Wall Street Profits by Putting Investors in the Slow Lane • Hacker News Board

Re: Wall Street Profits by Putting Investors in the Slow Lane

#91

Post by dsacco » Tue, Jul 18, 2017, 4:55 PM UTC

ghostbrainalpha wrote: post #79

dsacco wrote: post #27

Earlier quoted context omitted.

> Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case. Why do you want to reduce high frequency trading?

http://www.investopedia.com/articles/markets/012716/four-big... This article has a lot of the reasons. I think loss of confidence in Market Integrity is the most important one.

That article has two reasons, though it spreads "amplification" out among several factors. In fairness, I do agree with the problem of flash crashes, whether they are caused by algorithms moving too quickly or too similarly.

I'll contest the "confidence in the market" hypothesis, however. As more investors move to index funds, I don't believe "confidence" as defined would have any significant impact by increasing or decreasing, because fewer participants overall will be actively engaged.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#92

Post by TearsInTheRain » Tue, Jul 18, 2017, 4:56 PM UTC

osrec wrote: post #13

I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators' ability to untangle. Incentivise your regulators better and you might end up attracting some real talent who can unearth the tricks the crafty traders pull every day (I am an ex trader, from a bulge bracket IB, and trust me, what some of these guys do is not a…

you have to target the disgruntled employees that already know the tricks and get them to flip.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#93

Post by keenerd » Tue, Jul 18, 2017, 4:56 PM UTC

corporateslave3 wrote: post #57

lin_lin wrote: post #40

Earlier quoted context omitted.

Is this true? Any links? Not doubting you, just interested.

Source is I work in the industry. Look at the price of VirtuFinancial stock, who was at one time a premier HFT firm. The amount of disinformation surrounding HFT is staggering.

Unrelated, but I have a question for you. I've been unable to find a good answer for how exactly HFT benefits the average person.

Stuff like antibiotics, electric lights, refrigeration, washing machines, phones, computers all have all led to direct and immediate quality of life improvements. Often on the order of a tenfold improvement for that activity, and they are easily within reach of the majority of the population.

What would become 10x worse for the average person if HFT were to vanish overnight? Would mortgage rates massively spike? Would bond rates plummet? Is there some quantifiable financial thing that would regress to whatever terrible situation we were in back in 1990 before HFT was substantial?

Re: Wall Street Profits by Putting Investors in the Slow Lane

#94

Post by harryh » Tue, Jul 18, 2017, 4:57 PM UTC

zo1 wrote: post #85

harryh wrote: post #53

Earlier quoted context omitted.

This solves fewer problems than you might think. 1) Let's say that trades are resolved at time X. Participants have every incentive to submit all bids/asks as close to time X as possible (microseconds possibly). 2) How do you handle a mismatched number of bids/asks at a given price? Resolving this difficulty without creating bigger problems than the problem you were trying to eliminate is challenging. 3) I'm just a r…

1) You only get to see and make a potential buy/bid for last hour's bid/asks, only. 2) The system itself resolves it. Either it prevents you from making a buy/bid for something that was already "fulfilled" (though this would leak information). Or it accepts them sequentially, and refunds you at the end of the hour. 3) We're not taking that away from you . We'd be taking it away from everyone . You are welcome to see…

1) Yes, but as I've said elsewhere there is a lot of information in the world other than the last hour's orders (why do people always forget this?)

2A) Preventing unmatched bids/asks will not work. Remember that you are starting at zero. All bids/asks are unmatched when you start with an empty order book. If you relax this some then yes you will leak and you are back to where you started.

2B) If you handle things sequentially then you have reintroduced a speed imperative. I, again, have an incentive to go fast to get first in line.

3) Yes, of course you are taking it away from everyone, but that matters more to me (an unsophisticated guy with no real time market research) than it does to BIG_HEDGE_FUND_GUY who does have such things and can, more easily, figure out what the market price should be without the help of the market. You are putting me at a disadvantage and him at an advantage. Is that really your goal?

Re: Wall Street Profits by Putting Investors in the Slow Lane

#95

Post by physguy1123 » Tue, Jul 18, 2017, 4:58 PM UTC

heptathorp wrote: post #76

> IEX has a speed bump that prevents high-frequency traders from front-running ordinary investors. Anyone care to explain, in precise terms, how a high-frequency trader front-runs ordinary investors on a typical exchange and how putting a delay on all incoming orders prevents it?

They don't. That term has basically become an advertising slogan for IEX.

HFT is great for retail investors because you trade cheaper and faster. Usually retail investors get price improvement over the market since HFT brokerages compete for retail flow.

