21–30 of 38 posts
Two questions, first are HFT's creating wealth? second, are HFT's gaining wealth at the expense of the investors or the producers?
Earlier quoted context omitted.
I disagree. Most HFT is market making (passive trading with limit orders only), and they make most of their money from short-term and impatient traders, who account for most of the volume and repeatedly pay the spread. Long-term traders, by definition, don't trade very often so they're a small fraction of the total volume. And its the market makers who provide the liquidity (with limit orders) for the long-term trade…
I can't comment otherwise but I'd note that HFT is producing the illusion of market making without real market making. By definition, HFT jump into liquid market and count on exiting illiquid markets faster than anyone else. That means that they don't actually bring a greater assurance that a trade will happen, in contrast to the traditional "market makers" of NYSE. The "flash crash" can be seen as a simple illustrat…
The Pragma report [1] that the WSJ refers to investigated when a TWAP algo would need to "cross the spread". Ie, when the order book is really deep, then it takes so long for a passive order to execute that crossing the spread becomes necessary. This effect has nothing to do with HFT firms. In fact, the referenced white paper doesn't even mention HFT at all! So it's odd that Pragma's CEO would make such a remark to t…
Gah what a stupid article. Consider its foundational point: "Pragma measured the effect by comparing the volume in certain stocks with the time it takes to execute an order. Longer execution times typically result in poorer results, since a stock's price can swerve away from where it was when the order entered the market. Such an effect is known in the industry as a "shortfall."" If you are a "long term" investor you…
> If you are a "long term" investor you don't sell stocks to capture a few pennies here and there. Yes, but I'm still certain that high frequency traders are siphoning value off long term traders when the latter have to transact.
It seems like most people are "certain" about the impact of high frequency trading on an a priori basis as well. If facts wouldn't be inconvenient, however, run a Google Scholar search on the impact of high frequency trading or look at Chris Stucchio's discourse on the matter [1].
Consider two markets, one with high-frequency and human market making and one with only human specialists against whom you trade. Run similar value-style strategies on both; if the former outperforms the latter portfolio you pay up $10 000 (or whatever number keeps this interesting for you), else I pay you.
Fact is you'd be silly to take that bet, as would I. We don't understand the impact of HFT enough for either of us to be "certain" of anything.
Earlier quoted context omitted.
> If you are a "long term" investor you don't sell stocks to capture a few pennies here and there. Yes, but I'm still certain that high frequency traders are siphoning value off long term traders when the latter have to transact.
I disagree. Most HFT is market making (passive trading with limit orders only), and they make most of their money from short-term and impatient traders, who account for most of the volume and repeatedly pay the spread. Long-term traders, by definition, don't trade very often so they're a small fraction of the total volume. And its the market makers who provide the liquidity (with limit orders) for the long-term trade…
If someone trades with a HFT market maker its because
a) they are un-informed about the current true price
b) they choose to optimize execution time over best price
Its the same market game that`s been played for decades, just with different players and tools.
Not sure it still applies as I have been out the trading game for a little while now, but in the past the big HFT's had a 20 millisecond window where they were allowed to see the market orders before anyone else. Thus they could see say a big buy order coming in and pull their offers or even take out the offers themselves, knowing that the buyer would have to pay up. This has the effect of raising execution costs for…
As far as I know, flash trading was an optional feature, designed to be used by those who wished to shop around their order in a somewhat private network, before sending it to the wider market.
> This was effectively legalised front running of the market
If you say flash orders were abused, I'll take your word for it, but it wasn't designed to be a way to front-run. Its purpose was actually to help.
Earlier quoted context omitted.
I can't comment otherwise but I'd note that HFT is producing the illusion of market making without real market making. By definition, HFT jump into liquid market and count on exiting illiquid markets faster than anyone else. That means that they don't actually bring a greater assurance that a trade will happen, in contrast to the traditional "market makers" of NYSE. The "flash crash" can be seen as a simple illustrat…
> The "flash crash" can be seen as a simple illustration of this but so could be the greater volatility we have seen in the last few years. Which "flash crash"? The one about a year ago or the one in the mid-60s?
Whether these are exacerbated by hft is hard to tell, but I can't see how it would help damp volatility. Probably they have more to do with momentum investors and algorithmic trading, though they can easily happen with only human trade too, just at a slower pace. Would be interesting to see stats on volatility going back decades, but it's probably quite a complex subject for a layperson.
Here are some examples: http://www.usatoday.com/money/markets/2011-05-16-mini-flash-...
Earlier quoted context omitted.
> If you are a "long term" investor you don't sell stocks to capture a few pennies here and there. Yes, but I'm still certain that high frequency traders are siphoning value off long term traders when the latter have to transact.
I would be interested to hear the sequence that makes this true. Lets say I put a limit in on stock FOO at $32 and it fires and I get my $32 * n dollars. What did the HFT do to siphon value off my trade? Or off the stock for that matter?
Earlier quoted context omitted.
> If you are a "long term" investor you don't sell stocks to capture a few pennies here and there. Yes, but I'm still certain that high frequency traders are siphoning value off long term traders when the latter have to transact.
I would be interested to hear the sequence that makes this true. Lets say I put a limit in on stock FOO at $32 and it fires and I get my $32 * n dollars. What did the HFT do to siphon value off my trade? Or off the stock for that matter?
You place a limit order to buy FOO at $32
Someone else offers FOO at $31.90
A HFT algorithm buys FOO at $31.90 and immediately offers it at $32
You buy FOO at $32 from the HFT algo
So you have lost potential profit on the transaction even though you technically hit your limit price.