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They address a lot of the common criticisms of modern markets discussed here. It provides a good perspective of what people within the industry see as the current state and future of trading.
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If you can trade faster, the market can react to information faster. Stocks dropped almost as soon as the tweet was released, without needing to wait for a few major news channels -- and recovered in five minutes after people stopped panicking.[1] [1] http://21stcenturywire.com/2013/04/24/white-house-attacked-o...
The question is: Does fast trading provide a net positive to society? Real investment decisions - as in, decisions of which factories to build, which products to develop, who to hire, and so on - are made on a time-scale of weeks or months. Having the stock market react on a sub-second time scale certainly has no effect at all on those decisions. To gain some perspective, consider if trading operated on an hourly-auc…
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If you can trade faster, the market can react to information faster. Stocks dropped almost as soon as the tweet was released, without needing to wait for a few major news channels -- and recovered in five minutes after people stopped panicking.[1] [1] http://21stcenturywire.com/2013/04/24/white-house-attacked-o...
Yes So HFT should expect to be manipulated by false news. I bet they won't be to happy when that happens.
I suspect they don't give too much of a toss.
Firstly, the people who run/own those markets make money on every trade (i.e. ever buy/sell) so they'll make money if the market is going up or down.
Secondly those manipulating the market will be in the know so they'll be in a position to take money away from those people/organisations that are on the outside.
You only have to go back to 2007 to the GFC to see how easy it is for impotent governments and greedy bankers to screw the world.
Do you think any of those corrupt GFC bankers are suffering now?
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All the critiques of HFT are a century old. When telegraphy was invented, it was feared that the ticker-tape would create devastating waves of speculation, by speeding up the markets beyond human comprehension. When markets went over to computerised trading, it was argued that the human element of open-outcry trading was vital in preserving a culture of honesty and integrity. Critiquing HFT is myopic, because it's ba…
Never heard anyone arguing HFT is terrible because the trading floor died either. These are straw men constructs designed to paint HFT critics as luddites. I'm undecided about HFT's ability to provide liquidity in the market. There are certainly some drawbacks (e.g. you have to have high capitalization to afford HFT colocation), but there might be some tangible long-term benefits as well. But I'm more concerned about…
As someone who works in HFT, you have hit the nail on the head about the real problem with it. It isn't front running, or instability, or unfair trading or any of that. It is simply that so many very smart people are working on it, instead of other more useful ventures. Of course, I feel the same way about data mining social networks.
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How else would you connect the exchanges? Or you don't want major exchanges to be connected, and say, if you dump a lot of stock at one exchange you don't want that information to propagate to other exchanges? Benefits of having HFT traders, is that at the cost of having them around you can have fair and level ground. So if you come to one exchange to do a transaction, you don't have to think much about exchange intr…
The exchange could trade in rounds, e.g. permanent auction mode, where orders get matched only ever minute.
One time I printed out all the code--at that time ASP, HTML, CSS, and Javascript--that got executed for one page load of the homepage of my employer's primary website. I taped the pieces of paper end-to-end and hung them on my wall. It made a great conversation piece with my coworkers. Non-technical folks (most of them) were astounded that so much text was being interpretted and executed every single time they loaded…
I really like that. Did you print libraries and the like, or just the stuff you wrote? I could see value in having a bound version of jQuery if it wasn't on the wall, "I didn't write this, but I know what is in it and how to use it."
Into a text editor, I pasted the HTML source of a rendered page as presented to the end user, then went back and replaced every call to an external js or css with the actual contents of those files. Then at the top, above the doctype declaration, I pasted in the ASP bootstrap code that ran on every page load. I did not include any representation of the compiled code behind the site, like SQL Server, IIS, etc.
If were going to do this now, I would definitely include js libraries like jQuery. The point for me was to illustrate just how complex websites are, not to take personal credit. If you wanted to illustrate it more precisely, maybe you could use different font colors for your code vs. library code.
If we eventually decide that all of this ridiculously fast bid/offer blitzing by our HFT overlords is a destabilization risk to the economy [1], couldn't we start taxing these transactions, or the bids/offers themselves? This level of high-frequency noise being thrown into the market can't reasonably go on increasing forever, right... at some point we just bury ourselves in a never-ending war of inscrutable, difficul…
> we may be getting to the point where the average day trader needs a 3000U server farm to compete effectively Yes. That's actually a bit of a problem. It is perfectly all right that day traders are being out-competed by HFT firms, by itself that's fine. Humans replaced by computer, nothing bad about that. What is not good, is that a successful entry into arbitrage market nowadays require a lot of infrastructure and…
Further, successful entry into arbitrage markets always required specialist infrastructure and skills. They used to be good old boy networks, brightly colored vests, and arcane hand signals. Now it is programming and networking.
In the previous world there was not "NASA" effect at all. Now at least the skills can be transfered to other industries.
Just how profitable is HFT anyways? What kind of returns do HFT traders get?
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Whoosh.
That was a not very helpful response to a fairly obvious question. HFT is taking advantage of arbitrage over a very short period of time (seconds). What effect does it have on long-term prices? If you hold stock for longer than 0.01 seconds (or 1-2 days in the case of a fat-fingered-algorithm), why should you care?
I think HFT is ridiculous and the epitome of capitalism. If you outlaw'd it, a new form of lightning fast arbitrage would arrive.
My point was that if you call apple increasing over the course of 1 year, you might double your money if you're lucky. It's much more likely that the HFT operators will outperform you, as they have over the past decade.
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The exchange could trade in rounds, e.g. permanent auction mode, where orders get matched only ever minute.
What happens if there are more buy orders than sell at the same level (or vice versa)? Who gets priority on that fill?