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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

#61

Post by keithwarren »

icebraining wrote: post #30
keithwarren wrote: post #16

I don't like taxes in general but wouldn't a small tax per share (pennies even) pretty much end HFT?

But why should we care? The thing I don't understand about the whole debate is, even if the HFTs are milking investors, so what? We're not talking about powerless individuals versus giant companies that we might need to protect, why not just let the investors deal with it by pressuring the exchanges into banning HFTs, or making new exchanges where HFTs aren't allowed? Is it just moral outrage because the HFTs are per…

My outrage (not sure you could really call it that) is not some moral thing or based on a perception that they are doing nothing.

My issue comes from the fact that securities trading is based on the idea that we buy and sell parts of these securities under the idea we see value in the company. This fits best with a long term hold position but is not really that divergent with a day trader who buys AAPL today because he thinks news later today about some new product will cause the price to go up thus increasing the value of the company. He will sell later in the day because he thinks that it may drop later.

My issue with HFT is that these trades (well most of them) are not based on the value of the security but rather on the act of buying and selling itself. It is meta in a sense.

That in my mind creates a fundamental flaw in the marketplace around the true purpose of a securities exchange.

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

#62

Post by adambratt »

foobarqux wrote: post #43
adambratt wrote: post #39

Earlier quoted context omitted.

> 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…

> For example, they could see that your limit order of $1134 came in when the lowest ask price was $1133.90. They could buy that for $1133.90 and sell it back to you at $1134 for a 10 cent profit. They cannot do that. They can't fill you at a worse price than NBBO.

In my example, they buy before the execute your trade, thus shoving the lowest ask price up to $1134 and fulfilling NBBO.

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

#63

Post by foobarqux »

kasey_junk wrote: post #21
unreal37 wrote: post #12

Earlier quoted context omitted.

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…

There are lots of things you are glossing over that complicate this picture quite a bit (like the fact that your broker is almost certainly executing on an HFT platform), but the biggest issue here is that no one can see your order until you place it on the first market. Once that order hits the market it is public signalling data that should impact the prices on every other market. That some traders are more efficie…

Flashed orders make it a bit more complicated than you suggest.

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

#64

Post by foobarqux »

harryh wrote: post #54
er35826 wrote: post #9

Earlier quoted context omitted.

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.

They sort of can with flashed orders.

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

#65

Post by foobarqux »

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.

They sort of can with flashed orders.

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

#66

Post by kasey_junk »

foobarqux wrote: post #63
kasey_junk wrote: post #21

Earlier quoted context omitted.

There are lots of things you are glossing over that complicate this picture quite a bit (like the fact that your broker is almost certainly executing on an HFT platform), but the biggest issue here is that no one can see your order until you place it on the first market. Once that order hits the market it is public signalling data that should impact the prices on every other market. That some traders are more efficie…

Flashed orders make it a bit more complicated than you suggest.

As does purchased order flow, internal matching, preferred routing agreements, dark pools etc.

But given the simplistic nature of the discussion it is more accurate to say that in general HFT don't see your order before it hits the market than it is to say they do.

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

#67

Post by [deleted] »

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…

[deleted]

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

#68

Post by kasey_junk »

AnthonyMouse wrote: post #56
kasey_junk wrote: post #36

Earlier quoted context omitted.

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…

This sort of HFT gaming is very common. Some of it skirts around the regulations, some of it blatantly breaks them assuming (correctly) that it is more profitable to deal with the consequences than to change the trade.

Just remember that this is happening at very fast speeds, by participants that have mind bogglingly high risk levels.

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

#69

Post by foobarqux »

adambratt wrote: post #62
foobarqux wrote: post #43

Earlier quoted context omitted.

> For example, they could see that your limit order of $1134 came in when the lowest ask price was $1133.90. They could buy that for $1133.90 and sell it back to you at $1134 for a 10 cent profit. They cannot do that. They can't fill you at a worse price than NBBO.

In my example, they buy before the execute your trade, thus shoving the lowest ask price up to $1134 and fulfilling NBBO.

You said best offer was 1133.90. If buy order is placed at $1134 with HFT firm they must either fill the order at 1133.90 (the NBBO) or pass it on to an exchange that has NBBO.

If you are arguing something else happens then you need to explain it clearly step by step in a timeline.

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

#70

Post by 001sky »

andylei wrote: post #29
001sky wrote: post #17

Earlier quoted context omitted.

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

no, its not regulatory arbitrage. its latency arbitrage.

"A practice whereby firms capitalize on loopholes in regulatory systems in order to circumvent unfavorable regulation."

Same shit.

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