earlier quoted context omitted.
http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...
Vanguard runs etfs mostly, so I'm not sure why they care about support small spreads since they probably do a lot of efp trades (I'm not sure how the underlying prices are determined, but I think they can convert at a set price). The mutual funds and hedge funds who are more fundamental will try and buy or sell large blocks, so they're more affected by adverse market moves from trying to dump $1M of apple. I could se…
"Vanguard runs ETFs mostly"?
Re: 'Flash Boys' IEX stock exchange opens for business
#120Earlier quoted context omitted.
This is true only to a certain extent. Mutual funds have been getting squeezed and the impact, though not immense, trickles down to millions of middle class investors.
No. The opposite is true. Vanguard, one of the largest and beyond a doubt the most trustworthy mutual fund complex, is on the record repeatedly as saying HFTs have lowered their cost of trading. Where did you get your claim from? I can source mine, if you really need me to.