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High-Frequency Programmers Revolt Over Pay

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Re: High-Frequency Programmers Revolt Over Pay

#51

Post by noname123 »

Nwallins wrote: post #50
noname123 wrote: post #27

Earlier quoted context omitted.

Umm, yes and no. Example, I'm Fidelity Bob Fund Manager; after extensive research, I decide to make a decision to buy 200,000 shares of AAPL. So I enter my buy order into my OMS screen, which slices and dices these 200,000 shares into blocks of 100 shares (as for traders not to front-run me, because a naked buy order of 200,000 shares will drive the price up and I'll overpay long after my transaction is completed). H…

> However, the other counter argument against HFT is that it actually doesn't really provide liquidity to the market, as evident by the June flash-crash. As far as I can tell, this is the only argument presented against HFT. > But HFT dealers stopped trading that day, triggering a lot of people's stop-market orders Are there other factors involved in this outcome, or is this a canonical HFT failure?

> As far as I can tell, this is the only argument presented against HFT.

The argument is that HFT provides liquidity precisely when traders don't need it. You need broker/dealer to step in and take the other side of the trade when someone wants to trade and there isn't anyone else willing to trade. The issue with HFT is that, as the predatory example provided above, that HFT is actually buying up your liquidity in the market and selling it back to you at a higher price. Specifically, most HFT prop shops deals in ETB (easy to borrow) stocks such as GOOG, AAPL, & BAC where tens of millions of shares are traded daily. These securities don't need liquidity broker/dealers, as there are already tons of true buyers and sellers out there. Are there any HFT dealers in penny stocks or small caps where some liquidity would be much needed? Nope.

> Are there other factors involved in this outcome, or is this a canonical HFT failure?

Nope. The reason a lot of dealers stopped trading that day were tactical. A lot of stat-arb prop shops got burned during when Bear collapsed, one black box decided to sell everything which cascaded another black box to sell everything, which cascaded to everyone wanting to dump everything. So from that experience, HFT shops decided to not hold any positions beyond seconds and shut down everything when market crashes seriously. So they provide liquidity when the market is doing well, but when the shit hits the fan, self-interests also hits in and the "liquidity-providers" head for the hills.

Re: High-Frequency Programmers Revolt Over Pay

#53

Post by cturner »

neilk wrote: post #26
drx wrote: post #5

Earlier quoted context omitted.

Minute trading introduces very high levels of liquidity to the market. Your thinking represents a common fallacy: "I cannot immediately see any benefit to X, therefore X is pointless / should be abolished".

I'm not an expert, but how does HFT increase liquidity? One definition of liquidity is when you can sell something without affecting the price much. Most people on Wall Street will tell you their job somehow increases liquidity -- connecting buyers and sellers in more and more efficient ways. HFT seems different. It is comparable to front-running other people's orders. Someone tries to buy an item for $1.00, and the…

    HFT seems different. It is comparable to front-running other people's orders
I think you're confusing HFT (which is a broad term) with flash trading.

Re: High-Frequency Programmers Revolt Over Pay

#54

Post by jacquesm »

The value created by the work that you did for hire does not have to translate in to your salary at all, just like you're not going to have to share in the losses if the project turns out to be a dud.

When a welder helps to put together an oil rig that then either makes millions of dollars or explodes, sinks and causes billions in damage the fact that he did it as a salaried employee shields him from the damage just as much as it will insulate him from taking a share in the profits.

That's why it's work for hire. You get to decide up-front if that sort of thing is what you want.

So if someone offers you the opportunity to program a computer and make that company millions of dollars you are being compensated for your time, not for how much money your software will make.

The shareholders of the investment bank and the people that thought up the spec for the thing that you are building will have a much bigger claim to the profits than the guy that codes it up, and not surprising, they're the ones that will eventually make more money on it than you.

Why programmers should be different in this way from welders is not clear to me. Everybody that works for 'big-corp' makes the same kind of deal, and if you didn't make more money for the company than you cost you probably wouldn't have a job to begin with.

Re: High-Frequency Programmers Revolt Over Pay

#55

Post by cturner »

noname123 wrote: post #23
beloch wrote: post #22

High frequency trading is under pretty high powered scrutiny at present. I fully expect legislation implementing trade reforms that will render the practice worthless in the very near future, whether it's frequency limits or per-transaction fees/taxes. If these guys want to spend money and time on start-ups that will likely be out of business before they come online, that's no skin off my nose. In fact, please excuse…

Nah. Not going to happen. They introduced a bunch of legislation already in congress trying to tax per per share per transaction, all got killed very quickly; offends the All-American capitalism sensibilities too much. While I agree with you that HFT is a scam, I disagree with you that it's a ponzi scheme. It's more like ticket-scalping, so the scheme is going to go on forever, as long as SEC allows it (which they wi…

What's wrong with ticket scalping?

Anti-scalping laws are a good example of the government intervening in a market to prevent natural price discovery, and to hand advantage to the sell-side.

