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HFT in My Backyard (2014)

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Re: HFT in My Backyard (2014)

#21

Post by 1e-9 »

hendzen wrote: post #10
harryh wrote: post #7

Earlier quoted context omitted.

HFT has significantly lowered trading costs for all investors. Here's a statement from the CEO of Vanguard espousing this position: https://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-... Because of automation, the amount of resources used for trading have actually decreased. Computers are a lot cheaper that the many many humans who used to be involved in the process.

I think it’s more nuanced in reality. There are liquidity providing HFT strategies that profit off the spread - this is good for people moving big size like Vanguard. Then there are liquidity taking strategies that profit by picking off quotes in anticipation of a probable price move. I don’t see how those strategies help Vanguard. Also, most HFT firms do a mix of both types strategies...

The markets need aggressive orders as well as passive orders. There is nothing inherently bad about liquidity taking. It is generally just as beneficial as liquidity providing. If anything, the misuse of passive orders is probably more common than the misuse of aggressive orders because passive orders can be used to influence a market without trading.

Even the taking of liquidity in the anticipation of a price move is not inherently bad. It is only bad if it degrades market efficiency (for example, by adding instability). An aggressive order that anticipates a price move due to an existing market inefficiency (for example, a sudden over-reaction to a report) benefits the market by speeding price discovery and adding stability.

As to your question of how an aggressive HFT strategy could benefit Vanguard, consider that if Vanguard places a passive order, it is because Vanguard hopes to attract an aggressive matching order. If they are unable to attract one within their time requirement, they will likely need to change their order to a less-profitable price. Their time requirement could be quite short during times of great volatility. An HFT strategy able to more-quickly recognize that Vanguard's original price was attractive would save Vanguard the cost of a price change. This benefit can be particularly large during significant market stress when participants are forced to liquidate assets in order to manage risk.

Re: HFT in My Backyard (2014)

#22

Post by cascom »

amelius wrote: post #5
client4 wrote: post #3

This blog actually got me into HFT. It's a fascinating industry with a lot of fun bleeding edge tech challenges.

I could be totally wrong, and perhaps I should read that blog, but working in HFT doesn't sound very rewarding except perhaps in a pure financial sense. It seems to me that the field contributes nothing to society, and has only negative externalities like raising barriers of entry to markets and using insane amount of resources.

By that measure most of Silicon Valley is not “rewarding”. While reasonable people can debate HFT’s benefit to society and resource use, how does HFT raise barriers of entry to markets?

Re: HFT in My Backyard (2014)

#23

Post by rhexs »

VRay wrote: post #20
harryh wrote: post #11

Earlier quoted context omitted.

Ya, it's certainly more nuanced than I was going to get across in just a few sentences. Mainly I wanted to push back against: "the field contributes nothing to society, and has only negative externalities"

I think it's fair to say that someone is going to contribute less to society working on HFT than they would by using the same skills to work at NASA or SpaceX, though

No....uh....”liquidity”.

Re: HFT in My Backyard (2014)

#24

Post by alasdair_ »

amelius wrote: post #5
client4 wrote: post #3

This blog actually got me into HFT. It's a fascinating industry with a lot of fun bleeding edge tech challenges.

I could be totally wrong, and perhaps I should read that blog, but working in HFT doesn't sound very rewarding except perhaps in a pure financial sense. It seems to me that the field contributes nothing to society, and has only negative externalities like raising barriers of entry to markets and using insane amount of resources.

> It seems to me that the field contributes nothing to society, and has only negative externalities like raising barriers of entry to markets and using insane amount of resources.

I thought the same way for a long time.

HFT helps make markets more liquid and (somewhat) may aid price discovery.

Now, assuming you buy that, the standard response is “sure, but how does pouring all these resources into shaving picoseconds off of a transaction help the world?” Fair point.

In my mind, the markets are really just a giant computer running a resource optimization problem whose inputs change constantly. Improving the latency of getting a result back can open up completely new applications.

