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

High-Speed Traders Rip Investors Off, Michael Lewis Says

bloomberg.com

Post reply on HN
Print view View original

51–60 of 89 posts

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

#51

Post by [deleted] »

harryh wrote: post #31
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.

No, they cannot actually see you attempting to buy stock and step in front of you. That's not true.

[deleted]

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

#52

Post by fauigerzigerk »

runako wrote: post #42
fauigerzigerk wrote: post #35

Can someone help me understand this beyond analogies please? If I submit a buy order for 10 shares of GOOG with a limit of $1134 that order is going to show up in the data stream of HFTs only after it has become a valid open order on the exchange, right? If at that time there is a sufficient volume of open sell orders at or below my limit, does my order go through or is there a way for an HFT to overtake my order? Th…

If you make a limit order at e.g. $1134, it's entirely possible that the best price is below $1134. For instance, if you enter that order right now, you should expect the order to execute at closer to $1130 (assuming a small order size). Your limit price is therefore a worst case. Lewis is saying that in the absence of HFT front-running, you'd get the best available price at the time, say $1129.82. However, he allege…

I see, so the best strategy in terms of game theory might be to always set a limit below the latest offering price known to me.

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

#53

Post by notastartup »

badman_ting wrote: post #34

I work for a financial services company and I still don't invest in stocks. Not that high-freq trading is specifically the problem (maybe it is, maybe it isn't, I dunno) -- retail investing just seems like a sucker's game, though admittedly that leaves me a little stumped as to how a schmuck like me is supposed to grow his money.

Value investing.

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

#54

Post by harryh »

er35826 wrote: post #9
dsjoerg wrote: post #5

It's like saying Wal-Mart rips off its customers, because they use computers and their market power to buy stuff cheaply, and then they turn right around and sell it to their customers for more, making a profit 100% of the time.

The problem is not the HFT firms buying stock cheaply and reselling it for a profit. As the article points out the problem is investors placing a buy order, and the HFT firms seeing this buy order and snapping up the remaining stocks before the original buy order is fully completed. This has the negative side effect of essentially making it impossible to buy for the listed price, even when there are supposedly enough…

Your understanding of what HFTs do is factually incorrect. They can't see buy orders before they hit the market.

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

#55

Post by obiterdictum »

adambratt wrote: post #39
fauigerzigerk wrote: post #35

Can someone help me understand this beyond analogies please? If I submit a buy order for 10 shares of GOOG with a limit of $1134 that order is going to show up in the data stream of HFTs only after it has become a valid open order on the exchange, right? If at that time there is a sufficient volume of open sell orders at or below my limit, does my order go through or is there a way for an HFT to overtake my order? Th…

> If I submit a buy order for 10 shares of GOOG with a limit of $1134 that order is going to show up in the data stream of HFTs only after it has become a valid open order on the exchange, right? False. HFTs and other trading firms actually buy up the order flow from brokerages. In fact, retail investors making trades in their brokerage accounts are actually referred to as "dumb flow". Having access to the order flow…

> HFTs and other trading firms actually buy up the order flow from brokerages.

I'm going to ask for a citation on this one.

I remember a similar incident at KRX in 2009, and it resulted in a criminal investigation [1], so that ought to be illegal.

[1] http://www.traderdaily.com/07/koreas-elw-players-get-hfc-wak...

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

#56

Post by AnthonyMouse »

kasey_junk wrote: post #36
icebraining wrote: post #32

Earlier quoted context omitted.

Yeah, but what about my second suggestion, which would be to just buy from one market and then buying the rest in other markets after the HFTs had re-sold the shares?

I can assure you that there are most certainly HFT systems out there trying to identify other HFT systems that need to dump positions. Trade execution/optimization is actually where most of the differentiation is in current HFT systems as the speed race has become so efficient.

But it's not just identifying HFT systems that need to dump shares, the idea is to induce them to. So for example, suppose the bid is $100.00 and the ask is $100.05. You put in a bid for $100.10 which causes HFT systems to buy at $100.05 expecting they'll profit $0.05/share by reselling to you in a few milliseconds, but before that you change your bid to $100.03, causing the HFTs who now need to dump those shares to have to sell to you at a loss of $0.02/share (and causing you to pick that up as profit).

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

#57

Post by harryh »

josephlord wrote: post #50
harryh wrote: post #33

Earlier quoted context omitted.

HFT decreases the bid ask spread by replacing expensive human traders with relatively cheap computers. It's automation.

HFT implies computers but computers do not imply HFT. You could automate the trading platform and give everyone equal access without it becoming a hardware arms race.

Sure, and I could program using a 386, but why would it be a good idea to limit programmers to old technology?

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

#59

Post by runako »

fauigerzigerk wrote: post #52
runako wrote: post #42

Earlier quoted context omitted.

If you make a limit order at e.g. $1134, it's entirely possible that the best price is below $1134. For instance, if you enter that order right now, you should expect the order to execute at closer to $1130 (assuming a small order size). Your limit price is therefore a worst case. Lewis is saying that in the absence of HFT front-running, you'd get the best available price at the time, say $1129.82. However, he allege…

I see, so the best strategy in terms of game theory might be to always set a limit below the latest offering price known to me.

The point of the article is that you will lose the game because you're making decisions in macro time with old information and you're competing against robots that make decisions in nano time with newer information.

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

#60

Post by adambratt »

harryh wrote: post #31
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.

No, they cannot actually see you attempting to buy stock and step in front of you. That's not true.

Yes, they can and it's called buying dumb flow from brokerages.

Now technically they write it off as helping you as they group small orders together and execute them, but that doesn't mean these market makers are making a profit off the transaction.

Post reply on HN