A trading platform that outlaws what it sees as abusive practices • Hacker News Board

Re: A trading platform that outlaws what it sees as abusive practices

#11

Post by msandford » Fri, Jul 03, 2015, 5:07 PM UTC

res0nat0r wrote: post #6

blazespin wrote: post #4

Earlier quoted context omitted.

Well, you can disable front running with your own exchange which is what he is doing. And it seems to be working (he is getting liquidity, their average market share has tripled from .4% to 1.1%) This is much better than the government stepping in, so I am very glad he is doing it. We'll see if he can keep up the growth.

Front running is already illegal.

So is the police killing someone on a "nickel ride" like what recently happened in Baltimore. But if there's no enforcement of the laws, or if the regulators disagree with the sentiment of the rest of the population, the notional illegality of such activities is of little practical value.

Re: A trading platform that outlaws what it sees as abusive practices

#12

Post by dkfsls » Fri, Jul 03, 2015, 5:10 PM UTC

res0nat0r wrote: post #2

I'm no stock expert, but I still don't see how people are getting "screwed" by hft. If you are concerned about a price fluxation just place a limit order. Simple as that. If you don't care, then place a market order. There's always been someone out there with more information, smarter people, and now faster connections than you. It's never been a level playing field and will never be.

There are a few problems with that.

Exchanges make it difficult to know the current price. They sell fast data feeds to HFT shops allowing them to know about price changes before the rest of the market participants.

Exchanges have tons of order types, not just limit and market orders. There are order types that specifically benefit HFT shops by allowing them to pick off limit and market orders. If you put in a limit BUY order for $10 and the current price is $9.90. There is a big difference between executing at $10 vs $9.90 on large orders. If a HFT shop is able to push the price up to $10 (there are a few ways to do this), you just lost a lot of money and probably made the HFT a nice paycheck when the price reverts back to $9.90.

Re: A trading platform that outlaws what it sees as abusive practices

#13

Post by [deleted] » Fri, Jul 03, 2015, 5:12 PM UTC

res0nat0r wrote: post #2

I'm no stock expert, but I still don't see how people are getting "screwed" by hft. If you are concerned about a price fluxation just place a limit order. Simple as that. If you don't care, then place a market order. There's always been someone out there with more information, smarter people, and now faster connections than you. It's never been a level playing field and will never be.

[deleted]

Re: A trading platform that outlaws what it sees as abusive practices

#14

Post by foobarqux » Fri, Jul 03, 2015, 5:13 PM UTC

joshu wrote: post #7

if you have continuous trading, you are going to have complicated interactions (such as outlined in the article.) instead, an occasional crossing (once a day? once an hour?) would provide much more "fairness" since everything happens at once, at the expense of "timeliness". back when I worked in this industry (a decade ago) POSIT provided something a lot like this you can't have it both ways, though.

The rest of the world is still continuous.

Re: A trading platform that outlaws what it sees as abusive practices

#15

Post by dllthomas » Fri, Jul 03, 2015, 5:14 PM UTC

vegabook wrote: post #10

avz wrote: post #5

Earlier quoted context omitted.

The fundamental idea of algorithmic trading doesn't really fall into the category of screwing-people-over. However, some techniques employed by institutions engaged in it can easily be seen as outright cheating. One common example is front running [1] where a player with access to real-time order information exploits the knowledge of pending trades from other players to turn a profit at the other players' expense. Th…

The idea that HFT is front running any more than a human market maker is a fallacy. What HFT does, is to properly price the liquidity in the market. Previously, large institutional or more likely hedge fund orders would be priced very tightly, because it was in the market maker's interest to know the direction of the flow. By "winning" the trade he/she would have an information advantage on the subsequent likely move…

I don't follow what you say here - my understanding has it that spreads have grown tighter since computerizing things (and generally that a tighter spread is more efficient).

