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For the Love of Money

nytimes.com

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Re: For the Love of Money

#221

Post by foobarqux »

gd1 wrote: post #215
dredmorbius wrote: post #205

Earlier quoted context omitted.

You have no idea how to actually write an informational comment rather than hinting at some received wisdom and greater general understanding without actually revealing any of it, wrapped in condescension which actually lands far of the mark and fails to address the points raised here, do you?

Fine, I'll attempt to parse through your example. "Rather than buying Wigets-R-Us at $100/share, the HFT slips in with a, say, $99.99 offer to the seller, and offers you $100.01." So, 2 possibilities, you don't say, but you are sending a limit order to buy at $100 or a market (or marketable limit, or fill-and-kill) order to buy at $100. Apparently, you seem to be suggesting that there is a seller in the market, presu…

>Now, you seem to be suggesting that the HFT sees your order before it hits the matching engine

HFTs pay brokers for order flow so they get orders before they hit the exchange and decide to trade on them from their own book (at NBBO) or pass them on to the exchange. Besides jumping the order book at the exchange they get advance information on orders about to hit the market.

Re: For the Love of Money

#222

Post by [deleted] »

gd1 wrote: post #215
dredmorbius wrote: post #205

Earlier quoted context omitted.

You have no idea how to actually write an informational comment rather than hinting at some received wisdom and greater general understanding without actually revealing any of it, wrapped in condescension which actually lands far of the mark and fails to address the points raised here, do you?

Fine, I'll attempt to parse through your example. "Rather than buying Wigets-R-Us at $100/share, the HFT slips in with a, say, $99.99 offer to the seller, and offers you $100.01." So, 2 possibilities, you don't say, but you are sending a limit order to buy at $100 or a market (or marketable limit, or fill-and-kill) order to buy at $100. Apparently, you seem to be suggesting that there is a seller in the market, presu…

[deleted]

Re: For the Love of Money

#223

Post by gd1 »

dredmorbius wrote: post #218
gd1 wrote: post #215

Earlier quoted context omitted.

Fine, I'll attempt to parse through your example. "Rather than buying Wigets-R-Us at $100/share, the HFT slips in with a, say, $99.99 offer to the seller, and offers you $100.01." So, 2 possibilities, you don't say, but you are sending a limit order to buy at $100 or a market (or marketable limit, or fill-and-kill) order to buy at $100. Apparently, you seem to be suggesting that there is a seller in the market, presu…

Thanks, that's better than your first pass, though I'm still not buying the story. My social engineering effort worked though. I'll freely admit I find this confusing. And that's with having studied this shit in school and worked in the financial industry (in trading no less). There are a number of methods of getting inside or around the order book, most of which involve breaking rules. But the regulators aren't even…

You're still not getting it. You send your messages on a private link to the exchange. Then the exchange processes them (either puts an order in the order book) or matches a trade, and only then publishes that this has happened on the public market feed. At which point other participants can react. This: "So one way of jumping in on the order is being, say, a few thousand km closer to the exchange than some other trader." ...is silly. No one gets to jump in front of anyone. Being closer to the exchange allows you to react quicker to a public event, but not a private one (which you can't see). In fact, even if you could somehow see someone else's TCP packets departing, from point A to the exchange, and you were in co-location next to the exchange at point B, you'd still have to get the information in their packet from point A to point B, run decision logic on it, then dispatch your own orders to the exchange (point B to the exchange). Faster than their already in-flight packet could arrive. It would still be impossible. What you're talking about is a common public misconception, that somehow the HFT bogeyman sees your order before it arrives.

Re: For the Love of Money

#224

Post by dredmorbius »

gd1 wrote: post #223
dredmorbius wrote: post #218

Earlier quoted context omitted.

Thanks, that's better than your first pass, though I'm still not buying the story. My social engineering effort worked though. I'll freely admit I find this confusing. And that's with having studied this shit in school and worked in the financial industry (in trading no less). There are a number of methods of getting inside or around the order book, most of which involve breaking rules. But the regulators aren't even…

You're still not getting it. You send your messages on a private link to the exchange. Then the exchange processes them (either puts an order in the order book) or matches a trade, and only then publishes that this has happened on the public market feed. At which point other participants can react. This: "So one way of jumping in on the order is being, say, a few thousand km closer to the exchange than some other tra…

So ... the exchange processing the trade -- where's it getting its liquidity from? If it can't satisfy the trade internally, it's getting buy/sell orders from elsewhere, correct?

Or flip this around: instead of telling me how HFTs can't arbitrage their trades, tell me what's actually happening. Because HFT's like deepwater oil drilling: it's an awfully expensive hobby to be doing if there's no profit in it. Where's the profit? And who's that coming from? Because in the world of the financial market, it is a zero-sum game, where one set of traders extracting value means another set isn't getting it. It's not as if they're building widgets for a value-added proposition.

I've seen the HFT trade price-seeking patterns -- bandsaw and crop circle visualizations from NANEX (this is now a few years old, so ancient history, but):

http://www.nanex.net/FlashCrash/CCircleDay.html

The point is that by being able to generate thousands or millions of buy/sell orders, across a band of price points, the HFT is getting in on any movement faster than any slower trader.

