Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

theatlantic.com

Post reply on HN
Print view View original

101–110 of 123 posts

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

#101

Post by wcummings »

pron wrote: post #6
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…

> 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...

How is market makers aggressively competing for positions bad?

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

#102

Post by wpietri »

pron wrote: post #78
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…

> 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"…

I agree that we could and should treat it as a moral issue, and that avoiding those questions is often a sign that something immoral is going on.

But we can also look at it as a system design question: if we're trying to build an efficient, robust marketplace, what activity do we permit and forbid? What do we encourage and discourage?

Having worked for market-makers, I get the value of liquidity. It's not at all clear that HFT firms actually provide liquidity [1], but even if they did, we'd want to ask, "What is the cost of different sorts of liquidity provided, and which ones do we choose to maximize the value of the market to participants and society as a whole?" So far I haven't seen any evidence that HFT activity isn't purely parasitic. In which case it's reasonable to ask whether we should still reward it.

[1] The most profitable ones apparently remove liquidity from the market: http://faculty.chicagobooth.edu/john.cochrane/teaching/35150...

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

#103

Post by [deleted] »

panarky wrote: post #86
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…

It's not about speed for the sake of speed. That speed allows insider trading and frontrunning. Insider trading means[0]: buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. How do HFT traders get "material nonpublic information"? The Wall Street Journal reports that HFT funds buy early ac…

[deleted]

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

#104

Post by harryh »

dclowd9901 wrote: post #98
vasilipupkin wrote: post #49

Here 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 stupidi…

So HFT is wring not for any particular reason, but just because it feels wrong?

Isn't that circular reasoning?

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

#105

Post by wcummings »

pbhjpbhj wrote: post #58
rtpg wrote: post #36

Earlier quoted context omitted.

There is a subset of HFT (Arbitrage) that does have a value to society, because it allows you to trade between markets without fearing that you're somehow losing out (Because the arbritage players would have swept that up).

> allows you to trade between markets without fearing that you're somehow losing out // The corollary to that is that your trades as a mere producer are never going to be [indirectly] profitable because all potential profits from varying price have been swept up by others who're not producing goods/services but instead are only operating to extract value that would otherwise go to producers.

Arbitrage provides an important financial service to the market... Arbitrage reduces / eliminates price differences across markets. It improves market efficiency.

It's really concerning how little people itt understand about markets

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

#107

Post by dllthomas »

wpietri wrote: post #92
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…

> "...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…

"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."

That serves as some evidence that it is not socially useful. It completely ignores "more quickly", and for the strongest argument you should also show that nothing else has happened in that time period that would have increased costs and slowed transactions but for HFT.

"the most profitable HFTs aren't liquidity-generating; they are liquidity-taking"

Sure, the easiest way to be among the most profitable HFTs is to cheat, and the way you act on early information is active orders. That doesn't mean they are the most prevalent - I was not able to find actual statistics on the number of each class (aggressive, mixed, passive) represented in the market, but the sample count for trades of aggressive firms was less half of that for the other two.

Edited to add: Actually at a slightly closer glance, it looks like they were looking only at firms that didn't lose money, which seems pretty worthless. "Active strategies have more divergent outcomes" seems a better explanation of the data then "active strategies make more money" - particularly if the reason for the lower sample count is more "active" firms lost money.

None if this is to say that I think there's nothing worth fixing in our financial system, I just want to be sure we're using the evidence we have appropriately.

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

#108

Post by foobarqux »

panarky wrote: post #86
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…

It's not about speed for the sake of speed. That speed allows insider trading and frontrunning. Insider trading means[0]: buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. How do HFT traders get "material nonpublic information"? The Wall Street Journal reports that HFT funds buy early ac…

Early access to research reports is not insider information and is not in general illegal.

First, presumably the report was generated from public information so it is not non-public. Second who are the parties involved in a breach of "fiduciary duty or other relationship of trust or confidence"?

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

#109

Post by chrischen »

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…

But they're profiting off making the 2 second early access to data more liquid, at best.

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

#110

Post by smoorman1024 »

michaelochurch wrote: post #100

Actually, 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…

Interesting way too take the conversation but valid.
Post reply on HN