High-Speed Trading Isn't About Efficiency—It's About Cheating
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Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#2Lost me at That brings us to high-frequency trading (HFT) hedge funds. These funds use computer algorithms—a.k.a.: algobots
No-one says this. I'm not involved in HFT myself but I know a bunch of people who are, there is a jargon word, but it's not that.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#3I don't get it. The article first criticizes HFT for making markets rather than speculating, incorrectly asserting that it's somehow a tax on traders (hint: don't cross the spread if you don't want to pay the "tax"). Then it reveals that HFT does speculate - they pay people to do market research and trade on that basis, which is somehow also evil.
Damned if they do, damned if they don't I guess.
The authors reasoning in going from HFT engaging in speculation to a financial transaction tax is unclear. He wants to prevent speculation and information gathering? Or prevent people from speculating quickly?
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#4The primary function of the stock market is to exchange ownership (shares) in a company. It's odd that we seem to have forgotten that. What value is there in a computer owning a stock for 10 milliseconds?
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#5I don't get it. The article first criticizes HFT for making markets rather than speculating, incorrectly asserting that it's somehow a tax on traders (hint: don't cross the spread if you don't want to pay the "tax"). Then it reveals that HFT does speculate - they pay people to do market research and trade on that basis, which is somehow also evil. Damned if they do, damned if they don't I guess. The authors reasoning…
The author's point is clear - that HFT adds no value to society ("socially worthless").
I don't believe that he wants to prevent anything, but he suggests that trades should be taxed to create some value to society from this. He is suggesting their value (at the moment) is exclusively to the benefit of making rich people - who can pay for access early information and technology - richer.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#6I don't get it. The article first criticizes HFT for making markets rather than speculating, incorrectly asserting that it's somehow a tax on traders (hint: don't cross the spread if you don't want to pay the "tax"). Then it reveals that HFT does speculate - they pay people to do market research and trade on that basis, which is somehow also evil. Damned if they do, damned if they don't I guess. The authors reasoning…
> Damned if they do, damned if they don't I guess.
Why can't the two be bad in their own way? It's like the mob switching from extortion to burglary, and saying, what, you didn't want us threatening people so we're not – now we're just stealing; what more do you want from us? I guess it's damned if we do, damned if we don't...
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#7A few immediate thoughts:
Transaction volume is ultimately not the important metric--revenue is. And, following [1], it seems that the total revenue for HFT was probably around $2Billion in 2013--for a whole industry, that's not very much! Measuring transaction volume is akin to comparing shipping between Amazon and Walmart ignoring the fact that Amazon ships directly to consumers while Walmart mostly ships to large Walmart stores.
"...increasing liquidity is the last refuge of bullshitters" is not an argument--it's an assertion. That was not really supported. Liquidity is a good thing; the article claims that HFT does not help much because most of the actual benefits happened before its advance. Of course, considering how limited HFT revenue is compared to other forms of trading, it's likely that the benefits are just smaller in proportion.
So I don't see, from the article, that HFT is necessarily socially useless. Rather, I see that it is likely useful in a moderately small way spread out over a lot of people (most people in the markets). The benefit is not obvious or concrete, but that doesn't mean it doesn't exist.
Similarly, the article complains about how bots just quote each other prices without necessarily making a trade. I don't see how this is a bad thing. All it means is that their quotes are at a much higher resolution than manual quotes, that's all. This seems like it would generally be a good thing.
Now, I'm not saying that HFT is not without its own risk or issues--they're just not the issues brought up in the article. Or, in fact, in most popular articles: popular reporters want to turn HFT into a moral issue and paint HFT firms as evil manipulators, when they really aren't. The actual risks of HFT are more structural and technical, which, I suppose, is not great for a broad audience or lots of pageviews!
It's also not immediately clear that HFT should be banned or how to deal with it. Many proposals I've heard would reduce liquidity beyond affecting just HFT, raising real costs for consumers. Ultimately, this is why there has not been much regulation in the space!
[1]: http://247wallst.com/investing/2013/03/24/high-frequency-tra...
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#8The primary function of the stock market is to exchange ownership (shares) in a company. It's odd that we seem to have forgotten that. What value is there in a computer owning a stock for 10 milliseconds?
I've read elsewhere on here that the value of high-frequency trading is that it reduces transaction costs and increases liquidity in the market. I.e. it makes it easier for the humans to buy and sell at the prices they wish to buy and sell at.
Assuming that's true, the question then becomes what are the costs and externalities of HFT and, in balance, are we willing to make those trade-offs? I haven't seen anything addressing those issues yet, but I haven't been looking either.
HFT experts want to weigh in, pro/con/otherwise?
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#9I don't get it. The article first criticizes HFT for making markets rather than speculating, incorrectly asserting that it's somehow a tax on traders (hint: don't cross the spread if you don't want to pay the "tax"). Then it reveals that HFT does speculate - they pay people to do market research and trade on that basis, which is somehow also evil. Damned if they do, damned if they don't I guess. The authors reasoning…
The author's point is clear - that HFT adds no value to society ("socially worthless"). I don't believe that he wants to prevent anything, but he suggests that trades should be taxed to create some value to society from this. He is suggesting their value (at the moment) is exclusively to the benefit of making rich people - who can pay for access early information and technology - richer.
It's not clear what journalism of this quality does to create some value for society. Just sayin'.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#10The primary function of the stock market is to exchange ownership (shares) in a company. It's odd that we seem to have forgotten that. What value is there in a computer owning a stock for 10 milliseconds?
Sure, but now it's on you to say how long a stock should be owned for, and why that is.
I mean, you could ban HFT and say that you can trade no more than once a second, or a minute, or whatever. Then people would get upset because computers could trade exactly on that second...