what benefit does high frequency traders provide to rest of society? none. they raise the cost of transactions of all investors. it should be banned and those brought to justice.
Why Do High-Frequency Traders Cancel So Many Orders?
211–220 of 247 posts
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#212Earlier quoted context omitted.
A more granular tick doesn't just "spread out" the existing liquidity to a bunch of price levels--it meaningfully decreases incentives to post serious size. The spread will end up being marginally tighter, but with thinner books, you still pay more to trade large amounts. The objective function to minimize is transaction costs, not spread.
> it meaningfully decreases incentives to post serious size Do you have support for that claim? (I don't have an opinion; Trying to form one based on data)
The second page contains a succinct summary of theoretical reasons why this is true. The rest of the paper goes over empirical findings: http://www.acsu.buffalo.edu/~keechung/MGF743/Readings/G2%20D...
Since then, we have additional data points from the decimalized US equity markets. See http://www.sec.gov/rules/other/2014/34-72460.pdf for a bibliography. The weight of the evidence points towards thinner books. Incidentally, the SEC is looking to increase the tick size for illiquid small-cap stocks for this very reason.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#213A better question is why do we even have 'High Frequency Traders'? Wouldn't the market be better served by a window structure with a scale on a more human timespan? Say a 5 min process in which: * for 4 min orders are taken in confidential secret. * there is a 1 min blackout window in which no orders are taken, and in which any results of settling the outcome of orders is not published. * At the end of that period th…
The price of equities is not known. The market is how that price is calculated.
You could slow down the process, but that adds risk (that one party is getting the wrong price). The market makers would say, I'll sell you one 1 share for $1, 10 shares for $1.20, 100 shares for $2, 1000 shares for $10. So then someone who wants to buy 1000 shares for $1 a share will buy only 1 share at $1. Then in the quiet period, the market makers will adjust their prices. 1 share for $1.01, etc. Then you'll sell another share for $1.01. Then you'll wait 5 minutes, and the market makers will adjust their price.
The market is going to work the same way at 5 minute delay as it works at nanosecond delay, but just be slower. The market makers won't be getting you a better price, and your large transaction won't not affect the share price.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#214A better question is why do we even have 'High Frequency Traders'? Wouldn't the market be better served by a window structure with a scale on a more human timespan? Say a 5 min process in which: * for 4 min orders are taken in confidential secret. * there is a 1 min blackout window in which no orders are taken, and in which any results of settling the outcome of orders is not published. * At the end of that period th…
Would you, as an investor, rather trade on exchange A, where there is a given spread and market depth, so you know approximately what price your order will execute at in the next few seconds, or at exchange B, where the most recent price and depth is up to 5 minutes old, and where your orders will be executed at an unknown price sometime in the next 5 minutes?
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#215A better question is why do we even have 'High Frequency Traders'? Wouldn't the market be better served by a window structure with a scale on a more human timespan? Say a 5 min process in which: * for 4 min orders are taken in confidential secret. * there is a 1 min blackout window in which no orders are taken, and in which any results of settling the outcome of orders is not published. * At the end of that period th…
> A better question is why do we even have 'High Frequency Traders'?
High Frequency Traders (HFT) do a lot of positive things for a market - mainly providing liquidity where they might otherwise not be. They also act as a sort-of balancing force for undervalued or overvalued stocks (in the volume the HFT's trade with over time), "normalizing" the VWAP and TWAP (among other health indicators) for a given ticker.
In other words, markets want (and benefit from) HFT's.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#216Disclaimer: I work in HFT The article uses the term "front-running" incorrectly. Front-running is where a firm places their own trades ahead of trades they're placing for a client, to capitalize on the price movement that client order might generate. This is illegal. What the market makers in the article are doing isn't front-running. It's just being smart with their orders. And that's generally why HFTs cancel order…
I used to work in it, and this guy's right. The short, layman explanation is: They change their minds very quickly, and very frequently. Hence the H in HFT.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#217Earlier quoted context omitted.
No one wants actual stock. They want to gain money on price differences in stock, or get the dividends that owning stock gives rights to, or I suppose they want to be able to have the voting rights stocks grant. The difference is all about timing. I may want something else more than you do but am willing to sell now. If at the time you close out your trade (that is sell the shares from me) the price may have risen or…
> get the dividends that owning stock gives rights to, or I suppose they want to be able to have the voting rights stocks grant. IE: People want actual stock. The stock has innate value due to the potential for dividends or to influence the future of a company. That is a significant amount of value.
But people don't care about value per se, they care about the extra value they get (over the price they're paying). Therefore, stock is only valuable inasmuch as what you pay for it is less than the present value of future dividends. Otherwise you're overpaying for it, and you might just as well keep the money.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#218Earlier quoted context omitted.
I can quickly and succinctly describe the traits and benefits of HFT: Replacing slow expensive humans with fast and cheap computers has dramatically reduced the cost of trading. You can see this because buy/sell spreads have shrunk by at least 10x.
That's not what High-Frequency Trading means. The terms for what what you describe are the more general "electronic trading" and "automated trading". They enable HFT, but are not HFT. High-Frequency Trading, while also an umbrella term, virtually always refers to a subset of algorithmic trading involving arbitrage over extremely short timeframes. HFT is not about being faster than "slow expensive humans" it's about b…
> HFT is not about being faster than "slow expensive humans" it's about being microseconds faster than other HFTs.
Now, HFTs are competing with other HFTs, but initially, they were competing with "slow expensive humans". The current situation only tells you how far we've progressed.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#219Earlier quoted context omitted.
That timeframe is too long (few ms)
Few ms is for the round trip from the exchange which is right in line with what exchanges tend to provide. I have it on good authority that Brian knows what he talks about in that regard...
My understanding was that he was talking about the 'few ms' to parse out whether or not this is you
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#220Ahem, buried in the middle of the article (I wonder why) "Navinder Sarao is accused of spoofing in the S&P 500 futures market, entering and cancelling lots of orders to create an illusion of demand, in suspicious proximity to the flash crash of 2010." This happens a lot more than you might think. There is always a temptation to stuff the order book to keep it going in a direction profitable for you (ie, fake volatili…
There is always a temptation to stuff the order book to keep it going in a direction profitable for you (ie, fake volatility). Is this something you have personal experience in? I ask because a lot of people relate this concern because they read about it in Zero Hedge, which is regarded by people in the industry as (as someone here once put it) "a conspiracy theory site without the theories".
It takes about five minutes on any broker that shows the full book to see orders vanish outside the market as it moves. Obviously you haven't bothered to do that before commenting. If those orders were real and not just fake demand they won't vanish so consistently.
Here's a good article for you to read: http://www.bloombergview.com/articles/2014-10-02/prosecutors...
There's a reason why they made spoofing illegal. The problem is, that you can't tell the difference between spoofing and just market making, especially as the algos get particularly complex. And when you start looking at in aggregate you see the real problem.