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

81–89 of 89 posts

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

#81

Post by harryh »

unreal37 wrote: post #6
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.

No, its like saying Walmart watches as you put the item in your shopping cart, and raises the price before you can get to the cashier.

It's worth nothing that Walmart actually does change prices in real time. If lots of people start buying a particular item then the price for that item is automatically raised.

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

#82

Post by skybrian »

harryh wrote: post #79
skybrian wrote: post #71

It seems like the problem is executing a trade when the first buyer (or seller) comes along to take the other side of the trade, rather than waiting a bit to see if someone else will give you an even better price. That is, trades shouldn't execute immediately when prices cross. Instead it should start an auction. If you're more interested in getting out a few milliseconds sooner than in getting a better price then th…

There already is an auction. It happens once per stock market tick. You don't trade with the first buyer or seller that comes along you trade with the buyer or seller that submits the best price. If a whole bunch of them submit the same price you trade with the one that does it first (hence all the effort HFTs put into moving faster).

Okay, how does the front-running work then? Are ticks too frequent?

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

#83

Post by foobarqux »

adambratt wrote: post #77
foobarqux wrote: post #69

Earlier quoted context omitted.

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.

1. You send a trade to your brokerage for GOOG 2. Trade gets routed to an HFT who will fill the trade 3. HFT notices a spike in GOOG interest over a few seconds and starts buying at 1133.90 driving the price up to 1134 4. HFT fills your limit order at the best price of 1134 which they themselves hold. Despite what the other commentators here have said, limit orders are less safe than market orders to market manipulat…

At the beginning of 3. does the HFT have your order or are you saying that the market moves before the HFT receives the order?

As far as I know the first case is prohibited (actual front running). I don't see an obvious problem with the second case though there might be subtlety that I am missing.

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

#85

Post by josho »

kasey_junk wrote: post #26
josho wrote: post #20

Earlier quoted context omitted.

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 financ…

It's not just increased liquidity, it's also a decrease in the bid/ask spread, which is the actual cost of purchasing. HFT drives those much lower, decreasing the cost for most participants.

Genuine question, how does it decrease the spread?

Let's simplify this: I have a stock to sell, I'm asking $100, you want to buy and offer $95.

How does a HFT decrease the spread while keeping a portion of the transaction itself as profit?

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

#86

Post by josho »

sambe wrote: post #48
josho wrote: post #20

Earlier quoted context omitted.

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 financ…

Which tax is it adding? You enter a limit order at a price, and you get filled at that price: that is true with or without HFT. With HFT, the spread is tighter, so either crossing or stepping inside makes your trade more efficient.

Perhaps my understanding of HFT is not complete. As I understand the HFT steps in between you and I and buys/sells the asset acting as a third party. When it does this it keeps part of the spread for itself--that's the tax I am referring to, profit for the HFT that as far as I understand serves no value.

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

#87

Post by harryh »

skybrian wrote: post #82
harryh wrote: post #79

Earlier quoted context omitted.

There already is an auction. It happens once per stock market tick. You don't trade with the first buyer or seller that comes along you trade with the buyer or seller that submits the best price. If a whole bunch of them submit the same price you trade with the one that does it first (hence all the effort HFTs put into moving faster).

Okay, how does the front-running work then? Are ticks too frequent?

Front-running is something that a lot of people accuse HFTers of doing that they don't actually do.

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

#88

Post by kasey_junk »

josho wrote: post #85
kasey_junk wrote: post #26

Earlier quoted context omitted.

It's not just increased liquidity, it's also a decrease in the bid/ask spread, which is the actual cost of purchasing. HFT drives those much lower, decreasing the cost for most participants.

Genuine question, how does it decrease the spread? Let's simplify this: I have a stock to sell, I'm asking $100, you want to buy and offer $95. How does a HFT decrease the spread while keeping a portion of the transaction itself as profit?

We need to introduce 2 new players. Sally who has some of this stock that she needs to sell for as much as she can get and Bob who wants to buy some of this stock for as little as he has to pay. In the current market Sally gets $95 per share and Bob has to pay $100.

Matt looks at the bid ask spread and decides it would be profitable to make a market in that stock. So he simultaneously asks at $99.99 and bids at $95.01. If Sally and Bob were to come back now they each would get a better deal and Matt would make $4.98 on the deal.

For Matt to continue doing this that $4.98 needs to cover the risks he is taking, his operational costs, and some profit. An HFT is much more efficient at this than Matt driving down the operational cost & potentially calculating the risk more accurately.

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

#89

Post by sambe »

josho wrote: post #86
sambe wrote: post #48

Earlier quoted context omitted.

Which tax is it adding? You enter a limit order at a price, and you get filled at that price: that is true with or without HFT. With HFT, the spread is tighter, so either crossing or stepping inside makes your trade more efficient.

Perhaps my understanding of HFT is not complete. As I understand the HFT steps in between you and I and buys/sells the asset acting as a third party. When it does this it keeps part of the spread for itself--that's the tax I am referring to, profit for the HFT that as far as I understand serves no value.

No, that role is generally performed by the broker/bank (who don't like HFT, in general). I'm not sure I see anything wrong with that either though.

It is quite normal to take a spread in any industry - an orange seller steps between you and the farmer, for example. I would argue your broker does a lot less for you than a farmer, or high frequency market maker. HFT is generally known to shrink the spread, making trading cheaper for you than it would be without them. They still take a profit, because they take a risk.

I'd recommend reading a little about market structure - and preferably not from those with a narrative to sell.

Post reply on HN