Re: High-Frequency Programmers Revolt Over Pay

#56

Post by msy »

jacquesm wrote: post #54

The value created by the work that you did for hire does not have to translate in to your salary at all, just like you're not going to have to share in the losses if the project turns out to be a dud. When a welder helps to put together an oil rig that then either makes millions of dollars or explodes, sinks and causes billions in damage the fact that he did it as a salaried employee shields him from the damage just…

You clearly haven't worked in finance. The traders get a percentage cut, as do the quants, it's only reasonable the hackers started asking where their cut was. However they are conflating programmers and quants here, the guy who puts together a FIX interface is a pretty replaceable cog, the guys who develop algorithms and their implementations are quite literally worth their weight in gold if they're good. The thing with the serious high-freq stuff is the line between implementation and algorithm really starts to blur, you need people who can write seriously fast code that's also bulletproof and can be turned around fast. You need a deep understand of how markets work, how feeds work, how to handle everything from fast market conditions to managing latency issues in multi-venue trade distribution setups.

Re: High-Frequency Programmers Revolt Over Pay

#57

Post by jacquesm »

msy wrote: post #56
jacquesm wrote: post #54

The value created by the work that you did for hire does not have to translate in to your salary at all, just like you're not going to have to share in the losses if the project turns out to be a dud. When a welder helps to put together an oil rig that then either makes millions of dollars or explodes, sinks and causes billions in damage the fact that he did it as a salaried employee shields him from the damage just…

You clearly haven't worked in finance. The traders get a percentage cut, as do the quants, it's only reasonable the hackers started asking where their cut was. However they are conflating programmers and quants here, the guy who puts together a FIX interface is a pretty replaceable cog, the guys who develop algorithms and their implementations are quite literally worth their weight in gold if they're good. The thing…

> You clearly haven't worked in finance.

Chase Manhattan bank, the Netherlands branch, formerly the Nederlandse Crediet bank, about 3 years from when I was 19 to when I was 21, both as a systems level programmer as well as an application programmer.

> However they are conflating programmers and quants here

Yes, but I didn't, I only spoke about the programmers. They do not come up with the models, they just lay the bricks.

The algorithm developer has a different role here and is more than likely not the same guy as the one that codes it up.

Re: High-Frequency Programmers Revolt Over Pay

#58

Post by Maro »

drx wrote: post #5
parallax7d wrote: post #4

A market for trading perception of value should be regulated to increments of days or weeks, not minutes. The current structure for valuating securities does absolutely no good for our society. Not that it's overly evil or anything, it's just pointless, a massive waste of time and money, and is a cancer on our economic system. It's got to be a thrilling thing to code for though.

Minute trading introduces very high levels of liquidity to the market. Your thinking represents a common fallacy: "I cannot immediately see any benefit to X, therefore X is pointless / should be abolished".

You can't possibly argue that doing billions of trades a minute has anything to do with real-life liquidity. By real-life, I mean liquidity that's relevant to a bank's customer, eg. a private citizen who possibly even owns a trading account. And that's the only kind of liquidity I care about. It's just a game to extract money from the economy without doing real work.

Re: High-Frequency Programmers Revolt Over Pay

#59

Post by davidw »

patio11 wrote: post #2

I think financial industry programmers are at the leading edge of this phenomenon (much like quants were the leading edge of programmers being paid for value rather than for hours), because they're the programmers who can most easily demonstrate that their code directly made a company millions. They're not the end of it by a long shot. Take A/B testing, analytics, conversion optimization, etc. If you are good at thes…

> Take A/B testing, analytics, conversion optimization, etc. If you are good at these, you can generate several million dollars of value over the course of a week. If you can credibly offer the prospect of results like that, some companies will pay you very well indeed.

Given the above statement, which I think is accurate, and given that you're pretty good at those things, and given the following statement from your interview:

> You know what my revenue was for today? Nothing, because we’re in the dog days of summer, and sales slow to a crawl until school gets back in session.

Doesn't that mean that your time would be more valuable employed doing the "million dollars of value in a week" stuff?

Re: High-Frequency Programmers Revolt Over Pay

#60

Post by Confusion »

patio11 wrote: post #20
guelo wrote: post #15

These are leeches stealing money from 401k's and pensions.

I would have agreed with you prior to hearing this argument: if someone's pension fund wants to trade 10,000 shares of a stock with a 2 cent spread, then in the next few seconds market makers are going to make $200, guaranteed. The only thing HFT changes is who the marketmaker that pockets the $200 is going to be: some day trader in the bathrobe, market maker at the exchange, automated proptrading strategy, or a sick…

  The only thing HFT changes is who the marketmaker 
  that pockets the $200 is going to be [..]
And the amount of times they step in and take that $200 out of the market. In earlier times, when there weren't many market makers yet, the 2 cent spread would often sort itself out, without someone stepping in and pocketing those $200. Market makers don't just pocket the 2 cents: they pocket them every single chance they got, even when the market would have sorted itself out. I'm sure they improve the liquidity of the market (or how do they call it?), but it's likely we are long past the optimum, where they just step in when it's necessary to improve the liquidity. Why else would hedge fund profits have skyrocketed, without any measurable improvement in the market?
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