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High-Speed Trading Isn't About Efficiency—It's About Cheating
91–100 of 123 posts
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#92A 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…
> "...increasing liquidity is the last refuge of bullshitters" is not an argument--it's an assertion.
I believe it's technically an observation, a claim that in the writer's experience, bullshitters fall back on that argument. It's true that he didn't explicitly give evidence for that, but expecting writers to justify every single statement in a short piece that is one of many they write on a topic is another refuge of bullshitters. He's right, though. Bullshitters use that claim because it's a vague, hard-to-verify positive claim that can be made about almost any market activity.
He does support the implied assertion that the claim is bullshit in this case. The only reason we care about liquidity is that you want people the market serves to be able to execute productive trades more quickly and cheaply. If it hasn't gotten cheaper, that's good evidence that HFT trading is not socially useful.
You interestingly also provide evidence that the claim is bullshit. In the article you link, it mentions that the most profitable HFTs aren't liquidity-generating; they are liquidity-taking. That is, they aren't coming into the market with open orders that sit their waiting for other people to take them. They are coming in with orders that match existing offers, removing liquidity from the market. That's from an academic study linked in your article: http://faculty.chicagobooth.edu/john.cochrane/teaching/35150...
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#93Earlier quoted context omitted.
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.
All the people who work in finance I've spoken to have imputed to me that the industry is on the cutting edge, that they will and are able to go to any lengths to execute trades faster, and that they earn their bumper salaries by being the most talented technologists out there. They tell me stories of FPGAs and how they certainly couldn't use garbage collected languages and about people cutting holes in walls to shav…
That's definitely not representative. Perhaps you've spoken only to guys doing HFT. A lot of trading systems are written in Java, and something like 20ms between seeing a trigger and sending an order to the market is fast enough for most needs.
I think for 24/24 operation though, the problem isn't really a programming one but simply the sheer number of people who'd have to work in shifts. Traders, engineers, middle office, maybe even compliance or quants... all these people are really expensive. You can't just leave a system running without people to monitor risk, check for reporting breaks, approve transactions, etc. The end of day reconciliations and reports are also much easier done with the exchange down.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#94A 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…
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Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#95A 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…
> popular reporters want to turn HFT into a moral issue and paint HFT firms as evil manipulators, when they really aren't. First, almost every issue is a moral issue, especially one dealing with the value of a certain endeavor (isn't that what ethics is about? Trying to find the value of things?). Second, claiming that HFTs aren't evil is as much of an assertion as calling them bullshitters. Most "popular reporters"…
Much of HFT does have little social value. We could eliminate much of the worst of it by allowing subpenny trading, so trading firms could compete on price instead of on latency.
Maybe you think "sub-pennies? that's just a different kind of insanity." But remember that we're talking per share pricing. So imagine every transaction of every share ever being wrong by an average of half a penny. Imagine you could compete for the money represented by that error, and you could win it, just by having the fastest computers which put in the orders first. Behold: Wall Street as you know it.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#96The stock exchange has just become the ultimate casino today. Yesterday, stock exchange helped to build companies, to have some security against bad crops and so on ... but that has changed. More and more money is just made by gambling and the more money is made, the more money is again put into the big gambling machine. It is legal, but just gambling and we all have to pay the price, because the gamblers carry the wealth of the Earth away -- and the others are left empty.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#97Key quote: "Now, what they do is strictly legal".
This article felt like it was written by a college freshman who just took their first class on "social justice".
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#98Here is the problem that I have with this whole "socially useful" line of reasoning: Do we have philosopher kings or benevolent rules who are able to accurately designate social usefullness and ban or allow things on the basis of it? Is facebook or snapchat socially useful? Are hamburgers socially useful? what about french fries? Whether or not HFT is socially useful is irrelevant. Since there is no harm to a long te…
So you were around a few years ago right? When money for mortgages was easy and people were getting houses left and right, damned if they could afford them. The questionable mortgage-backed securities seemed great on paper. People were buying new houses, the market was humming along. Banks, builders, and anyone else involved was making money hand over fist. What could be wrong with MBS then?
In hindsight, the stupidity of bundling crappy loans for speculation was embarrassing, of course, and anyone not benefitting from the game saw the bubble.
If something looks good on paper, but feels wrong , it means we're missing something. In the case of HFT, it's (quite literally) a breath away from insider trading. Insider trading regulations give the impression that the market isn't rigged. If people lose confidence that they can't trust the market, it will fail. The only way markets work is if they're fair and all the players are playing legally.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#99The 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?
The primary function of a market is to set prices to facilitate that ownership. The computer is providing value by setting a more accurate price faster.
Re: High-Speed Trading Isn't About Efficiency—It's About Cheating
#100Actually, HFT is socially useful in the same way that Cold War research, even though most of it never went anywhere, is.
It bids up the price of talent, and that's an inherent social good because it means there is a chance for smart people to get into decision-making positions (which, otherwise, go to entitled, and mostly untalented, incumbents and their shitty offspring). Google and Amazon would not be paying $140k per year for mid-career software engineers, were it not for the hedge funds paying $200k.
VC-istan is terrible, with founders lucky to get 10% and earliest employees getting 0.1-1%, but if Wall Street wasn't absorbing most of the top talent (and it is) those numbers would be closer to 1% and 0.001-0.05%. Instead of very few people getting rich in the tech lottery, it'd be almost no one, because the founders and early engineers would have zero leverage.
The HN crowd likes to assume that talented people will, as if it were a law of nature, have options to rise economically and socially. It's not so. If it weren't for socially useless talent vampires like HFT and online ad targeting, talent would have even less leverage against the good-ol'-boy networks and widespread stagnation would ensue.
(High levels of funding, probably originating from governments at first, for basic research would achieve the same effect in a socially useful way, but I wouldn't hold my breath.)