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Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

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Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#91

Post by sseveran »

bokonist wrote: post #84
hogu wrote: post #71

Earlier quoted context omitted.

How would this be better than what we have now? Right now stocks already go to the highest bidder - if there is a seller willing to sell at that price. how would you run an auction if there are 40 firms trying to sell the same stock? The ad market is well suited towards auctions because you have one seller for many buyers, but in finance you have a symmetric relationship between buyers and sellers.

Google "HFT frontrunning". The issue is that HFT algorithms can use their superior speed and the ability to cancel orders to essentially figure out what institutional buyers are bidding, and then front run the market to buy up shares in front of them. This would be prevented in my system by the black box auction and trading on an interval.

There are many opportunities for institutional investors to trade in exactly the manner you suggest. NASDAQ runs the opening and closing cross as well as other intra-day crosses. Other platforms allow private crosses, dark pools allow crossing not in public and today 1/3 of all shares are crossed internally on brokerage platforms. Institutional investors have many opportunities to trade in the dark. There is a price to be paid for instantly accessing liquidity in the market, and it is much cheaper than it used to be.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#92

Post by sseveran »

yaix wrote: post #46
AznHisoka wrote: post #26

Earlier quoted context omitted.

I find HFT is a lot similar to SEO, and the perception is similar as well. People just don't like either because they feel it's not bringing any extra value to society, and it's all about gaming something for your own personal wealth. But most people aren't looking out for your personal interest anyway, so you should ignore them.

I disagree. SEO serves a purpose. It makes web sites more accessible to users, by correctly using HTML (title, h1, alt="", etc.) and it makes the web more machine readable and thus easier to find useful things. But I guess you mainly refer to the spammer SEOs that try to trick Google. HTF otoh does not serve any purpose whatsoever. On the contrary, it brings instability into the market and makes the market less usefu…

SEO gets crappy websites into Google. HFT serves many purposes, mainly replacing human market makers with computers.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#93

Post by sseveran »

prodigal_erik wrote: post #13
programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

It's at least conceivable that the correct valuation of a company changes from one day to the next due to human-scale events, and that speculators are providing a useful pricing signal. Changes from one millisecond to the next are amplifying pure noise produced by flaws in the mechanics of trades reaching the market and clearing.

What is the correct time interval?

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#95

Post by yaix »

sseveran wrote: post #92
yaix wrote: post #46

Earlier quoted context omitted.

I disagree. SEO serves a purpose. It makes web sites more accessible to users, by correctly using HTML (title, h1, alt="", etc.) and it makes the web more machine readable and thus easier to find useful things. But I guess you mainly refer to the spammer SEOs that try to trick Google. HTF otoh does not serve any purpose whatsoever. On the contrary, it brings instability into the market and makes the market less usefu…

SEO gets crappy websites into Google. HFT serves many purposes, mainly replacing human market makers with computers.

What positive purposes does HFT server, appart from making yourself money at the expense of the stability of the overall economy?

"""replacing human market makers with computers"""

That is not HFT, that is just automated trading. The damaging part if the "HF", not the "T".

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#97

Post by infinii »

ezl wrote: post #34
kristianp wrote: post #5

I for one don't agree with HFT. Why should our best hackers and mathematical minds be wasted on something so shallow as gaming the market? Would a small randomised delay introduced by the exchange into each stock trade (or price datum) reduce the incentive for HFT?

I forget where I read this, but in an article by someone else I read something like: "[There's something very sinister about a company that takes society's greatest engineer and science minds away from important tasks for humanity and diverts them to the task of optimizing ads] A lot of people will say what you say about HFT, but have no qualms about Google and Facebook and Twitter. Why is that?

Society does nothing about underpaying the educators of our children; so they should deal with the fact that great minds will be lured away to less critical tasks.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#98

Post by asto »

If a person is successful in one business should we subject ourselves to his idiotic views on another business?

By definition they can’t go into an equity unless there already is liquidity.

