231–240 of 242 posts
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Indeed - the author seems to confuse trade volume with liquidity.
The author gave you the benefit of the doubt by not spelling out the essential relation between liquidity and volume over time. Just what exactly do you think liquidity is, if it has nothing to do with volume over time?
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That may be the nature of the complaint, and it is definitely the underlying concern of the NBBO rules. But by saying "hey, anyone want to be the other side of this transaction" you're stating the price at which you'd find a trade beneficial. This gets back to the nature of the market price. There is a fallacy that the market price is the price of the last trade. At any price, there is some combination of supply and…
>The genius of ETN creators What is your definition of "ETN"? The only definition I know is "Exchange Traded Note" which doesn't make sense here. Do you mean "ECN"(Electronic Communications Network)?
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The author gave you the benefit of the doubt by not spelling out the essential relation between liquidity and volume over time. Just what exactly do you think liquidity is, if it has nothing to do with volume over time?
It is the ability to transact, rather than the fact of having transacted.
Here's what that incontrovertible reference, the Wikipedia, states:
Another elegant definition of liquidity is the probability that the next trade is executed at a price equal to the last one.
The Wikipedia also "confuses" liquidity with volume: The liquidity of a product can be measured as how often it is bought and sold; this is known as volume. Source: http://en.wikipedia.org/wiki/Market_liquidity
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>they provide a valuable price setting service to the market [Citation Needed] My thesis above is that there IS no value added. You're saying that they are being paid for value provided, but other than possibly causing the price to be updated more quickly (on the 100 millisecond scale mostly, but possibly as much as a few minutes sooner), I don't see how that provides any real value. And honestly I don't see how even…
In ALL the examples in the OA... Except for the example you choose to ignore, even after it was pointed out to you.
For a third time: If the only example that causes someone to benefit is the one where the HFT is losing money, then HFTs are motivated NOT to help people.
So no, I don't count an example where an HFT screws up as a positive. If the best you can say is that "some of my revenues are redistributed to people who otherwise wouldn't have been able to make a sale because there were no other buyers for a particular stock", well, sorry, but that pretty much proves my point.
You're claiming to be a Robin Hood, but without the whole moral justification -- you're robbing from random people and occasionally giving some of your proceeds to other random people. The latter doesn't justify the former.
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In ALL the examples in the OA... Except for the example you choose to ignore, even after it was pointed out to you.
No, I didn't ignore it. I've addressed it twice already. For a third time: If the only example that causes someone to benefit is the one where the HFT is losing money, then HFTs are motivated NOT to help people. So no, I don't count an example where an HFT screws up as a positive. If the best you can say is that "some of my revenues are redistributed to people who otherwise wouldn't have been able to make a sale beca…
Incidentally, if you feel HFTs add no value, why do people choose to pay them? In my example (and in the real markets), there is nothing stopping Fry from posting a sell order at $10.04 and not trading with Leela. So why does he?
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Explain to me how HF algos stuffing quotes helps to do so. Explain to me how the heat generated by Amazon's data centers helps bring packages to my door. The answer is that it doesn't. It's a harmless side effect of the process that does.
What a horrible analogy. You're offering no evidence that it's harmless. Any system trying to analyze price discovery on a security is going to look at the depth of book and try to use the imbalance to determine where in the spread the current optimal price lies. Stuffing quotes is going to make that information meaningless. Stuffing quotes when you have the ability to do so faster than other market participants is e…
Neither you nor zerohedge has offered any evidence it has any effect at all, harmful or not.
Stuffing quotes causes the bid to oscillate between 10.00 and 10.01 rapidly for a fraction of a second. So what? If it scares you, wait 3 seconds for things to slow down and then place your order. Or if you want to be daring, place your sell order at $10.01 and hope you get filled at that price. Worst case you gasp don't get filled at $10.01 and have to change your order to $10.00 (omfg, no!!!).
Tell me why having to wait a tenth of a second before cancelling a quote is horrible.
Why do you believe I think this would be horrible?
I have no opinion on minimum quote durations - it would widen the spread somewhat (by raising the risk and therefore the costs of HFT), but I don't think it would matter very much.
To go back to my analogy, it would be like demanding that Amazon put marginally better air conditioning in their data centers. It would have a small effect on the evil hellish heat they create (don't you know that satan loves heat!), while possibly raising the price of goods they deliver by a tiny amount.
