Barbarians at the Gateways: High-frequency Trading and Exchange Technology

Well I guess I'm very biased but here's my stab at it.

High Frequency trading is at the for front of alot of technology such as ASIC's, Infiniband networking gear,and low latency OS and networking stacks.

You could argue that they help push these technologies forward by providing the first customer for these areas.

Liquidity has gone up with the advent of High Frequency trading but like someone else has said its hard to disentangle all market factors to say this is due to HF Trading.

> Something about it just doesn't ring true to me. If it is in fact true I'd love to hear an explanation.

To be fair, this statement is the equivalent of "I've heard evolution is a well followed theory but something about it doesn't ring true to me."

What sort of explanation would you like that hasn't already been said 100's of times by people more qualified than me?

You haven't said what you don't like or disagree with about the many existing explanations:)

edit: I guess, I did though.

I can't help to reply to the adwords question - although you can argue that advertising/marketing is soulless, at least it creates real world value. Someone makes a product, someone else buys it. Exchange of goods happens.

Derivatives are uncontrallable in the my humble opinion. Especially if regulated by uber greedy people. And it makes me sad sad when I see the highest skilled people go and put their talent in something that is pretty much useless, apart from making a few, selected people even richer than they are. But I guess, whatever pays the bills.

But that's not why I made my comment. I made my comment, because what I find even more sad, is people going numb to injustice and admiring this situation and the people who are making it possible.

http://www.cnbc.com/id/100695563

Virtually all trading volume today consists of buying and selling old securities -- essentially, legal claims on existing assets. The sale of new securities issued to finance the creation of new products and services -- for example, a company selling new shares via an IPO or issuing new bonds for investment in physical infrastructure -- represents only a minuscule portion of total trading volume.

I'm not sure having so many of our best and brightest minds going to Wall Street (and into high-frequency trading in particular) is a good thing, from a societal perspective.

--

PS. Whenever I read anything about high-frequency trading, I'm reminded of the following passage, written by John Maynard Keynes in 1936 -- 77 years ago (!): "Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of 'liquid' securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is 'to beat the gun,' as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow."

Source: http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/cha...

The more things change, the more they stay the same!

> It is not a "fair" place to trade. If HFT were to come in that may or may not change. I suspect it would get better.

"HFT" and "fair" in the same sentence, with positive connotation. Now, that's funny: HFT in American exchanges these days is an all out, unregulated war of bits, and fairness is not an attribute you can associate with it - see e.g. http://www.nanex.net/aqck2/4329.html ; The reason HFT stays away from currency is not because of being "fair" or "unfair" (no markets are fair, every market has privileged players).

It's just that in currencies, the people you take money from own the system and will kick you out. They make their own rules. Whereas on ARCA and INET, the HFTs are the landlords and make their own rules (by quote stuffing and stuff).

Neither market is regulated against the privileged players.