A High Frequency Trader's Apology, Pt 2

>the market moved before his order was filled.

In what tangible way is this different from "the market moved before Fry got his order in"?

The market for a particular stock depends on there being people who are willing to buy it. Saying "the market moved" blurs the fact that there simply weren't any buyers at that price any more by the time he got his order in.

If we're talking about a stock with a lot of volume, and Fry "jumps the queue" by setting a limit order in the current spread (something I almost always do myself, FWIW, based on that same investing advice I mentioned), then he'll sell his stock with or without HFTs. What value does the HFT add in this case?

The argument is that HFTs add liquidity. Don't HFTs only work with stocks that have high volume? How is adding liquidity when there's already high volume a value?

Or algos that are actively working other algos.

The only good reason to have marketplaces is to get efficient price discovery. Explain to me how HF algos stuffing quotes helps to do so. Explain how this isn't just a way to salami slice the cumulative market orders for any given stock?

There are people that have money and people that need money and stock market is a great mechanism that tricks people who have money into parting with some of them temporarily or permanently and funding the people that need money.

Companies get money from selling their stock and use it to fund their actions.

People with money buy their stock and between themselves use their stock as casino tokens to legally gamble.

Without the gambling part there'd be much much less interest in giving money to the companies. People would have to believe that your company will grow. With stock market people just have to believe that there will be some suckers that will buy the stock for more money. (the thing you said in (b))

Most investors are in not to own a part of the great company but just for the gamble.

I just think that price of the token is mostly meaningless from the point of view of the companies that issued them. If you own 51% of the tokens you don't care how much people are pricing them because you own the actual company and you care mostly about the company itself. It's not like you could just dump your 51% on the market without making the sky fall.

Price has some importance if the company wants to get more money by issuing more tokens and it's also very important for various managers who got some of the tokens as their compensation. I'm not sure if that last one fact is a good thing. Managers should concentrate on their jobs of running the company not on making an impression that their company will do well in the future but you can't effectively ban them from playing. They would play anyway via proxies.

I believe that price of tokens does not say almost anything about companies condition. It only says things about random peoples opinion on the company future condition which I think correlates very weakly with actual current condition and the actual future condition.

Determining the price of token more precisely has no more value to people not involved in playing this game of buy/sell than precisely determining the value of WoW items.

Stock market gambling just switched from game played by people to game played also by bots. I think it's a nice thing that there's a place both for humans and bots in this game. I don't share the opinion that people that use bots are somehow cheaters. They just play they game the way they like and don't seem to be destroying it in the process.

How does insurance benefit someone who's car doesn't crash? It's a couple of hundred bucks a month for nothing.

What value does the HFT add in this case?

None. If Fry doesn't want to cross the spread and pay for liquidity, he doesn't have to.

Similarly, Arthur's Steakhouse doesn't benefit me because I'm a vegetarian and don't want to buy what they are selling.

Don't HFTs only work with stocks that have high volume? How is adding liquidity when there's already high volume a value?

First of all, many HFTs do work with the long tail of US securities. Second, adding liquidity via price improvement (i.e., narrowing the spread) is useful even if volume is high.

The critical thing is (I think) the concept of price takes time to move, making it possible for use the liquidity that exists without HFT, but still letting HFT cover the gaps.

For the example below, we suppose this new price can only move $0.01 a minute (obviously real thing would be more complex, but this makes things simple.)

Then, the bid/ask is $10.00/$10.05 and the current price is $10.03. By placing a buy order at $10.20, the price will start trending upwards. So, if no-one comes along to trade in the next two minutes, the price will reach $10.05 and the order will fulfill since there are sellers at $10.05. This will clear the buys and the "pressure" on the price will return in to between the bid/ask spread.

On the other hand, if a seller comes along after a minute and places an ask at $9.90, the trade will complete at $10.04, and both traders benefit.

I'm not sure what the implications are but I'm not sure if you understood the time-varying, averaged price concept btilly was proposing.

In the CAT example, I would expect the price to have trended to between the Bid/Ask spread from the last trade price (say it's $22.00) So that's where the order can execute if buyer and seller arrive at the same time.

Again, I have no idea if this is good idea and the mechanics seem over complicated, but thought it was worth pointing out what might be a good idea.