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High-Frequency Programmers Revolt Over Pay

forbes.com

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Re: High-Frequency Programmers Revolt Over Pay

#91

Post by yummyfajitas »

cturner wrote: post #53
neilk wrote: post #26

Earlier quoted context omitted.

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.

Mechanics of flash trading: say the best ask price on INET is 100, the best ask price on ARCA is 99. If you place an order buy at 99 on INET, INET is legally obligated to route your order to ARCA (since ARCA has the NBBO). You will pay 99/share + commission + routing fee, with the fees paid to ARCA.

If INET were to flash your order, they give some HFT firm the opportunity to sell you shares at 99. The HFT firm can accept or reject - if they accept, you pay 99/share + commission and INET gets the commission.

That's a completely different game than front running. It has other issues, like being potentially unfair to ARCA and traders who can't afford flash orders, but it isn't front running.

Re: High-Frequency Programmers Revolt Over Pay

#92

Post by yummyfajitas »

anonymousDan wrote: post #87
yummyfajitas wrote: post #34

Earlier quoted context omitted.

Someone tries to buy an item for $1.00, and the HFT algorithm tries to grab the item first and resell it to our original buyer (and other people in the market) for just a tiny bit more. No. The matching engine will match first the highest priced order, and in the case of orders at the same price, whichever order was placed first. You can't jump ahead in the queue, no matter how fast your algorithm is [1]. [1] This st…

Can I ask you how this is physically laid out? Is there just a big centralized computer at the exchange with two input queues, one for buys and one for sells? What if I want to place an order at the best price across multiple different exchanges?

It's basically what you think; a computer system keeps a queue of buy and sell orders, sorted by price/time (i.e., best price wins, if prices is equal, earliest order wins). It then matches trades by popping the top of the queue. If you place an order on INET which can be filled at a better price on ARCA, then INET routes your order to ARCA and you are charged a small routing fee. This is required by RegNMS.

(There is a "don't route me" flag if you don't want to be routed. In that case, your order will simply go unfilled - exchanges can't match you at a price worse than the best price available on all exchanges.)

Re: High-Frequency Programmers Revolt Over Pay

#93

Post by yummyfajitas »

Confusion wrote: post #60
patio11 wrote: post #20

Earlier quoted context omitted.

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…

In earlier times, the spread was considerably higher. So instead of an HFT firm earning a $0.02 bid/ask, a human on the trading floor might be earning a $0.05 bid/ask.

If you don't want to pay the spread, you can place ALO orders and you will NEVER pay the spread. Your order might never be filled, however.

The $0.02 spread you pay is the cost of getting filled right now. Pay it or not, it's your choice, but remember that immediacy isn't free.

Re: High-Frequency Programmers Revolt Over Pay

#94

Post by mahmud »

ryoshu wrote: post #29
jmillerinc wrote: post #17

I have a feeling this article confused the creators of the trading algorithms, which is what makes the money, with pure programmers, who are hired to implement someone else's pre-existing algorithms. Sometimes these are the same person, but in those cases that person almost always has a profit sharing contract, not only a base salary. (And if they don't, they're crazy.) The fact that the programmers in the article on…

That's an easy problem to solve. The people with the trading algorithms can just learn to program. No worries about programmers stealing trading secrets that way.

HFT financial engineers can not necessarily learn software engineering in their operating time-frames. There is no "High Frequency Learning"; by the time they learn to configure a development environment they could have lost the edge.

Re: High-Frequency Programmers Revolt Over Pay

#95

Post by yummyfajitas »

noname123 wrote: post #51
Nwallins wrote: post #50

Earlier quoted context omitted.

> 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 th…

Are there any HFT dealers in penny stocks or small caps where some liquidity would be much needed?

False. There are long tail funds, I believe tradebot works on the long tail (among many others).

The thinly traded stocks have better spreads and less competition, which means there is money to be made.

Incidentally, most HFT firms stopped trading on may 6 due to a fear of broken orders. If you buy at 5, sell at 10, and the market goes up to 15, you could wind up losing $5 on a short position if your buy order is broken. Unfortunately, broken orders are impossible to predict algorithmically, since humans came up with the criteria for order breaks hours later.

Re: High-Frequency Programmers Revolt Over Pay

#96

Post by infinite8s »

rwmj wrote: post #70
tom_b wrote: post #11

Earlier quoted context omitted.

I'd actually love to see more jobs that offered the opportunity to work with a small base salary but increased compensation levels based on measurable results. I'm really curious about non-startup work models that would encourage this. So far, the easiest path would seem to be via consulting, where you sold your services as business services that happened to be software-based rather than as a "warm body" to staff som…

Surely you can just invest a large proportion of your salary in company stock and achieve the same end?

Usually company stock is offered on much better terms when it is part of your pay package.

Re: High-Frequency Programmers Revolt Over Pay

#97

Post by jamii »

Sukotto wrote: post #86

I'm interested in playing with algorithmic (maybe even HF) trading to see if it's fun. Can anyone recommend a source of data on the cheap so I can papertrade? Clearly realtime data feeds are going to cost... but isn't there some public repository of historical data someplace?

We are actively looking for market makers for smarkets.com . No fees and very little competition, it may be worth checking out if you want somewhere easy to get started.

We just released a public API: http://apidocs.s3-external-3.amazonaws.com/index.html

Re: High-Frequency Programmers Revolt Over Pay

#98

Post by jmillerinc »

kiujhyghjkl wrote: post #41
jmillerinc wrote: post #17

I have a feeling this article confused the creators of the trading algorithms, which is what makes the money, with pure programmers, who are hired to implement someone else's pre-existing algorithms. Sometimes these are the same person, but in those cases that person almost always has a profit sharing contract, not only a base salary. (And if they don't, they're crazy.) The fact that the programmers in the article on…

>b) is taking all the risks of running it The bank's customers are taking the risk of running it not the traders - it's not the trader's money

Of course, but the traders are taking risks in the sense that they can get fired for losing money. Programmers generally won't. They have a lower-risk, more secure job.

Re: High-Frequency Programmers Revolt Over Pay

#99

Post by tomjen3 »

TGJ wrote: post #12

It is the same for every company. Employee says I do 'x' and without me, the company would not be able to operate therefore I deserve part of the profit. Thing is, the employee was hired on and agreed to do 'x' and so they do not have a right to claim any more. As such, they can strike out on their own and as the article says, learn that there is great risk to be had and choose between large risk and making millions…

>so they do not have a right to claim any more

Not of what they made in the past, but they can certainly terminate the agreement and change the rules from now on (assuming that the boss approves, obviously).

Re: High-Frequency Programmers Revolt Over Pay

#100

Post by jbooth »

anamax wrote: post #25
jbooth wrote: post #14

Earlier quoted context omitted.

So? Let's say all subsecond trading is abolished tomorrow, and rather than a smooth curve, all asset prices step at 1-second intervals. What value was destroyed there? If none, what value are these guys creating? None?

> Let's say all subsecond trading is abolished tomorrow, and rather than a smooth curve, all asset prices step at 1-second intervals. That will tend to expand the bid-ask spread. That hurts both buyer and seller.

Even at subsecond intervals?

(I'll note that the bid/ask spread becomes effectively zero every time an actual trade happens -- what if it actually reflected market prices rather than a bunch of video games competing against each other?).

Does it hurt the buyer and seller more than the little nibbles these guys are taking to smooth out that curve?

I see a lot of paychecks being cut in this industry and I don't see the value being created. Looks like highway robbery to me.

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