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The rise of high frequency trading - graphic animation

nanex.net

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Re: The rise of high frequency trading - graphic animation

#21

Post by Retric »

theorique wrote: post #18

I like Nanex's work - the company has done a lot of excellent analysis of the progress of HFT over the past few years. I'm wondering why there tends to be so much value judgment and moralizing in this area coming from various sources (such as Themis). For example: HF traders are taking value from "real" traders ("real" defined by whom?), the systems are "too fast" (compared to what?) or quoting "too much" (compared t…

The point of the stock market is to create a liquid market for businesses and investors. HFT who don't actually keep any skin in the game is just a market efficiency which is best dealt with by changing how the market operates not flooding it with 100 billion meaningless buy and sell orders a day.

EX: Put a 24 hour hold after a stock transaction is held before you can sell and you just killed 99% of HFTing.

Re: The rise of high frequency trading - graphic animation

#22

Post by theorique »

Retric wrote: post #21
theorique wrote: post #18

I like Nanex's work - the company has done a lot of excellent analysis of the progress of HFT over the past few years. I'm wondering why there tends to be so much value judgment and moralizing in this area coming from various sources (such as Themis). For example: HF traders are taking value from "real" traders ("real" defined by whom?), the systems are "too fast" (compared to what?) or quoting "too much" (compared t…

The point of the stock market is to create a liquid market for businesses and investors. HFT who don't actually keep any skin in the game is just a market efficiency which is best dealt with by changing how the market operates not flooding it with 100 billion meaningless buy and sell orders a day. EX: Put a 24 hour hold after a stock transaction is held before you can sell and you just killed 99% of HFTing.

Put a 24 hour hold after a stock transaction is held before you can sell and you just killed 99% of HFTing.

Not just HFT - you just killed some significant fraction of all forms of trading. Bought something and it's declining? Oops, too bad, you're locked in - better wait 24h. The arbitrary phase shift of transactions will add massive amounts of complexity and create a new system to be gamed.

Edit: Also, regarding "skin in the game" - the recent $440M Knight fiasco shows that firms participating in all forms of HFT are exposed to real financial risk. They definitely have some skin in the game.

Re: The rise of high frequency trading - graphic animation

#23

Post by anonDataUser »

nanex wrote: post #8

Hi, I am Eric Hunsader from Nanex and created this animation using our own custom software tools and our NxCore data feed. Our position on HFT can be summed up in the first lines of text below the image: "It's not high frequency trading (HFT) that concerns us. It's high frequency quoting". Links are included for details. Our latest paper on HFT can be found here: http://www.nanex.net/aqck2/3532.html Anyone who has ta…

Hi Eric - Firstly, thanks for the work that you do. I can always rely on nanex research to produce thoughtful and interesting discussions.

Many of the "bots" in your research seem to be adding quotes that are far away from NBBO. One theory is that these exist to provide market participants with more precise measures of their own latency - almost like echo location. They send out a pattern to the exchange, and then wait until they see it coming back on their market data feed. I think that its good for market participants to have an accurate means of measuring market data latency and that having that means ultimately enhances the efficiency of the market. Do you disagree with this stance? Is there some other better means of measuring latency that would be better for market participants to use?

Re: The rise of high frequency trading - graphic animation

#24

Post by Variance »

brazzy wrote: post #19
Variance wrote: post #6

This is an excellent graphic, but the author has a strong stance against HFT (such as the pages he links to about high frequency quoting) that readers should moderate with an understanding of what HFT does in an ideal economic context--the "purpose" of HFT. At the level of HFT, the decisions being made are too fast and frequent to be based on the fundamentals of the stocks being traded. Instead, algorithms are used t…

I think you missed the main point of the article: that the activity of HFT algorithms overwhelmingly takes the form of quotes that never lead to trades and only serve to manipulate prices or create an information asymmetry.

See the excellent comments on this at [1] and [2]. The stuff that HFT currently does can't really cause anything too disingenuous.

[1]http://news.ycombinator.com/item?id=4395986 [2]http://news.ycombinator.com/item?id=4395834

Re: The rise of high frequency trading - graphic animation

#25

Post by Variance »

jamii wrote: post #20
Variance wrote: post #6

This is an excellent graphic, but the author has a strong stance against HFT (such as the pages he links to about high frequency quoting) that readers should moderate with an understanding of what HFT does in an ideal economic context--the "purpose" of HFT. At the level of HFT, the decisions being made are too fast and frequent to be based on the fundamentals of the stocks being traded. Instead, algorithms are used t…

> Sometimes, obviously, the use of these algos goes wrong. You get a flash crash with a death by ten billion cuts as the market moves to smooth in some incorrect way. I learned recently that there have been many similar crashes throughout history, well before even the invention of computers eg http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929 http://en.wikipedia.org/wiki/Black_Monday_%281987%29 http://en.wikiped…

Indeed, crashes happen are nothing new, and HFT algos going wrong are only one of the billions of ways that it can happen. That's what you get when the market has ways of deciding prices--through people, machines, or contracts. It's possible that things can go wrong, but investors acknowledge that risk, and take responsibility if things go wrong. It's no great moral failing of the world that the market can go south.
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