Mark Cuban: High-Frequency Traders Are the Ultimate Hackers • Hacker News Board

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#11

Post by russtrpkovski » Wed, Jun 27, 2012, 1:46 AM UTC

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

If you have a 401K or own shares in a mutual share, you should care about it.

The HFT algos siphon off billions every year from the big, slow "dumb money" large institutional investors (e.g. pension funds, index funds, insurance companies).

For example, if an insurance company needs to liquidate its portfolio to pay a claim, the HFT will sense the insurance company placing an order in the market and try to skim 5-10 cents per share by manipulating the share price during the trade. Its a zero-sum game.

The insurance company lost and the algo won. Market markets exist to provide liquidity (match buyers and sellers), not to front-run and bid up orders from customers.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#12

Post by russtrpkovski » Wed, Jun 27, 2012, 1:46 AM UTC

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

If you are interested, check out the book below. Good read:

http://www.amazon.com/Dark-Pools-High-Speed-Traders-Financia...

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#13

Post by prodigal_erik » Wed, Jun 27, 2012, 1:53 AM UTC

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

It's at least conceivable that the correct valuation of a company changes from one day to the next due to human-scale events, and that speculators are providing a useful pricing signal. Changes from one millisecond to the next are amplifying pure noise produced by flaws in the mechanics of trades reaching the market and clearing.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#14

Post by unabridged » Wed, Jun 27, 2012, 1:53 AM UTC

wmf wrote: post #10

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

The difference is that a crash can happen faster than any human can stop it. It's fine if you trust your high-frequency circuit breakers.

What exactly is a flash crash and why should individuals care? Isn't it just bank's computers temporarily offering stock at a severe discount and then the price going back to normal. It doesn't hurt anyone but the people with poorly programmed algorithms. No trades should ever be broken just because someone can't control their trading bots.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#15

Post by iterationx » Wed, Jun 27, 2012, 1:54 AM UTC

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

Think about the optimization.

>>According to Information Week Magazine¹: “A one (1) millisecond advantage in trading applications can be worth $100 million a year to a major brokerage firm”. Currently electronic trading makes between 60% and 70% of daily volume of NYSE¹. Tabb Group, a research firm, estimated that High-frequency traders generated about $21 billion in 2008.²

From a site promoting microwave communication towers for low latency packet transfer.

http://www.aviatnetworks.com/solutions/low-latency-microwave...

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#16

Post by evolve2k » Wed, Jun 27, 2012, 1:56 AM UTC

'Is the market supposed to be a platform for companies to raise money for growth and to create liquidity and opportunity for shareholders as it has been in the past? Or is the stock market a laissez-faire platform that evolves however it evolves? The missing link in all the discussions is: What is the purpose of the stock market?'

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#17

Post by steve8918 » Wed, Jun 27, 2012, 1:58 AM UTC

programminggeek wrote: post #8

I have no problem with HFT, but only because it is turning machines into things that are doing what humans did before, only at a speed that we can't keep up with as humans with our inherently physical interfaces. How is HFT different than traditional arbitrage except for the fact that it is faster and potentially at a scale that normal traders would never be able to keep up with? How is buying something one second an…

The real issue is that in order to get an edge, HFT traders are engaging in electronic warfare in order to slow down their opponents.

One of the worst things they are doing is "quote stuffing", which means submitting bids and cancelling them tens of thousands of times per second. They stuff the exchanges with quotes and eventually cause a huge latency with respect to the quotes that are shown by the exchange, such as NYSE, NASDAQ, etc. However, they aren't affected because they can see the prices because they have a raw data feed. This gives them an edge relative to the other traders that don't have their own raw feed straight from the exchanges, and they use that to basically shoot fish in a barrel.

This was one of the main causes for the flash crash in 2010. The excessive quotes

The thing is that they could stop this by implementing a minimum time for a quote to exist, something innocuous like 100 ms, but they don't because this would be a detriment to the HFT shops.

The other thing is that HFT shops behave like market makers, and they claim to provide liquidity, however, they have no obligation to provide liquidity, like real market makers. So just like during the flash crash, they turned off their machines, and the markets went haywire. So they want their cake and eat it too. If they are going to trade like market makers, they need to have the obligation to continue to provide liquidity.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#18

Post by Retric » Wed, Jun 27, 2012, 2:00 AM UTC

ezl wrote: post #2

sigh i got really excited about this because I was considering the interpretation of the word "hackers" like we use it in "Hacker News" (relevant: http://paulgraham.com/gba.html ) I know that the startup community at large doesn't largely respect short term trading, particularly HFT. I understand it, though I honestly think its misguided and the outrage is disproportionately large, but thats another story. The reason…

The problem with HFT algorithms in the eyes of most hackers is they are almost entirely a zero sum game. Assuming minimal volatility and free trades the absolutely dumbest algorithm* will make money.

*Buy at X sell at X + 1cent with a simple ratchet of buy orders from 1 cent up to market price + a small number of shares to be sold if the market price increases.

PS: Random walk that averages +/- one cent 10 times a second = 5 cent's profit a second assuming ~2,000 trading hours a year = 360k profit. Cost to make that for a stock worth ~20$ = ~30,000$ of capital + whatever it takes to get on the HFT floor.

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#19

Post by javert » Wed, Jun 27, 2012, 2:08 AM UTC

chewxy wrote: post #7

ezl wrote: post #2

sigh i got really excited about this because I was considering the interpretation of the word "hackers" like we use it in "Hacker News" (relevant: http://paulgraham.com/gba.html ) I know that the startup community at large doesn't largely respect short term trading, particularly HFT. I understand it, though I honestly think its misguided and the outrage is disproportionately large, but thats another story. The reason…

I was very interested in HFT when I was in uni. Then I discovered the minimum sunk costs of running a HFT startup and my balls shrank. So now I create my own matching markets which is still based on high speed trading theories, but without the pressure. But if ever you're interested, my email is my username here at gmail

Then I discovered the minimum sunk costs of running a HFT startup and my balls shrank.

Care to elaborate?

Re: Mark Cuban: High-Frequency Traders Are the Ultimate Hackers

#20

Post by drblast » Wed, Jun 27, 2012, 2:08 AM UTC

twoodfin wrote: post #9

kristianp wrote: post #5

I for one don't agree with HFT. Why should our best hackers and mathematical minds be wasted on something so shallow as gaming the market? Would a small randomised delay introduced by the exchange into each stock trade (or price datum) reduce the incentive for HFT?

Why should our best hackers and mathematical minds be wasted on something so shallow as gaming the market? If you think they're wasting their time, don't give them your money.

I don't think it's as simple as all that. There are legitimate parties at either end of a stock transaction, and the HFT's are pretty much just siphoning off small amounts of the proceeds. The reason this can occur is that our government ensures that public companies have to do business this way. And all of these rules are in place for good reasons and it works pretty well, but HFT is an aberration.

A good analogy is credit card companies; it's perfectly rational for a customer to use a rewards credit card and pay it off at the end of every month, and it's perfectly rational for a merchant to allow credit card transactions for convenience. Arguably, however, the credit card company is little else but a 3-5% drain on the economy, especially for brick-and-mortar stores.

That said, credit card companies provide some value in the form of convenience, so maybe the transaction fee is worth it. HFT's, however, provide no benefit to anyone but themselves. The transactions would still occur whether or not the HFT existed. The distinction Mark Cuban makes between "investors" and "traders" is an astute one.