The Idiot's Guide to High Frequency Trading

Post by dllthomas » Fri, Apr 04, 2014, 7:05 PM UTC

a8da6b0c91d wrote: post #25

theorique wrote: post #8

Complete idiot's guide is right. Exchanges offer price-time priority. A 'better' price (higher bid, lower offer) gives you priority over a 'worse' price. Given two orders at the same price, an earlier order gives you priority over a later order. If you spend millions of dollars on computers, data feeds, and salaries to skilled personnel, to predict the motion of markets correctly and work within the system to make mo…

It's more like taking a peek at the other players' cards, when only you have the ability to do that. We have a bunch of laws that establish the pretense that everybody in the market is equal. I suspect we should get rid of most of the laws and drop the pretense. Folks should participate with the understanding that there are unfairly advantaged operators at all levels. But until that happens it's hard to morally squar…

Post by JumpCrisscross » Fri, Apr 04, 2014, 7:07 PM UTC

AndrewBissell wrote: post #36

JumpCrisscross wrote: post #31

The NYSE has always required market makers continuously buy and sell the stocks they specialise in. They must do this in all market conditions, even if it means running a loss. In exchange, they get privileged access to order flow information. This is why those seats are valuable. NASDAQ challenged that model by removing the physical trading floor. Instead of humans standing in a pit there were humans sitting behind…

> The NYSE requires designated market makers to buy and sell the securities they specialise in. They must do this even in violent market conditions This "mandate" tended to break down when tested by actual market panics. Bids dried up in 1987, and histories of the 1929 crash often mention clerks and floor runners who entered stink bids at $0.01 for stocks that had recently traded at $30 or $40, and got filled because…

Post by foobarqux » Fri, Apr 04, 2014, 7:07 PM UTC

jarrett wrote: post #38

mayukh wrote: post #9

Earlier quoted context omitted.

Declining profitabilities caused by increased competition. What market risk are the scalp-style of hft strategies (not all hft's are scalping) taking ? If they can cancel orders at abandon and make pennies if they win the race (against other hft's), but can simply x out of their order if the price doesnt go their way is as close to a riskless profit as it gets. virtu's prospectus as a case in point. https://www.sec.g…

There is still risk. Even if you never lose money on a trade, your firm can lose money. You're paying fixed costs such as colocation. It's conceivable that all your trades are profitable, yet the sum of all those profits is lower than your fixed costs. That becomes more likely for any given firm as the competition increases. Spreads get smaller; there's more competition for any given trading opportunity. For each fir…

Post by dangerlibrary » Fri, Apr 04, 2014, 7:12 PM UTC

nbouscal wrote: post #5

If you want to know what the actual effects of HFT are on individual investors rather than hypotheticals, a study was done in Canada last year on that exact question. Spoiler alert: HFT is good for the little guys. http://qed.econ.queensu.ca/pub/faculty/milne/322/IIROC_FeeCh...

Post by lrm242 » Fri, Apr 04, 2014, 7:17 PM UTC

foobarqux wrote: post #46

lrm242 wrote: post #30

Earlier quoted context omitted.

No one can see the other players cards in trading unless the player shows them. Brokers sending IOIs to dark pools releases info to the market. Hitting venue A and then venue B in a serial fashion will release info the market, letting some traders cancel before you get to B. There is no mechanism on the lit markets for anyone to see an order BEFORE it interacts by either posting to the book or being crossed with anot…

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