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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

#151

Post by cynicalkane »

grandalf wrote: post #150
[deleted] wrote: post #146

Earlier quoted context omitted.

[deleted]

The tiers are only necessary bc the establishment players act as gatekeepers and try to charge excessive fees for electronic access. That other tiers exist shows how much ingenuity exists in the rest of the industry. 20 years ago anyone would have laughed if someone had described the tiered structure of ETNs. In my opinion it's an amazing triumph. Incidentally, the NBBO rules are sold as a way of protecting the inter…

To put some context to this post, he's replying to a post (which I deleted, because I realized I didn't know enough about the field) in which I asked about the differences between flash orders on ETNs and on exchanges, and what they have to do about NBBO rules.

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

#152

Post by tptacek »

soup10 wrote: post #133
tptacek wrote: post #116

Earlier quoted context omitted.

I don't understand. "Liquidity" is another way of saying "cost of trading". You're saying, "most stocks cost so little to trade that people are already willing to trade them, so why upset the applecart for people who make a profit scalping off those trades"?

I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.

You're not saying it simply. You're using the word "liquidity" as if it's an abstraction. The equivalent term is "cost of trading". When you replace the word "liquidity" with "cost of trading", your assertion stops making sense; it becomes "trading is cheap enough already". Huh?

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

#153

Post by btilly »

yummyfajitas wrote: post #149
sokoloff wrote: post #109

Earlier quoted context omitted.

You're creating a new notion that doesn't currently exist: that there is "a price" in a stable equilibrium condition, when in fact, there is a spread. (I think if you draw out an order book of bids and asks, and then try to overlay your notion of a "single price" on it, you will find that your system is not an improvement, at least not for people who value certainty.) Part of the problem that others are having unders…

I think what he calls "price" is an arbitrary variable the exchange defines (along with some set of rules that price follows), and then imposes the rule that trades occur at it.

Exactly.

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

#154

Post by chrisaycock »

soup10 wrote: post #133
tptacek wrote: post #116

Earlier quoted context omitted.

I don't understand. "Liquidity" is another way of saying "cost of trading". You're saying, "most stocks cost so little to trade that people are already willing to trade them, so why upset the applecart for people who make a profit scalping off those trades"?

I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.

> financial companies that hire a lot of smart people and make them do work that has little value to society

Would you rather I build a photo-sharing site? Chase tenure with esoteric publications?

Do you even know why I do HFT? I do it because it's intellectually stimulating and pays well, plus I work in a small firm of ten smart people and no corporate politics.

As for the value to society you don't believe I'm providing, my arbitraging makes it possible for products like ETFs to exist. Most retail investors would be best served with an index fund, and my work ultimately provides that service.

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

#155

Post by tptacek »

SomeCallMeTim wrote: post #96

OK, answer me this: How does an HFT, in practice , add liquidity to a market? None of the examples given showed liquidity being added, because the people involved would have traded with each other directly without an HFT being there. 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…

This exact logic suggests that all market makers are "parasites", and that any market that has them is Doing It Wrong. Why is it being taken seriously?

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

#156

Post by soup10 »

tptacek wrote: post #152
soup10 wrote: post #133

Earlier quoted context omitted.

I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.

You're not saying it simply. You're using the word "liquidity" as if it's an abstraction. The equivalent term is "cost of trading". When you replace the word "liquidity" with "cost of trading", your assertion stops making sense; it becomes "trading is cheap enough already". Huh?

I have no opinion on whether more liquidity and "lowering the cost of trading" is a net good or bad. On the one hand it means less profit for market makers and a slightly lower price to buy stocks. On the other it means more volatility when algorithms mess up.

HFT doesn't matter at all to long and medium term investors that actually provide the value in the stock market(which is providing capital to help grow companies).

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

#157

Post by jeffem »

jellicle wrote: post #127

> Of course, it’s highly illegal to use trojans to rob retail investors and game the stock market, so this story is not particularly realistic. But in fact that entire scenario he just described is perfectly legal. The industry calls them "flash orders", and due to industry pushback against an SEC initiative to ban them in 2009, they are still legal. Nutshell description: - you put in an order to buy AAPL - your trus…

It's sad to see a comment like this on top of HN in the same way it would be to see a misinformed post about "hacking" rise to the top of a trading forum.

I'm going to go out on a limb and say that you, and those who upvoted you, have little or no experience in financial markets. Comparing flash orders to front running a trojan is a terrible analogy. For one, the mechanics are not as you described (other commenters have touched on this). But most importantly, where this is still practiced, the market participants have voluntarily decided to do so and the order flow is openly published, unlike a hacked computer where the user is oblivious.

And even if we assume flash orders are evil, I think it's disingenuos to mention all of the SEC drama surrounding them without mentioning that several leading exchanges have voluntarily stopped the practice, and that flash orders make up a tiny percentage of total trading volume.

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

#158

Post by yummyfajitas »

tptacek wrote: post #152
soup10 wrote: post #133

Earlier quoted context omitted.

I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.

You're not saying it simply. You're using the word "liquidity" as if it's an abstraction. The equivalent term is "cost of trading". When you replace the word "liquidity" with "cost of trading", your assertion stops making sense; it becomes "trading is cheap enough already". Huh?

I think the point he is trying to make is that trading is cheap enough, and maybe smart people should focus their efforts on something other than making trading even cheaper.

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

#159

Post by aidenn0 »

tptacek wrote: post #152
soup10 wrote: post #133

Earlier quoted context omitted.

I'll say it very simply: People insist that more liquidity is a good thing. I'm saying it's not that good, and we have plenty of liquidity already. Companies that do HFT(and otherwise provide more liquidity) are part of the larger problem of financial companies that hire a lot of smart people and make them do work that has little value to society, but happens to be very profitable.

You're not saying it simply. You're using the word "liquidity" as if it's an abstraction. The equivalent term is "cost of trading". When you replace the word "liquidity" with "cost of trading", your assertion stops making sense; it becomes "trading is cheap enough already". Huh?

I think a better restatement of what soup is trying to say would be "20ms latency HFT market makers provide insufficiently more value to the market than 200ms latency HFT market makers to justify the human capital involved in obtaining the lower latency"

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

#160

Post by mmodahl »

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-...

Some people call these sorts of charts crop circles. And, like the patterns stomped in wheat and corn fields, some people take one look at them and decide the end is nigh.
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