You're also not addressing straight out fraud where book is open, which is what I understand queue jumping to be. It's one thing if everyone's playing by the rules. Something tells me that's not the case. Oh yeah. That's my former officemate doing time at Club Fed for insider trading.

Re: For the Love of Money

#225

Post by gd1 »

foobarqux wrote: post #221
gd1 wrote: post #215

Earlier quoted context omitted.

Fine, I'll attempt to parse through your example. "Rather than buying Wigets-R-Us at $100/share, the HFT slips in with a, say, $99.99 offer to the seller, and offers you $100.01." So, 2 possibilities, you don't say, but you are sending a limit order to buy at $100 or a market (or marketable limit, or fill-and-kill) order to buy at $100. Apparently, you seem to be suggesting that there is a seller in the market, presu…

>Now, you seem to be suggesting that the HFT sees your order before it hits the matching engine HFTs pay brokers for order flow so they get orders before they hit the exchange and decide to trade on them from their own book (at NBBO) or pass them on to the exchange. Besides jumping the order book at the exchange they get advance information on orders about to hit the market.

True enough, I was discussing direct market access. If you're going through a third party, it's up to you to vet them and make sure they are trustworthy. I agree almost word-for-word with Optiver's submission on payment for order flow:

http://www.optiver.com/pdf/FSA%20consultation%20on%20PFOF%20...

I believe brokers in the US are now legally required to reveal any such arrangements to their clients.

Re: For the Love of Money

#226

Post by mrbill »

My thought after reading this article: "Must be easy to feel good about walking away from making more money, and make a career of talking about it, when you've got that nice cushion of a few million in the bank already."

Re: For the Love of Money

#227

Post by wikwocket »

31reasons wrote: post #83

I am just wondering, are these Wall Street traders smarter than an average techie working in Silicon Valley ? Are they so irreplaceable that they are offered so much salary and bonuses ? It just doesn't seem right. I am afraid to even ask for 150k salary in SV for the same amount of cerebral work.

It should be very clear from a cursory walk through life that peoples' compensation is on the whole not directly correlated with their cerebral work or their physical labor. Compensation is tied more to the generation of "value," which is vague, and which can be generated using different types and amounts of effort. There are many types of value that can be produced using automation and skill instead of hard labor. This does not diminish the value.

So, don't feel bad asking for $XXX,000, especially if that is the range for your profession, in your geolocale. That's that the market has decided this labor is worth, because of the type of value it creates. Do the research on the job market, and if you have valuable skills, exploit them, for fair compensation.

Re: For the Love of Money

#228

Post by speakme »

Having spent a few years in the finance industry, in my experience most people in my area of work were not these type A money addicts described. That said, I am confident they added no value, and made millions of dollars taking management fees in exchange for lower returns to their clients than they could have gotten in an index ETF. That might be just as big a problem: that even honest members of the industry can convince themselves they're worth their exorbitant salaries, because someone's willing to pay it.

Re: For the Love of Money

#229

Post by VexXtreme »

gd1 wrote: post #223
dredmorbius wrote: post #218

Earlier quoted context omitted.

Thanks, that's better than your first pass, though I'm still not buying the story. My social engineering effort worked though. I'll freely admit I find this confusing. And that's with having studied this shit in school and worked in the financial industry (in trading no less). There are a number of methods of getting inside or around the order book, most of which involve breaking rules. But the regulators aren't even…

You're still not getting it. You send your messages on a private link to the exchange. Then the exchange processes them (either puts an order in the order book) or matches a trade, and only then publishes that this has happened on the public market feed. At which point other participants can react. This: "So one way of jumping in on the order is being, say, a few thousand km closer to the exchange than some other tra…

Actually, it seems that it is in fact possible for HFTs to jump the queue:

http://online.wsj.com/news/articles/SB1000087239639044398920...

Relevant quote: "He became convinced exchanges were providing such an edge after he says he was offered one himself when he ran a high-speed trading firm—a way to place orders that can be filled ahead of others placed earlier. The key: a kind of order called "Hide Not Slide."

Whether it is legal is highly questionable but it appears that exchanges indeed offer this feature to sophisticated traders.

Re: For the Love of Money

#230

Post by [deleted] »

harryh wrote: post #167
panarky wrote: post #129

Earlier quoted context omitted.

Charlie Munger, vice chairman of Berkshire Hathaway, argues that high-frequency trading is "legalized front-running". I think it is very stupid to allow a system to evolve where half the trading is a bunch of short-term people trying to get information one-millionth of a nano-second ahead of somebody else. It’s legalized front-running; I think it’s basically evil and it should never have been able to reach the size t…

Charlie, as a guy who regularly buys and sells large volumes of stock, is just talking his book. It would be great for him if he could make large transactions without the stock price responding quickly to this new information. But it would be bad for everyone he transacted with. To make this concrete: Say Charlie & Warren wake up one day and decide Company X is undervalued and that they want to by 5% of it. They star…

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