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No, I didn't ignore it. I've addressed it twice already. For a third time: If the only example that causes someone to benefit is the one where the HFT is losing money, then HFTs are motivated NOT to help people. So no, I don't count an example where an HFT screws up as a positive. If the best you can say is that "some of my revenues are redistributed to people who otherwise wouldn't have been able to make a sale beca…
In that case, you shouldn't count insurance companies are positive. They only help their customers when they screw up and pay out benefits. Incidentally, if you feel HFTs add no value, why do people choose to pay them? In my example (and in the real markets), there is nothing stopping Fry from posting a sell order at $10.04 and not trading with Leela. So why does he?
A well-run insurance company spreads risk among all of its customers. There are NON-PROFIT insurance companies that do an excellent job of spreading that risk around (Kaiser Permanente spends 95% of its insurance dues actually paying for medical care, for example). When you buy insurance you're not EXPECTING to have a problem, but you want to be protected if you do. When someone DOES have a problem, the insurance company hasn't "screwed up" -- the entire point of insurance is to cover unexpected problems.
The only time that the insurance company could be said to have screwed up is if they're losing money overall. And in that case they'll eventually go bankrupt.
>why do people choose to pay them?
Ignorance? Given how many times I've seen advice to never (or at least only rarely) place a market order, I have no idea why anyone does.
Or possibly it's just the "greater fool" theory: They will sell to the HFT if and when they think they know better than you do.
You're claiming that the HFTs are providing insurance to the people who are buying or selling? I find that to be a stretch, since the entire point is that you look for sure bets and attempt to only sell this "insurance" to people who (in your opinion) don't need it.
And frankly most people trading in the stock markets don't know they're even "buying" this insurance. If they did, then yes, I could buy your argument. But they don't. And the ability to choose makes all the difference in this case.
I'd like to hear from someone trading stocks for a mutual fund, and whether they would "choose" to pay an HFT.
The reason that we don't have market makers standing around in pits any more -- that computers can do the trades directly -- also implies to me that we don't need those intermediaries at all. There's a lot of economic leeching that goes on in Wall Street, and I suspect that much of it is obsolete. HFTs are merely another symptom of the same problem.
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In that case, you shouldn't count insurance companies are positive. They only help their customers when they screw up and pay out benefits. Incidentally, if you feel HFTs add no value, why do people choose to pay them? In my example (and in the real markets), there is nothing stopping Fry from posting a sell order at $10.04 and not trading with Leela. So why does he?
Your insurance company example is totally unrelated. A well-run insurance company spreads risk among all of its customers. There are NON-PROFIT insurance companies that do an excellent job of spreading that risk around (Kaiser Permanente spends 95% of its insurance dues actually paying for medical care, for example). When you buy insurance you're not EXPECTING to have a problem, but you want to be protected if you do…
The only time the HFT could be said to have screwed up is if they're losing money overall.
I find that to be a stretch, since the entire point is that you look for sure bets and attempt to only sell this "insurance" to people who (in your opinion) don't need it.
No, you look for bets with a 90% chance of collecting a $0.10 spread and a 10% chance of a $0.50 price drop (for a net profit of $0.04/trade across many trades). Actually, the odds are usually much worse than that, if your expected profit/share is greater than a penny, you are doing fantastically well. Any HFT who hunts for a sure thing isn't making any money - there are far more 51% gain, 49% loss opportunities than there are sure things.
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Your insurance company example is totally unrelated. A well-run insurance company spreads risk among all of its customers. There are NON-PROFIT insurance companies that do an excellent job of spreading that risk around (Kaiser Permanente spends 95% of its insurance dues actually paying for medical care, for example). When you buy insurance you're not EXPECTING to have a problem, but you want to be protected if you do…
An HFT spreads risk among it's customers as well. When you cross the spread you aren't necessarily EXPECTING the stock to go down, you just don't want to take the chance. The only time the HFT could be said to have screwed up is if they're losing money overall. I find that to be a stretch, since the entire point is that you look for sure bets and attempt to only sell this "insurance" to people who (in your opinion) d…
There may be far more 51/49 opportunities. However, saying that HFTs hunting for sure things isn't making money is far from true.
I worked for a UHFT firm that had a winning percentage of more than 95% of the time. The 5% losers had VERY small losses too. All arbitrage trading. Not market making like everyone seems to be focused on in here.
I have no objection to the provision of liquidity. That said, the flash crash seems to me to be a perfect example of a danger created when liquidity is provided largely by algorithms. We ran into a situation where the market was already volatile, and a bad trade exacerbated the issue by causing a number of HFTs to take unexpected losses and withdraw from their markets, consuming further liquidity while driving prices…
HFTs thrive in volatile markets. not calm markets. Those HFT firms that stayed in the market during the flash crash made a killing.