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High-Speed Trading Isn't About Efficiency—It's About Cheating

theatlantic.com

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Re: High-Speed Trading Isn't About Efficiency—It's About Cheating

#11

Post by michaelt »

tikhonj wrote: post #7

A 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…

See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1]

Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there?

There's obviously no technical reason - I don't see Amazon or Google closing down their websites from 4pm to 9:30am. And if it's about the release of news, that only really needs a window of an hour or so.

[1] https://en.wikipedia.org/wiki/List_of_stock_exchange_opening...

Re: High-Speed Trading Isn't About Efficiency—It's About Cheating

#12

Post by smoyer »

bbosh wrote: post #4

The 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?

That computer is artificially raising the price of the stock for someone who would buy it ... so they marginally either buy less stock, or pay more for each share.

I'm not going to argue that HFT and hedge-funds are necessarily bad (though I don't buy the liquidity argument for stocks that have reasonable volumes), but I don't see how it's helping to fund the company behind the stock at all (or make it attractive to future investors).

Re: High-Speed Trading Isn't About Efficiency—It's About Cheating

#14

Post by muyuu »

yummyfajitas wrote: post #3

I 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…

It's plain simple trading luddism and it's been going on for decades. There was massive resistance to the computerisation and networking of the stock markets, which only succumbed via foreign competition.

Lots of people who lived on being in a racket where passing orders and pushing buttons was extremely valuable saw their livelihoods endangered. Now the same happens to people who make a living on trivial short-term market decisions. Computers do it better and quicker.

Re: High-Speed Trading Isn't About Efficiency—It's About Cheating

#15

Post by sillysaurus2 »

michaelt wrote: post #11
tikhonj wrote: post #7

A 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…

See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1] Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there? There's obv…

I worked in the industry for a little while.

At this point, some companies depend on having that daily downtime. Their whole development is based around the fact that they will have guaranteed downtime. It's built right into their software stack.

Trying to fiddle with this expected downtime would throw (parts of) the industry into turmoil.

It's just a historical quirk, but it's probably here to stay.

Re: High-Speed Trading Isn't About Efficiency—It's About Cheating

#16

Post by dschiptsov »

"High-Speed" is redundant.)

With a very few exceptions, modern trading is a form of cheating, based on mass-media powered deceptions (we have full-time satellite channel - TLC, which promotes premium (read: overpriced) and/or "chap-but-healthy" fast-food chains) and "optimizations" such as purchasing a "30% meat stuff" at a penny price and adding lots of spices and synthetic sauces, etc.)

Why should it be different in finance? Especially in speculative trading.)

Re: High-Speed Trading Isn't About Efficiency—It's About Cheating

#17

Post by SavvyGuard »

michaelt wrote: post #11
tikhonj wrote: post #7

A 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…

See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1] Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there? There's obv…

I found a similar question on Quora [1], with an answer by an ex-quant. It seems to boil down to tradition and bureaucratic inefficiencies by the involved parties. So I agree, this makes the whole liquidity argument seem weak.

[1] http://www.quora.com/In-the-24-hour-world-why-do-the-New-Yor...

Re: High-Speed Trading Isn't About Efficiency—It's About Cheating

#18

Post by golergka »

sillysaurus2 wrote: post #15
michaelt wrote: post #11

Earlier quoted context omitted.

See, here's the thing I don't understand about liquidity: If it's so valuable for trades to execute in microseconds instead of seconds, and the stock exchanges recognize this value and provide co-location etc to enable it, why are so many stock exchanges closed for half to two thirds of the day? [1] Surely the 15+ hour shut downs are a much bigger limit to liquidity than a few microseconds here and there? There's obv…

I worked in the industry for a little while. At this point, some companies depend on having that daily downtime. Their whole development is based around the fact that they will have guaranteed downtime. It's built right into their software stack. Trying to fiddle with this expected downtime would throw (parts of) the industry into turmoil. It's just a historical quirk, but it's probably here to stay.

Surely there are ways to get rid of it without the transition being so traumatic. For example, the change could be announced a few years prior, and the downtime could go down by an hour per year.
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