This scam is going to be so illegal down the road....
Study: High Speed Trading Hurts Long-Term Investors
31–38 of 38 posts
Re: Study: High Speed Trading Hurts Long-Term Investors
#32I don't get it. Some long term investors are placing passive orders to squeeze out an extra penny on their investments. I.e., they are running a strategy that's a mix of long term speculation and market making. Unfortunately for them (but fortunately for the purchasers of liquidity), they are getting crowded out of the liquidity selling market by people who focus solely on selling liquidity. What's the problem here?
What's the problem here? This is a hypothesis, but the answer is probably something like: Lots of people want to demonize free markets, and HFTs are particularly easy to demonize because it's hard to see how they add value (although they do), but easy to see that they are ethically self-interested (which people also unjustly demonize). My recommendation to HFTs to counter this would be (a) do a better job explaining…
My recommendation to HFTs to counter this would be (a) do a better job explaining the mechanics of how you're providing a valuable service;
Shameless plug:
http://www.chrisstucchio.com/blog/2012/hft_apology.html
http://www.chrisstucchio.com/blog/2012/hft_apology2.html
http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html
Re: Study: High Speed Trading Hurts Long-Term Investors
#33Earlier quoted context omitted.
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?
I'm not involved in HFT, but I imagine the following scenario is plausible: 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.
You place a limit order to buy FOO at $32
Someone else offers FOO at $31.90
At this stage, the matching engine observes that you want to buy at $32, and someone is willing to sell at less than $32. You trade directly with that person at $32.
It's actually illegal for any matching engine to match the $31.90 bid, they must cross trades at the NBBO.
Re: Study: High Speed Trading Hurts Long-Term Investors
#34Not 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…
>in the past the big HFT's had a 20 millisecond window where they were allowed to see the market orders before anyone else 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…
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.
And at least 30-40% of the time, it did help. Anyone with a flash fill rate lower than that was kicked out of the ELP program.
Re: Study: High Speed Trading Hurts Long-Term Investors
#35Earlier quoted context omitted.
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?
I'm not involved in HFT, but I imagine the following scenario is plausible: 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.
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
Re: Study: High Speed Trading Hurts Long-Term Investors
#36We should really tax all stock trades at .001% or something.
Definitely. Could help the economy, too.
Re: Study: High Speed Trading Hurts Long-Term Investors
#37Earlier quoted context omitted.
The aggregate effect of HFT might change the amount people decide to put on orders, resulting in their buying higher and selling lower. So, in the interest of disclosure, do you do HFT? You seem to have an interest in defending the notion that high frequency traders have no overall effect.
Per the disclosure request : I am not an HFT trader, nor are any funds I invest in managed by HFT traders. Perhaps this makes me clueless :-) To respond to your comment though, "The aggregate effect of HFT might change the amount people decide to put on orders, resulting in their buying higher and selling lower." I'm trying to figure out the linkage. What mechanism would connect the order pricing from a long term inv…
Basically you cam imagine a market with only long term traders, there is a certain amount of money being generated by companies which feeds the profits of the market.
Now add some HFTs, these make a profit (there is empirical evidence for this claim). Now money is leaving the market without going to long term investors. Thus the long term investors are making less profit.
Now the big unsubstantiated assumption I have used above is that HFT adds no value to the market. I do not feel I am in any position to argue about whether this assumption is good or not. The above argument is presented in the hope that it makes things clearer and points towards what I think is the fundamental point which needs to be discussed: "Do HFT traders add value of a market?"
Re: Study: High Speed Trading Hurts Long-Term Investors
#38To come at this from a slightly different angle.. any situation in which an agent gains wealth without creating wealth is at the expense of the market. Two questions, first are HFT's creating wealth? second, are HFT's gaining wealth at the expense of the investors or the producers?
Any agent who gains wealth has taken a risk (of loss) that someone else has not.