Earlier quoted context omitted.
They are not. The largest, best-regarded fund manager in the world (Vanguard) is on the record saying that they've benefited from HFT.
Link?
Why Do High-Frequency Traders Cancel So Many Orders?
221–230 of 247 posts
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#222Earlier quoted context omitted.
Marketing making != HFT. HFT is simply trading like market makers, they're not making markets.
Can you be more specific about the distinction you're trying to draw here?
Market makers have obligations to maintain a two sided market, in all market conditions.
HFT have no such obligation, and so, when there are rapid shifts in prices, may just wait out the chaos.
HFT gets the benefit of taking the spread, without having to pay the cost of ensuring orderly markets.
http://nysearcarules.nyse.com/pcx/pcxe/pcxe-rules/chp_1_1/ch...
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#223I think to understand most HFT market makers you have to understand how the markets pay. Most work on a maker taker model. Which means the trader who initiates the trade pays a small fee and the trader who is the passive side, the one who had their order in the market already, gets paid a small fee. as a side note there are inverted markets but lets leave those aside for now. This means to get paid you want to be at…
>This means that if someone is actually slowing down market data for say AAPL then they are also slowing down quotes for AMZN as well but again Why should one symbol be tied to a completely unrelated symbol? This doesn't engender confidence in the architecture of these markets (which markets are you referring to, specifically)? >you start to realize that almost all HFT firms aren't quote stuffing, they are just jocke…
Equity exchanges run the matching engines for a ton of symbols on one core. For example, Arca load balances 3000+ US equities across four cores -- island does it across a 24 core machine, but the outgoing message queue is shared across all 24 cores, so any increase in message rates from one core slows down the outgoing traffic from all matching engines.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#224Earlier quoted context omitted.
Can you be more specific about the distinction you're trying to draw here?
Market makers have obligations to maintain a two sided market, in all market conditions. HFT have no such obligation, and so, when there are rapid shifts in prices, may just wait out the chaos. HFT gets the benefit of taking the spread, without having to pay the cost of ensuring orderly markets. http://nysearcarules.nyse.com/pcx/pcxe/pcxe-rules/chp_1_1/ch...
There are market makers, and there are Market Makers. In practice, the registration may simply be a formalization of an existing trading system, or a very light obligation on top of the existing system.
From the document that you listed, it looks like NYSE Arca has a requirement for 100% continuous quoting, but the quotes can be 8% away from the current market price (section 7.23.a.1). This is basically a free pass; nobody wants to trade against a quote that wide. For reference, take the most liquid ETF: SPY trades above $150 and regularly has a $0.02 spread, one THOUSAND times tighter than the 8% requirement.
On other exchanges, there are requirements for tight quotes, but they usually come with relaxed requirements on quoted time. For instance, maybe a market maker could be required to quote "90% of the time within a 0.5% spread". In such a scenario, allowing market makers to pull quotes for 10% of the day is basically giving them a free pass on the most volatile points of a day.
I have seen very few situations where registered/designated Market Makers are obligated to suicide themselves to provide liquidity; there's usually an "out". In practice, the top-tier HFT market makers (de-facto) are already exceeding the obligations required of Market Makers (registered).
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#225Earlier quoted context omitted.
Grocery store owners don't want vegetables either. They just want to hold them a little while before they sell them to you. Are they zero sum?
Grocery stores trade low cost bulk purchases for lot's of little transactions. However, stock markets already preform this function.
No, stock markets do not perform the same function as grocery stores. Grocery stores take on inventory risk by purchasing (in bulk) the goods that they think they can sell. If their inventory goes unsold or spoils, they lose. Stock markets provide a _venue_ for trading, but it is the market maker which takes on the inventory risk. An appropriate analogy would be that the grocery store is renting from a separate property owner. The property owner collects rent from the grocery store, just as stock markets collect "rent" (trading fees, colocation fees, system access fees) from market makers. In both cases, the inventory risk is managed by the middleman (grocery store, market maker).