Re: A trading platform that outlaws what it sees as abusive practices

#16

Post by dllthomas » Fri, Jul 03, 2015, 5:16 PM UTC

foobarqux wrote: post #14

joshu wrote: post #7

if you have continuous trading, you are going to have complicated interactions (such as outlined in the article.) instead, an occasional crossing (once a day? once an hour?) would provide much more "fairness" since everything happens at once, at the expense of "timeliness". back when I worked in this industry (a decade ago) POSIT provided something a lot like this you can't have it both ways, though.

The rest of the world is still continuous.

At least, approximately...

Re: A trading platform that outlaws what it sees as abusive practices

#17

Post by JesperRavn » Fri, Jul 03, 2015, 5:17 PM UTC

res0nat0r wrote: post #8

avz wrote: post #5

Earlier quoted context omitted.

The fundamental idea of algorithmic trading doesn't really fall into the category of screwing-people-over. However, some techniques employed by institutions engaged in it can easily be seen as outright cheating. One common example is front running [1] where a player with access to real-time order information exploits the knowledge of pending trades from other players to turn a profit at the other players' expense. Th…

Front running is already illegal, so if any group is doing that they are already breaking the rules of the game, and should be punished/stopped if found out.

What some HFT traders are doing is economically equivalent to front-running, but is not legally front running since they are not front running the orders of their own clients. All of this is explained in the article, so if you disagree, it would make more sense to read it, find the parts you disagree with, and argue against them, rather than skim the article and then argue with our collective rehashing of the article's argument.

Re: A trading platform that outlaws what it sees as abusive practices

#18

Post by hackuser » Fri, Jul 03, 2015, 5:21 PM UTC

'Safe' markets are valuable even for insiders, because they attract more investors and volume. People naturally want to invest where they won't be cheated.

That has been forgotten in the (largely manufactured, IMHO) anti-regulation outrage. Even the big Wall Street firms should benefit from regulation that makes non-insider investors feel the market is safe enough to invest in.

That said, I'm confused and my theory fails: Despite the long run of incompetence and fraud on Wall Street, its reputation as the leading place to invest and for expertise seems to persist and it has resisted regulation to a great degree. You don't hear people say, 'don't invest in the stock market because you'll be cheated'; or 'don't hire (some major Wall Street firm) because look how they cheated these other people, and they demonstrated complete incomptence in events X and Y'. Their reputation seems immune.

Maybe there are no better options.

Re: A trading platform that outlaws what it sees as abusive practices

#19

Post by res0nat0r » Fri, Jul 03, 2015, 5:27 PM UTC

msandford wrote: post #11

res0nat0r wrote: post #6

Earlier quoted context omitted.

Front running is already illegal.

So is the police killing someone on a "nickel ride" like what recently happened in Baltimore. But if there's no enforcement of the laws, or if the regulators disagree with the sentiment of the rest of the population, the notional illegality of such activities is of little practical value.

So front running is currently rampant in every area of the NYSE and the regulators are looking the other way?

Re: A trading platform that outlaws what it sees as abusive practices

#20

Post by JesperRavn » Fri, Jul 03, 2015, 5:27 PM UTC

joshu wrote: post #7

if you have continuous trading, you are going to have complicated interactions (such as outlined in the article.) instead, an occasional crossing (once a day? once an hour?) would provide much more "fairness" since everything happens at once, at the expense of "timeliness". back when I worked in this industry (a decade ago) POSIT provided something a lot like this you can't have it both ways, though.

Their system is not fundamentally different from discrete trading, since they have delay lines going into and out of their servers. So while everything is continuous, if you want to observe the market, then do a trade, then observe the result of that trade, etc. there is maximum rate you can do this.

This is what prevents front running[0], according to my understanding. Once you submit an order, no one can react to that information within a time greater than round trip latency to the servers.

The problem with crossing at discrete intervals is that it introduces new kinds of strategic considerations that make it much more complex for people to play the "game".

EDIT [0] For the sake of the pedantic, I mean front running in the sense of the article at the top of this page, not the legal sense. The article defines a notion of front running that maybe not everyone agrees with, but that is what I am referring to.