All in the name of "providing liquidity"...
As someone who's not too familiar with economics, how is HFT supposed to be good for the economy?
Because it's much cheaper to have computers do this than actual people which is what we used to have.
This Is What One Half Second of High Speed Trading Looks Like
101–110 of 121 posts
Re: This Is What One Half Second of High Speed Trading Looks Like
#102Earlier quoted context omitted.
Yes. That's what it does. If you, as a human, try to trade like this, the computers will destroy you. That's why people shouldn't trade like computers and they should use their experience and judgment to guide them.
So you're implying we should all be complacent and let HFT machines take a small parasitic profit off of every stock transaction humans make?
Market makers have always taken a small profit for providing liquidity. The HFT machines take a much smaller profit than the humans who used to do this by hand because, like in many many other places in the economy, computers are cheaper than humans.
It's the same sort of automation that we've seen in many many other places.
Re: This Is What One Half Second of High Speed Trading Looks Like
#103If 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…
> couldn't we start taxing these transactions, or the bids/offers themselves?
Yes, but that tax would just be passed on to "regular investors" in the form of higher spreads. Market makers are providing a real service. That service has a cost. FWIW, that cost is now much smaller than it used to be due to the fact that computers are doing it now instead of real humans. Automation FTW!
Re: This Is What One Half Second of High Speed Trading Looks Like
#104Earlier quoted context omitted.
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…
> The question is: Does fast trading provide a net positive to society?
Why is that the only or most important question? How do you even define "a net positive to society"? Are we talking about utilitarianism, and if so, are we trying to maximize the total utility, or the average utility, or perhaps the minimum individual utility? Does my eating a candy bar provide a net positive to society? And even if something can somehow be shown to not provide a net positive to society by some metric, should it therefore be prohibited by the threat of violence (i.e. made illegal)?
Re: This Is What One Half Second of High Speed Trading Looks Like
#105Earlier quoted context omitted.
I don't see any comments here critiquing HFT simply because it's complicated. Rather, they seem related to whether it's actually a net-positive for society.
Every description of an HFT algo seems to fall into one of three categories: * Acting on public information, milliseconds before anybody else - which helps everybody else about as much as insider trading does. * Acting on trading information gleaned from "bid stuffing" (making and canceling orders really quickly) - which helps everybody else about as much as front running does. * Detecting the presence of large trade…
You forget that for every buyer there is also a seller.
If HFTs push the markets higher slightly faster because of new public info then while it might be bad for you if you are buying on that news, it's great for whoever already owns the stock and is the one selling to you.
The same applies to your 3rd point. It might be a tax on whoever initiated the large trade, but it's a benefit to whoever is on the other side of the trade. HFTs put new information into the market much faster than humans ever could making them more efficient. They're also doing it at a lower cost than human market makers ever did.
Re: This Is What One Half Second of High Speed Trading Looks Like
#106Earlier quoted context omitted.
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…
There have always been market makers. The fact that we've replaced a whole lot of market makers with a smaller number of people programming computers to act as market makers means that we're now probably devoting less human resources to this job.
Also, as an aside, it's worth nothing that Hammerbacher only said that after making millions working at Facebook. I'm pretty sure that makes him an asshole.
Re: This Is What One Half Second of High Speed Trading Looks Like
#107Earlier quoted context omitted.
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…
Why do you assume that those intelligent people would not engage in some other little value add activity that can make them a lot of money. How much value add do most web social startups provide? The main feature of capitalist economy is that it allows people to work on whatever they want and not on something that some higher authority deems to be "useful"
The main feature of capitalist economy is that it allows people to work on whatever they want
Completely off-topic to the original discussion, but assuming that you intended to imply the quantifier that I think you implicitly intended to imply - i.e., "all people", or even "most people" - you must be living in a completely different world and/or a very cushy bubble. [1]
I expect many people on this site are lucky enough that they can work on whatever they want - either because their interests happen to align with what's currently in demand by the market (as in my case) or because they were lucky enough to be born to rich parents or win the startup lottery.
But take a step back and look outside of that world. Consider, for example, the many people working as cashiers or cleaners. Do you really think that all or even most of them work those jobs because that's what they genuinely want to do, given a choice? It seems much more likely that the main reason why most of them work in those jobs is that they have to make ends meet somehow, and those are the kinds of jobs available to them.
As for the more on-topic part...
Why do you assume that those intelligent people would not engage in some other little value add activity that can make them a lot of money.
I don't. There may be other talent-wasting sectors in the economy (and I guess you always get some geniuses spending their time on whatever the equivalent of card counting of the day is). I have simply pointed out that HFT is one of them (and I do believe that finance in general is the worst offender at this time).
[1] If you intended to imply the quantifier "some people", I apologize for my misinterpretation - though in that case, I would wonder what the point of the statement was. Certainly it doesn't help paint capitalism in a positive light, because every economic system allows some people to work on whatever they want, while the rest tend to have the same superficial choice of job that they do in capitalism. (E.g., you were not simply assigned a job in communism either.)
Re: This Is What One Half Second of High Speed Trading Looks Like
#108Earlier quoted context omitted.
The real question is: Why are there multiple exchanges for the same papers to begin with? In the case of stocks, for example, there has to be one ultimately authoritative copy of who owns which stocks anyway. So why not just do all the trading in the place where the authoritative copy is stored? That would certainly seem to be more efficient from the perspective of minimizing the overall social cost.
The reason there are multiple exchanges is the same reason you can buy the same pair of shoes at 10 different places: it is competition. Also, what is the social cost you are referring to? There are a lot of people here saying that HFT doesn't provide "social value". Does it somehow provide less social value than traders screaming at each other in the pits? Similar types of trading always existed, except now it's don…
If you try to design a system of publicly traded companies from first principles, then the purpose of exchanges should be to provide a service to publicly traded companies. That service would be maintaining the authoritative record of who owns how many shares of the company.
Given this notion, competition is a good reason for the existence of multiple exchanges, because it means companies can change which exchanges their shares are traded over. However, it is not a good justification for the fact that trading of the same stock happens on multiple exchanges.
As for the social cost, you do realize that HFT does not come for free to society. At a minimum, society must somehow pay for those well-paying jobs to developers. And what do those developers give back to society? Before you answer, please consider whether you should distinguish between algorithmic trading and HFT. I do believe that algorithmic trading is useful to society (because it can do the job that screaming traders used to do better and cheaper), but the subset of HFT is not useful.
The only things anyone ever seems to be able to answer for HFT two-fold: one, that stock prices change faster, and two, that the spread is smaller. But one point one, nobody in the real economy cares about that, and to point two, the decrease in spread also doesn't matter to anybody in the real economy, because what you really care about there is the fluctuation of the share price over a larger timescale such as one full day. I have not seen any evidence that this fluctuation is affected by HFT in any way.
Re: This Is What One Half Second of High Speed Trading Looks Like
#109HFT is used for many things, but it makes one task almost trivial: stop hunting.
Re: This Is What One Half Second of High Speed Trading Looks Like
#110Earlier quoted context omitted.
Depends. It is mostly a zero sum game, so all told $0. Of course, some people make lots and some people make -lots.
While intraday trading as a whole is zero-sum, the HFTs are taking profits from other traders, not from each other. HFTs as a group are profitable.
It's hard to know how profitable HFTs are on the whole as for the most part they are very private. That said some very big names on HFT have recently laid folks off.
As someone who hires and interviews in this space, HFT firms seem largely the same as old trading firms were. Boom bust cycles that comer and go as profitable trades shelf life expire.