91–100 of 242 posts
Loving this series of articles! Does any of this low-latency work make it back upstream into Linux or other parts of the software stack? As a latency-obsessed person I would love to know that the fruits of all this labor were available to me for my own low-latency systems. To me, that alone would be enough to feel that the latency-race is providing value to the world. Also, one thing that was not clear to me is how e…
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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.
Additional evidence that HFTers are not stealing from speculative investors: Anyone can start a market. If HFTers were stealing pennies someone would have come along and started a market that banned HFTers (or changed the rules to otherwise get rid of them). Then all of the speculative investors would use this market instead since they could be assured that no one was siphoning off pennies on every trade. Eventually…
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The books don't hold "shares", they hold "orders". The spoils are supposed to go to the people willing to provide the most liquidity; the "spoils" you're referring to are "the expense involved in executing orders".
"orders" contain the price and the number of shares. Let's not split hairs here. No one cares about the absolute number of orders, but rather the total number of shares/contracts/etc available at each price. By spoils, I mean the returns to market making. Right now market makers are largely rewarded for being the fastest and beating out other market makers rather than for providing the most liquidity to speculators/i…
The markets do not do that automatically. Before automated trading, Alice could sell, but would probably have had to do so at significantly less than $10/shr, even if the market was indicating $10 was the true price of XYZ. Bob could buy, but would probably have to do so at significantly more than $10.05/shr. The primary reason for that: human beings skimming from Alice and Bob, because there was no effective way to compete.
As a programmer with an economics degree, I'm thrilled to see articles like these on HN ... popular media outlets do a terrible job of explaining how these systems work and usually devolve into generalizations like "HFT is evil and you should hate it" because they don't understand basic economic principles.
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.
Sometimes the assumption that people are rational breaks down, like with sticky prices caused by what psychologists would call "loss aversion". In that case economists make the changes they need to to their models to account for how people differ from the simplest model. This is basically how you get the entire field of Macroeconomics.
Further, I submit that any HFT will only place a buy/sell spread in the case where the volume is high enough that they can complete their purchases within seconds or at most minutes.
At best an HFT will cut a few minutes (more often seconds) off of the time of a trade. Anyone who is worried about waiting a few minutes for a trade to complete is Doing It Wrong. Therefore, the "liquidity" HFTs provide is only in the cases where it's not truly needed because the volume is high enough to provide it anyway.
I've traded in a lot of stocks where there was very little liquidity, and fewer than a few dozen trades would happen per day. I'd sometimes wait hours for a trade to complete. Where are all the HFTs providing me "liquidity"? They weren't anywhere to be found, because in the cases where the volume is too low HFTs can't make a sure bet. And when the volume is high, they aren't needed. So what good are they again? At any point that an HFT is willing to buy stock, it's because there's a high likelihood that someone will show up to pay more after a few seconds or minutes.
IMO the popular media actually has it right. HFTs really are just stealing pennies on every transaction, because they only enter a stock and "add liquidity" if and when the stock doesn't need it.
The onus isn't on me to prove they aren't providing liquidity, but on the HFTs to prove they are, and the OA doesn't even come close. In every example OP gives, the people actually buying and/or selling stock would have been better off without the HFTs in the mix (at best their trades were a few minutes faster).
If we just taxed or put a fee on a "short term hold" of a stock, say less than one day, then high frequency trading would vanish. I see HFTs as a parasite on a broken system, nothing more, and I'm shocked that so many HNers idolize them.
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I still like my suggestion at http://news.ycombinator.com/item?id=3855846 . True, the HFT folks would still try to provide liquidity by maintaining a bid/ask spread. But every trade that executes because someone wanted to trade while the price was somewhere between the bid and the ask would cut the HFT folks out of the loop to the benefit of everyone else. And scary anomalies like the flash crash would be impossible.…
...every trade that executes because someone wanted to trade while the price was somewhere between the bid and the ask would cut the HFT folks out of the loop... See the first post in the series. This is exactly how the markets work. The best price always wins. If the bid/ask is $10.00/10.05, and I offer to buy at $10.05, I will trade immediately. If I offer to buy at $10.03, I jump the queue and will be the first to…
Suppose that the bid/ask is $10.00/10.05. Suppose that I am willing to buy at $10.20.
In today's market I will immediately make the trade at $10.05.
In my suggested market there is another fact to consider, the price. Suppose that it is $10.03. Then I become an outstanding buy order, and for as long as I am outstanding, the price will drift up. If the price reaches $10.05 without finding a seller, then I will trade at $10.05 with the HFT folks. But if a seller who is willing to sell at $9.90 comes along before that happens, we will trade with each other at the current price and leave the HFT folks out of the loop.
My suspicion is that, if this were implemented, a large fraction of trades would actually execute in the middle ground between what the HFT traders are willing to offer as a bid/ask. Therefore this would be even better for actual speculators than the current system. HFT players would still be in that market, but they would not be as important.
In short the difference with my system is that trades may have a small delay before they execute, but should execute at the same or better price for me than the existing market mechanism.
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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. Look…
How is this an apology? Have I missed something? It sounds like this guy is giving tips for how to do this shit yourself.
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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.
It would be more fair to say that economics assumes that people try to achieve their goals in rational ways. Which is actually a fairly good assumption in most cases when people can work in large groups, face the same challenges again and again, and can watch each other succeed or fail. There's really no assumption that people are equally informed, because when I read economists talking about things they always seem…