HFTs who are usually market makers [1] maintain liquidity in the market by constantly having buy/sell orders open for many instruments/scrips. In their absence, a counter trade may not exist for matching against when you or I put out a sell/buy order. Being able to sell/buy a scrip/instrument within seconds is a valuable service that investors appreciate. In India, the securities exchange regulator mandates that all market makers make a minimum value of trades per day. I am not sure of the exact current values in each segment but it's in the order of millions of rupees. This is how regulators create conditions of liquidity so that markets are nicer to trade in especially for retail investors.

The missing link in all the discussions is: What is the purpose of the stock market?

The stock market can be divided into a primary market and a secondary market. The primary market exists to finance companies. When they IPO, cash is generated which they can use to fund business activities. The secondary market exists to encourage purchases in the primary market and to efficiently discover the price of the securities. Without a liquid secondary market, very few investors would be interested in a primary market.

HFT is only doing what was already done since many years ago manually. Humans make the same mistakes computers are being programmed to make today. In their defence, they execute exactly as asked - they feel no fear, doubt or greed - unlike a human trader . Should we treat them as being harmful because computers make mistakes at a significantly faster rate? HFT is a still nascent concept. With sufficient regulation, we will likely be able to get rid of the problems and retain the advantages.

[1] http://en.wikipedia.org/wiki/Market_maker

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#99

Post by Variance »

cynicalkane wrote: post #50
joe_the_user wrote: post #44

Earlier quoted context omitted.

Oddly enough, I was originally expecting that same thing. Still, I think it's reasonable to ask the question: where does the boundary between good, useful hacking and evil, insidious hacking lie? And I think it's reasonable to not assume that the boundary lies at what is legal or that the boundary lies at what is "interesting". I mean, how you produce and profit from spam is a hard, interesting problem. Flame and Stu…

Trading is a zero-sum game, but investing is not, and trading exists to make markets and snipe inefficiencies. The amount of money that can be made here can be surprising, until you consider that they're oiling the gears for manifold trillions of dollars in commerce and wealth. Some of that is gambling, but most of it isn't. Stuff like institutional hedgers and investment funds are huge sources of market activity.

I want to make an important note here: trading is not a zero-sum game. It generates value through the exact mechanisms that you noted, market making (liquidity) and inefficiency elimination (accuracy). Via the efficient market hypothesis, the value created by adding this asset liquidity and price accuracy finds its way back into the hands of the traders, often through real value increases in the assets going to traders with call positions.

This functions to keep demand for trading moving by making the average market return stay close to or above the market discount rate. So stock trading doesn't end up as zero-sum, but rather benefits parties at the market discount rate. If it didn't, no one would trade but those seeking to gamble, and there would be no notion of fundamental analysis in the market.

In reality, outside of an ideally efficient market, it's easy to intuitively suspect that the average return associated with trading is above the discount rate, and that more savvy investors obviously earn higher returns. This is more or less correct: the S&P averaged around 8.5% annual returns over the last few decades [1], and that only increases the farther you go back and lower the more recent your range's early bound is, corroborating the association between unideal market efficiency and high returns. Both "investing" and "trading" are less distinct in the stock market than in, say, VC, and so that 8.5% applies equally in aggregate.

But trading is most certainly not a zero-sum game. Like all market activity, it converges to producing value at the market discount rate in an efficient market. What that rate is is incredibly hard to say, but it can vaguely be associated with S&P returns, which have hovered around 5-6% in recent years on time-weighted rolling averages.

[1]http://moneyover55.about.com/od/howtoinvest/a/marketreturns....

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#100

Post by digitalengineer »

cletus wrote: post #86

This post is being used as somewhat of a stalking horse for any number of other agendas and soapboxes, which I guess isn't surprising, so I'll join the fray. 1. There is a misconception about market makers and the nature of a spread. In particularly illiquid markets, market makers allow you to buy and sell immediately. This is a service. The spread pays for this service. The more liquid a market is the lower the spre…

Thank you for the best explanation of this lunacy I have ever read.
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