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Why Do High-Frequency Traders Cancel So Many Orders?

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Re: Why Do High-Frequency Traders Cancel So Many Orders?

#61

Post by Retric »

kasey_junk wrote: post #55
Retric wrote: post #51

Earlier quoted context omitted.

Trading is not a zero sum activity, trades happen because each side want what the other person has more than what they have which is a net positive. aka I want lunch more than money. HFT trading is zero sum because the traders don't actually want or keep stock.

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…

Buying stock is trading future money than money today which is a real and meaningful trade. On the other side, I might want a new car, which means I want money, which means I want to sell stock.

Even stock to stock transitions can be meaningful as Bill Gates had a lot of MS stock and wanted a hedge so he sold stock. What he got was probably worth 'less' the diversification was valuable to him making the transaction a net positive.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#62

Post by Rimpinths »

CyberDildonics wrote: post #8
elecengin wrote: post #2

This article brings up something that HF traders have been bemoaning for a long time: the fragmented US market structure. In US equities, you need to monitor almost a dozen exchanges to be competitive. The popular book "Flash Boys" gave the impression that HF traders loved this market structure and used it to extract more money out of the market. In the majority of cases, this is wrong. In fact, the fragmented market…

Fragmented exchanges are better for everyone except for high frequency traders. Then they actually have to do low latency arbitration to make money instead of full on front running like they do now. Arbitration between physical locations is something that can't be helped. The other things ways that high frequency traders make money can be helped by better systems, but there are no incentives to make those systems whe…

Some HFT strategies depend on fragmented exchanges. Look up "latency arbitrage" for examples.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#63

Post by vasilipupkin »

shasta wrote: post #48

I guess I see why high frequency trades are necessary in the current trading framework, but looking at the situation from a high level, isn't it obvious that the resources being spent on microsecond level response improvements don't benefit anyone but the winners? Can someone argue otherwise?

It's the opposite. The resources being spent on microsecond speed race is a form of a tax imposed on HFT by society. If all big HFT firms spent on getting faster, they don't benefit in expectation, since all the competitors will be equally fast, but society benefits because that spending goes to wider economy outside HFT

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#64

Post by Retric »

harryh wrote: post #54
Retric wrote: post #51

Earlier quoted context omitted.

Trading is not a zero sum activity, trades happen because each side want what the other person has more than what they have which is a net positive. aka I want lunch more than money. HFT trading is zero sum because the traders don't actually want or keep stock.

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.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#66

Post by crdoconnor »

harryh wrote: post #43
gbhn wrote: post #42

Something this article ignores, and which is ignored by most articles on HFT, is that the process is ilegible to the public. "No no we're doing you a favor!" is not reassuring when the activity consumes a bunch of resources on zero sum activity. Ultimately investing runs on trust. HFT is consuming public trust in the financial system at a prodigious rate. Is it a trillion dollars a year? A billion? Hard to be sure. B…

Lots of things are illegible to the public. Explain to me all the processes involved in building the smart phone in your pocket. You can't. I can't. Probably no single person in the world can. Who cares?

There's a pretty strong chance that your retirement funds are not being cannibalized by Samsung or Apple.

Whereas, with HFT...

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#67

Post by kasey_junk »

Retric wrote: post #61
kasey_junk wrote: post #55

Earlier 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…

Buying stock is trading future money than money today which is a real and meaningful trade. On the other side, I might want a new car, which means I want money, which means I want to sell stock. Even stock to stock transitions can be meaningful as Bill Gates had a lot of MS stock and wanted a hedge so he sold stock. What he got was probably worth 'less' the diversification was valuable to him making the transaction a…

What you are talking about are precisely the aggregate benefits to the markets I mentioned, liquidity and easy risk management.

That the markets provide those behaviors is what makes them valuable but the actual trades that make up those aggregates, your selling of shares when you need a car to someone else is zero sum. Either you would make more by holding or you wouldn't.

That something other than that is more important to you indicates that you are in the market for a middle man to bridge that time gap and buy some of the risk from you. Your time horizon is from share purchase to "need money for car", not from share purchase to "optimal selling point". The service you take advantage of when you bridge that gap is provided by the aggregate work of many zero sum interactions between speculative participants like market makers and "investors" like your self.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#68

Post by crdoconnor »

harryh wrote: post #50
dopamean wrote: post #47

Earlier quoted context omitted.

I think the illegibility of it is important if it is affecting other people's finances.

Nearly every good or service that you purchase is backed by a nearly illegible process of global trade. That doesn't affect your finances?

>Nearly every good or service that you purchase is backed by a nearly illegible process of global trade. That doesn't affect your finances?

Yes it has, but why would you consider that a good thing? CAFTA and NAFTA have been pretty horrendous for the finances of Americans and TTIP and TPP are likely to be even worse.

They can't be killed unless enough people understand them, either.

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#69

Post by joosters »

crdoconnor wrote: post #66
harryh wrote: post #43

Earlier quoted context omitted.

Lots of things are illegible to the public. Explain to me all the processes involved in building the smart phone in your pocket. You can't. I can't. Probably no single person in the world can. Who cares?

There's a pretty strong chance that your retirement funds are not being cannibalized by Samsung or Apple. Whereas, with HFT...

Even if we all accept that HFTs are 'stealing' fractions of a penny per trade, just how often do you trade your retirement funds?

Re: Why Do High-Frequency Traders Cancel So Many Orders?

#70

Post by crdoconnor »

kasey_junk wrote: post #49
gbhn wrote: post #42

Something this article ignores, and which is ignored by most articles on HFT, is that the process is ilegible to the public. "No no we're doing you a favor!" is not reassuring when the activity consumes a bunch of resources on zero sum activity. Ultimately investing runs on trust. HFT is consuming public trust in the financial system at a prodigious rate. Is it a trillion dollars a year? A billion? Hard to be sure. B…

> when the activity consumes a bunch of resources on zero sum activity The thing to remember about the markets is that each individual trade is always zero sum, but the value of the markets comes from the aggregate total. The behaviors that we want in our markets, price discovery, liquidity, easy risk management are all outcomes that are enabled by speculative market participants like market makers engaging in lots o…

>The behaviors that we want in our markets, price discovery, liquidity, easy risk management

None of which we get from HFT.

HFT cannibalizes the research done by value investors (oh, but it's not legally front running if they're not your customer!), rendering that a market for lemons, so there goes price discovery.

HFT floods the market with more liquidity than it needs during normal periods (there is no benefit to you being able to trade at split second intervals. nada. none) and then extracts it all during periods of market distress when liquidity would acually be useful.

And risk management? Please. They're only managing their own risks.

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