HFT is bad for institutional investors who don't want to invest in sophisticated execution since the market reacts very quickly to large orders. Institutional investors include firms like Vanguard or firms that greatly inform price discovery, so it's worth thinking about both sides of the market and not just optimizing for best retail execution.

IEX is by and for large institutional investors. IEX's delay doesn't apply to one (multiple?) of their hidden/protected order types, which allows larger orders resting on the book to avoid market impact and execution at 'bad' prices as these orders can move away from the top of the book in 'unfavorable' market conditions.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#96

Post by osrec » Tue, Jul 18, 2017, 4:59 PM UTC

TearsInTheRain wrote: post #92

osrec wrote: post #13

I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators' ability to untangle. Incentivise your regulators better and you might end up attracting some real talent who can unearth the tricks the crafty traders pull every day (I am an ex trader, from a bulge bracket IB, and trust me, what some of these guys do is not a…

you have to target the disgruntled employees that already know the tricks and get them to flip.

You know, I've always thought this! Even better, get the guys that have been convicted of serious financial fraud to help the regulators out!

Re: Wall Street Profits by Putting Investors in the Slow Lane

#97

Post by sseveran » Tue, Jul 18, 2017, 5:01 PM UTC

orclev wrote: post #75

sseveran wrote: post #42

Earlier quoted context omitted.

Of course it does. A trader (not an investor) is incentivized to wait to the last possible moment when he can still expect a fill. This is why exchanges disseminate auction imbalance information, to attract people to the auction prior to its completion.

In what way is he incentivized? What advantage does he get from waiting till the last possible moment? He has no clue what the current bids are, so whether he bids at the start or the end he still has exactly as much information. He'll have more information after the bidding closes and the winner is announced of course, but by then it's too late, only thing he can do then is participate in the next round of bidding,…

First off a trader with the results of all previous auctions should be able to make some educated estimates about what the auction contains. Secondly prices are formed by incorporating information into the price. Supply and demand information is only one type of information. Say that we have an auction expiring at 10AM. At 9:59:59.500 Goldman's equity research desk announces that it is downgrading a security. Our trader can now in the remaining 500 milliseconds place aggressive asks to take advantage of what is likely to be a downward price movement. Other's in the auction with resting bids are now going to trade into a price that is moving lower. And arguing against colocation will not help here. There will always be traders who are able to place themselves at whatever the closest allowed point, whether inside the exchange or not.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#98

Post by woopwoop » Tue, Jul 18, 2017, 5:02 PM UTC

harryh wrote: post #15

dm3 wrote: post #12

Earlier quoted context omitted.

Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case.

Before you start talking about what would be effective in reducing the amount of high frequency trading you have to make the case that reducing HFT is a good goal in the first place. This is a challenging case to make.

http://www.thebigquestions.com/2014/04/21/high-frequency-ren...

This seems pretty convincing to me. The argument is that, based on the amount that firms are willing to spend on fiberoptic cables to perform hft, they put an extremely high value on hft. On the other hand, reasonable back-of-the-envelope calculations show that the social benefit of making the trade slightly faster are much less than the private cost. This indicates that almost all of the private benefit from hft comes from value accruing to the hft firm at the expense of other hft firms. We therefore expect to see overinvestment in hft.

What about this do you find objectionable?

Re: Wall Street Profits by Putting Investors in the Slow Lane

#99

Post by harryh » Tue, Jul 18, 2017, 5:03 PM UTC

orclev wrote: post #89

harryh wrote: post #30

Earlier quoted context omitted.

Might other things be happening in the world besides orders on a single exchange?

It seems like that would only matter if you assume that a bid can't be canceled or changed. Assuming you're free to cancel or modify a bid right up until the close, whether you put the bid in at the start of the window or the close of the window wouldn't matter as you could always modify or cancel the bid as new information comes in.

If you can always modify or cancel a bid then people will compete to see who can ingest information the fastest and update all of their bids as close to the auction time as possible.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#100

Post by ghostbrainalpha » Tue, Jul 18, 2017, 5:05 PM UTC

amelius wrote: post #60

deong wrote: post #51

Earlier quoted context omitted.

One immediate problem -- this is how these systems are made to function. It's not like the kickback is happening behind the back of the operators of the exchanges. It's not "hacking" to follow the rules as they're laid out.

So you are saying these systems are bug-free by design/definition? That's quite a statement :)

That's so crazy far from what he is saying.

If you enter a building through a front door, you are not "hacking", you are entering the building in the way the designer intended.

If you enter a building through a window, you are "hacking" because you are exploiting an unintended ability that the designer did not intend to give you.

Just because the comment you replied to said that "kickbacks" are a front door intentional design, you can't then claim he said that the building has no windows. He has said nothing about windows. He just said don't call that door a window, because its not, its a fucking door.