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#226John Arnold (former Enron energy trader) also posted something on Bloomberg View, and the main gist of the article was: Front-running is profitable against traditional orders entered by humans. But with spoofers in the mix, the picture looks quite different: When the front-running HFT algorithm jumps ahead of a spoof order, the front-runner gets fooled and loses money. The HFT’s front-running algorithm can't easily d…
I can't believe the article in the comment above made it on to Bloomberg View. It uses a completely incorrect definition of front-running - claiming it is a "loose" term. It isn't. Front running is illegal. It requires advanced knowledge of a customer order (as the definition linked from the article states!) That means seeing the order before it appears on a market data feed. "Gleaning" information about the order us…
I understand your concern and do appreciate your point, but can you elaborate on why you think the definition is so black and white? Simple illegality oftentimes makes wrongdoing less clear, for example with insider trading.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#227I happen to have 144 lines of Ruby which implement the world's most braindead market making algorithm, coded by someone who had literally never written a trading system before. It cancels ~98% of orders before they are hit when running on a single stock on a single venue.
Is it profitable? Or just paper trading/simulated? Braindead stuff works if it is the fastest in the world, but as you slow down you need to get smarter to cover losses due to getting "picked off" more frequently.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#228Earlier quoted context omitted.
These days you can rent a co-located computer with direct connection to the exchange. The cost is a few grands per month. Not very cheap but definitely within reach of a small business. There are many small HF firms based all over the country that just rent 1 or 2 computers close to exchanges. This is bad for big investment banks like Goldman because they no longer have a location advantage - you do not need an offic…
Do you know of any of these companies? I would like to reach out.
I doubt you will get much of a response from _any_ proprietary trading company. The industry is aware of its public image, and any conversation comes with the perceived risk that you are a journalist looking to write a hit-piece.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#229Earlier quoted context omitted.
>So electronic trading is what? That great innovation where you no longer have to shout in a pit to get your trade executed because, you know, computers. Virtually all trading these days is electronic. >And HFT is Algorithmic trading by computers that's "fast" (usually regarded as sub-second trading, although definitions vary a little). The more you know...
You keep saying "shout in a pit" as if that was the primary benefit of electronic trading. But of course, that's not the primary benefit. The major benefit is that with humans out of the loop, it's harder to grift huge amounts of money from people trying to do simple trades. For instance: Google [odd eighths scandal]. And that's a modern example of humans rigging the markets, exploiting lack of competition and automa…
The primary benefit was that it decreased transaction costs which is the reason spreads went down in the late 90s/early 00s when humans were still in the loop.
Humans are of course perfectly capable of rigging the market with or without computers, a fact so mind-blowingly obvious, I'm not sure why you'd accuse someone of believing that it's false.
This particular thread was not about market rigging, it was about whether HFT can really be credited with decreasing spreads in the early 00s.
Re: Why Do High-Frequency Traders Cancel So Many Orders?
#230Earlier quoted context omitted.
>You are ignoring the context of the article The discussion went off course way before I dived in. >Comes now 'cdroconnor. You're playing a semantic game. You're defining "HFT" as "bad HFT", and everything else as simple "electronic trading". FINE. Nobody disagrees with you, except on the very boring point of what labels to attach to things. There is a very substantial non-semantic difference between robot-executed s…
You've made it very clear how important it is to you that we call benign electronic trading --- and, I infer, electronic market making --- something other than "HFT". What you haven't made clear is why you believe you're actually arguing with anyone here. I am 100% certain, because I've had the conversation with him multiple times, that 'kasey_junk agrees with you that there is such a thing as malignant electronic tr…
>What you haven't made clear is why you believe you're actually arguing with anyone here. I am 100% certain, because I've had the conversation with him multiple times, that 'kasey_junk agrees with you that there is such a thing as malignant electronic trading.
I was arguing that sub-second algorithmic trading cannot be credited with substantially reducing spreads in the early 00s.
kasey_junk linked to an article that claimed that.
It's a defense of HFT that's rolled out so often that it's practically become a cliche.