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High-Speed Traders Rip Investors Off, Michael Lewis Says

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Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#11

Post by kasey_junk »

Analogies with stores/checkers/soda etc. are all flawed because they are based on something that does not exist in the markets, that is a fixed price. When you buy a physical good in a store they have a published price that you can trust to be what you will pay (in western countries that is the norm, not so in many other places.)

Conversely, when talking about equities markets there is no such thing as the stock "price". This is a short hand that is used. In reality, there are groups of people, some willing to buy shares at a variety of prices, and some willing to sell shares at a variety of prices. The job of the exchange is to match these 2 groups when the buy/sell prices intersect or cross. This gets complicated when there is more quantity on 1 side of the buy/sell than the other. Exchanges have rules how this imbalance will get resolved, most of the time it is based on who has been at that price point the longest.

Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#12

Post by unreal37 »

kasey_junk wrote: post #8
unreal37 wrote: post #4

The argument in favor of HFT is that it both increases liquidity of markets and reduces the spread - both favorable to most investors. But they can actually see you attempting to buy stock, step in front of you, buy it before you, and then try to resell it to you for a higher price? That's bad behavior and reduces confidence in the free market. There needs to be regulation around things like that.

The idea that an HFT can see you attempt to buy stock before it goes to the market is not true and would be against the law if it happened.

It seems like it isn't against the law.

The thing is, there are multiple markets not just one. So when you place an order to buy 100 shares of IBM, that order gets sent to many places to try to find the best offer to fill you.

If a HFT can see you submit that order to 1 market, and then beat you to the other 4 markets and buy up all the shares before you, that's frontrunning. That would be illegal if your broker did it, but HFT is not your broker, and just has the advantage of being faster than your broker.

What makes you say it's "not true"? What evidence do you have of that?

Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#13

Post by michaelt »

kasey_junk wrote: post #8
unreal37 wrote: post #4

The argument in favor of HFT is that it both increases liquidity of markets and reduces the spread - both favorable to most investors. But they can actually see you attempting to buy stock, step in front of you, buy it before you, and then try to resell it to you for a higher price? That's bad behavior and reduces confidence in the free market. There needs to be regulation around things like that.

The idea that an HFT can see you attempt to buy stock before it goes to the market is not true and would be against the law if it happened.

  Katsuyama realized that his orders traveled along fiber 
  optic lines and hit the closest exchange first, where high 
  frequency traders would get a glimpse, and then use their 
  speed advantage to beat him to the other 12 U.S. public 
  exchanges and 45 private trading venues. HFT algorithms 
  could then buy the shares Katsuyama wanted, and then sell 
  them to him at a slightly higher price. [1]
I don't know if this is illegal or not, but I'll eat my hat if anyone gets prosecuted.

[1] http://www.reuters.com/article/2014/03/31/us-markets-hft-fla...

Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#14

Post by mycousinvinny »

kasey_junk wrote: post #8
unreal37 wrote: post #4

The argument in favor of HFT is that it both increases liquidity of markets and reduces the spread - both favorable to most investors. But they can actually see you attempting to buy stock, step in front of you, buy it before you, and then try to resell it to you for a higher price? That's bad behavior and reduces confidence in the free market. There needs to be regulation around things like that.

The idea that an HFT can see you attempt to buy stock before it goes to the market is not true and would be against the law if it happened.

Kasey-

Do you just make shit up or actually look at the source before vomiting on the keyboard?

Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#15

Post by kasey_junk »

michaelt wrote: post #13
kasey_junk wrote: post #8

Earlier quoted context omitted.

The idea that an HFT can see you attempt to buy stock before it goes to the market is not true and would be against the law if it happened.

Katsuyama realized that his orders traveled along fiber optic lines and hit the closest exchange first, where high frequency traders would get a glimpse, and then use their speed advantage to beat him to the other 12 U.S. public exchanges and 45 private trading venues. HFT algorithms could then buy the shares Katsuyama wanted, and then sell them to him at a slightly higher price. [1] I don't know if this is illegal o…

What is being described in this article is latency arbitrage and is not illegal. You will notice it specifically mentions that his order was changing the price on other exchanges, not on the exchange he submitted his order to.

He was taking advantage of multiple exchanges in order to hide his order flow, because as a natural consequence of market laws large orders move prices. He is just upset that other folks were better at finding his order flow than he was at hiding it.

Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#17

Post by 001sky »

kasey_junk wrote: post #15
michaelt wrote: post #13

Earlier quoted context omitted.

Katsuyama realized that his orders traveled along fiber optic lines and hit the closest exchange first, where high frequency traders would get a glimpse, and then use their speed advantage to beat him to the other 12 U.S. public exchanges and 45 private trading venues. HFT algorithms could then buy the shares Katsuyama wanted, and then sell them to him at a slightly higher price. [1] I don't know if this is illegal o…

What is being described in this article is latency arbitrage and is not illegal. You will notice it specifically mentions that his order was changing the price on other exchanges, not on the exchange he submitted his order to. He was taking advantage of multiple exchanges in order to hide his order flow, because as a natural consequence of market laws large orders move prices. He is just upset that other folks were b…

What is being described in this article is [regulatory] arbitrage and is not illegal

FTFY

Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#18

Post by icebraining »

michaelt wrote: post #13
kasey_junk wrote: post #8

Earlier quoted context omitted.

The idea that an HFT can see you attempt to buy stock before it goes to the market is not true and would be against the law if it happened.

Katsuyama realized that his orders traveled along fiber optic lines and hit the closest exchange first, where high frequency traders would get a glimpse, and then use their speed advantage to beat him to the other 12 U.S. public exchanges and 45 private trading venues. HFT algorithms could then buy the shares Katsuyama wanted, and then sell them to him at a slightly higher price. [1] I don't know if this is illegal o…

Could one bleed the HFTs by putting out orders in one exchange, waiting for them to buy up the shares elsewhere, and then cancelling the order? Or just waiting for the HFTs to re-sell them at the previous/lower price and buying them afterwards?

Re: High-Speed Traders Rip Investors Off, Michael Lewis Says

#20

Post by josho »

unreal37 wrote: post #4

The argument in favor of HFT is that it both increases liquidity of markets and reduces the spread - both favorable to most investors. But they can actually see you attempting to buy stock, step in front of you, buy it before you, and then try to resell it to you for a higher price? That's bad behavior and reduces confidence in the free market. There needs to be regulation around things like that.

I don't understand how HFT increases liquidity, this Q/A[1] is a start at an answer. My conclusion is that yes HFT probably does increase liquidity at the expense of adding a tax on many of the transactions. Except this tax does nothing else to help the markets except to further feed the beast (profits) of companies running HFT.

So the real question to ask is: does a marginal increase in liquidity outweigh the financial cost? I'd argue that it is a tax on society with no real benefit. I've started to hear about auction's to improve the markets which is interesting and saves us from the millions (billions?) of dollars that HFTs pocket for themselves.

[1] http://quant.stackexchange.com/questions/1658/has-high-frequ...

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