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A High Frequency Trader's Apology, Pt 2

chrisstucchio.com

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Re: A High Frequency Trader's Apology, Pt 2

#71

Post by tptacek »

harryh wrote: post #64
SkyMarshal wrote: post #35

One of the biggest justifications for HFT that I see is that it increases liquidity. However, did major markets ever really have a huge problem with lack of liquidity, 20 or 30 years ago before HFT? I can't help but wonder if this level of liquidity is only really useful to HFT, if it is something that HFT is both the primary provider and beneficiary of, and if they're sort of using their existence to justify their e…

> However, did major markets ever really have a huge problem with lack of liquidity, 20 or 30 years ago before HFT? Yes. It used to be that humans were the market makers. Humans are (generally) a lot more expensive than computers so providing liquidity came at a higher cost. Bid/ask spreads used to be much higher. HFT it just an example of computers replacing humans at a lower cost. A phenomenon that can be observed…

Humans are also far less transparent than algorithmic market makers. Talk to professionals about the specialist system. It's (words chosen carefully) hard to take anyone seriously who pines for the good old days of 1970's and 1980's trade execution.

Re: A High Frequency Trader's Apology, Pt 2

#72

Post by yummyfajitas »

daltonlp wrote: post #54
yummyfajitas wrote: post #38

Earlier quoted context omitted.

Thanks. Fixed it.

One more: "Fry - all he knows is that he bought 100 shares @ $10.00 from anonymous counterparty." Didn't Fry sell 100 shares to an anonymous counterparty?

Yes. Thanks. Arrggh, so many people reading my bad writing.

Re: A High Frequency Trader's Apology, Pt 2

#73

Post by tptacek »

yummyfajitas wrote: post #66
DannoHung wrote: post #40

Why not explain what's going on here and how it's not defrauding markets: http://www.zerohedge.com/news/step-right-its-hft-whack-mole-...

I discussed this phenomenon before - it's basically just poorly written algorithms behaving oddly. http://news.ycombinator.com/item?id=1564445 Note that your article provides no explanation as to who is being defrauded ("markets" isn't a person) or how, so I don't know what you want me to explain.

What is your take on Zero Hedge? It drives me sort of bananas, but I'm not a pro.

Re: A High Frequency Trader's Apology, Pt 2

#74

Post by RickHull »

soup10 wrote: post #27
chrisaycock wrote: post #21

Earlier quoted context omitted.

The secondary market provides liquidity to investors who participated in the initial company stock issuance. Without a robust means for selling their shares at some point in the future, investors would be loathe to provide capital in the first place.

Most markets have far more liquidity than is really needed.

How can you tell?

Re: A High Frequency Trader's Apology, Pt 2

#75

Post by wtvanhest »

MarkPNeyer wrote: post #32
chrisaycock wrote: post #21

Earlier quoted context omitted.

The secondary market provides liquidity to investors who participated in the initial company stock issuance. Without a robust means for selling their shares at some point in the future, investors would be loathe to provide capital in the first place.

is there any evidence for this argument? would investment just stop alltogether, or would it change to support lots of smaller ventures instead of a few big ones?

Answer this question and you will need no evidence:

What would a stock be worth the day of the IPO if there was no way to sell it the day after the IPO?

Re: A High Frequency Trader's Apology, Pt 2

#76

Post by harryh »

tptacek wrote: post #71
harryh wrote: post #64

Earlier quoted context omitted.

> However, did major markets ever really have a huge problem with lack of liquidity, 20 or 30 years ago before HFT? Yes. It used to be that humans were the market makers. Humans are (generally) a lot more expensive than computers so providing liquidity came at a higher cost. Bid/ask spreads used to be much higher. HFT it just an example of computers replacing humans at a lower cost. A phenomenon that can be observed…

Humans are also far less transparent than algorithmic market makers. Talk to professionals about the specialist system. It's (words chosen carefully) hard to take anyone seriously who pines for the good old days of 1970's and 1980's trade execution .

Yup, 100% agree.

Re: A High Frequency Trader's Apology, Pt 2

#77

Post by wtvanhest »

In the Hacker News comments on part 1 of this series, there were several comments suggesting that HFT’s somehow steal pennies from ordinary investors. I don’t agree with this claim, but I’m very interested in hearing well reasoned disagreement.

I would go past this and say that anyone who did come up with a "logical" argument would be ignoring time value of money.

Re: A High Frequency Trader's Apology, Pt 2

#78

Post by nasmorn »

rdlowrey wrote: post #39
MarkPNeyer wrote: post #34

Earlier quoted context omitted.

maybe they think basic economic principles such as "everyone is an equally informed sociopath acting at all times to consume as much as possible without regard to relationships" are absurd. economics is a bullshit field.

But math isn't. Everyone is entitled to their own opinion; mine just happened to result from the mathematical proofs I was forced to study and write for the postulations of that "bullshit field." I would also submit that your argument ignores the law of leaky abstractions ( http://www.joelonsoftware.com/articles/LeakyAbstractions.htm... ) ... All non-trivial abstractions, to some degree, are leaky. Finally, economics…

That is funny because the proofs had the opposite effect on me. It dawned on me that the math of e.g walrasian price setting is surely correct but the story that this is supposedly how our economy works was much less believable after each supposedly logical assumption (free disposal, no money pump) could be traced back not to psychology or physical realities but conditions for the equations to remain solve able.

Looks to me like a cryptologist predicting what passwords people would choose based on the needed computing power to crack them. I wonder if 'password' made the list.

Re: A High Frequency Trader's Apology, Pt 2

#79

Post by tolos »

What makes me uneasy about HFT is the speed in which things happen.

For example, I believe the BATS IPO that happened last month began trading around $15, and was below $1 in about 900ms before trading was halted. (Nanex.net has news postings about these kinds of things, and I wouldn't mind hearing other people's opinion about the site)

I guess my question is, is it possible for traders to make money in the short term (hours/minutes) or is that forever in the land of robots now?

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