This is a bit hazy, but think of what is possible with todays computers versus those of fifty years ago. Both can perform the same calculations, one is just faster, yet just making calculations faster has changed the world.

HFT means speeding up the computations for the allocations of resources for the entire world. This is a really important set of calculations- it affects, indirectly, almost every human on the planet. Making this faster by just a tiny fraction can make it more efficient and when that efficiency is multiplied by the trillions of dollars involved, that can mean huge savings for humanity as a whole.

Or, you know, the benefits could all be spent on hookers and cocaine, your choice.

Re: HFT in My Backyard (2014)

#25

Post by ladberg »

jcun4128 wrote: post #4

Are the lines on the map literal? I would think propagation goes around vs. linear but maybe they're using helical antennas so it is high gain? I'm probably confused I'm vaguely aware of the concept with dedicated lines/least latency/etc... I saw a picture of a tower/thinking it's about transmission...

I think it's all point-to-point directional antennas, so it would be linear.

Re: HFT in My Backyard (2014)

#28

Post by tehjoker »

harryh wrote: post #17
tehjoker wrote: post #15

Earlier quoted context omitted.

If you have to justify the contribution to society in terms of the stock market instead of some materially useful metric like meals served, people put in housing, technologies invented or some such thing, there are ways to provide retirement plans that have nothing to do with the stock market.

Thinking of the stock market as merely "a way to provide retirement plans" is wrong. It costs money to serve meals, put people in housing and invent technologies. Where does a lot of that money come from? Our financial system (of which the stock market is a key component). A better functioning financial system enables progress in lots of other industries.

You can have a financial system without a stock market. It would be constituted with public banks or various kinds of credit unions. The reason I cited retirement plans is that is the most sympathetic argument I could think of for caring about the stock market going up. Only ~20% of Americans own stocks, so it going up basically just enriches 1/5th of the population at the expense of the rest.

Re: HFT in My Backyard (2014)

#29

Post by harryh »

tehjoker wrote: post #28
harryh wrote: post #17

Earlier quoted context omitted.

Thinking of the stock market as merely "a way to provide retirement plans" is wrong. It costs money to serve meals, put people in housing and invent technologies. Where does a lot of that money come from? Our financial system (of which the stock market is a key component). A better functioning financial system enables progress in lots of other industries.

You can have a financial system without a stock market. It would be constituted with public banks or various kinds of credit unions. The reason I cited retirement plans is that is the most sympathetic argument I could think of for caring about the stock market going up. Only ~20% of Americans own stocks, so it going up basically just enriches 1/5th of the population at the expense of the rest.

You can have a financial system without a stock market. It would be constituted with public banks or various kinds of credit unions.

Not really. A financial system that only consisted of debt and not equity would not be able to support anything like our current economy. We would all be much poorer for it. Loans are simply not suitable for a huge variety of financial risks.

Re: HFT in My Backyard (2014)

#30

Post by yellowstuff »

tehjoker wrote: post #28
harryh wrote: post #17

Earlier quoted context omitted.

Thinking of the stock market as merely "a way to provide retirement plans" is wrong. It costs money to serve meals, put people in housing and invent technologies. Where does a lot of that money come from? Our financial system (of which the stock market is a key component). A better functioning financial system enables progress in lots of other industries.

You can have a financial system without a stock market. It would be constituted with public banks or various kinds of credit unions. The reason I cited retirement plans is that is the most sympathetic argument I could think of for caring about the stock market going up. Only ~20% of Americans own stocks, so it going up basically just enriches 1/5th of the population at the expense of the rest.

You can imagine a successful financial system without a stock market if you don't know much about financial systems, in the same way that you can imagine a jet flying without wings if you don't know much about aerodynamics.

I believe that the rise of importance of finance has been a net good for humanity, but I know that's an unpopular opinion and I've seen good arguments that it's a net harm. But I don't think you can make a reasonable argument that we could have a modern world anything like the current one without stock markets. Banks and credit unions don't, can't and shouldn't provide the kind of funding that equity markets do.

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