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Algorithmic Trading is Not High Frequency Trading

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Re: Algorithmic Trading is Not High Frequency Trading

#61

Post by prodigal_erik »

steve8918 wrote: post #21
joezydeco wrote: post #3

In your opinion, Jeff, was the 2010 Flash Crash the work of HFT, or Algo trading? Maybe both?

The 2010 flash crash was caused by "blackhat" HFT traders trying to game the system. It was shown that one, some, or many HFTs were involved in "quote stuffing" which is bidding for stock and then pulling the order, something like 100k times per second. This gave the appearance of liquidity and demand, but it was fake, because as soon as someone would bid for the stock, they would pull their order. But another use of…

All HFT is blackhat, leeching off flaws in the way the market clears. There's no legitimate value to be offered by interposing between a buyer and a seller who are in the market simultaneously and would have done the trade unhindered. Traders are a net win for society if they cause better resource allocation, not the same allocation a fraction of a second sooner thanks to a greater misinvestment in network hardware.

Batches of buy and sell orders which are in the money should be executed hourly. The fundamental values of companies don't change more quickly than that. The rest is noise, not signal.

Re: Algorithmic Trading is Not High Frequency Trading

#62

Post by known »

paperwork wrote: post #27

I always find it interesting how much vitriol there is against automated trading, even among programmers. Too many people seem to believe that a small number of, ultra resourceful, nefarious folks are using unfair means to "game the system." The truth, as usual, is less interesting. Doing this type of trading doesn't require millions of dollars and teams of PhDs. You don't have to know the right people and you don't…

trading = zero sum and investing != zero sum

Re: Algorithmic Trading is Not High Frequency Trading

#64

Post by davidw »

known wrote: post #62
paperwork wrote: post #27

I always find it interesting how much vitriol there is against automated trading, even among programmers. Too many people seem to believe that a small number of, ultra resourceful, nefarious folks are using unfair means to "game the system." The truth, as usual, is less interesting. Doing this type of trading doesn't require millions of dollars and teams of PhDs. You don't have to know the right people and you don't…

trading = zero sum and investing != zero sum

This sounds reasonable, but I simply don't know enough about trading to determine whether it's true or not. Anyone care to comment on it? It seems that if there were no trading at all, the world would be worse off.

Re: Algorithmic Trading is Not High Frequency Trading

#66

Post by dagw »

FrojoS wrote: post #33
paperwork wrote: post #27

I always find it interesting how much vitriol there is against automated trading, even among programmers. Too many people seem to believe that a small number of, ultra resourceful, nefarious folks are using unfair means to "game the system." The truth, as usual, is less interesting. Doing this type of trading doesn't require millions of dollars and teams of PhDs. You don't have to know the right people and you don't…

>A quant colleague of mine, who has a PhD in Physics from an >Ivy League school told me that he, and many of his friends, >left academia because there were simply no positions for >them. Then why not work in any other industry? Going from the worst paid to the best paid occupation is not really something you have to push most people to.

A good friend of mine became a quant simply because they where the only people remotely interested in hiring someone with an MSc in math and then letting them actually work with interesting high level math. The money or any actual desire to work in finance never really factored into it.

Re: Algorithmic Trading is Not High Frequency Trading

#67

Post by gaius »

rayiner wrote: post #57
paperwork wrote: post #27

I always find it interesting how much vitriol there is against automated trading, even among programmers. Too many people seem to believe that a small number of, ultra resourceful, nefarious folks are using unfair means to "game the system." The truth, as usual, is less interesting. Doing this type of trading doesn't require millions of dollars and teams of PhDs. You don't have to know the right people and you don't…

Re: the "best and brightest" it's more at the undergraduate level then the PhD level. My brother has tippy-top grades in physics at one of Harvard/Yale/Princeton and legit research experience in nano-tech, and he like many of his friends in similar positions are choosing between going into industry or R&D and going into finance. The lure of $120k the first year out of school and guaranteed admission to a Harvard/Stan…

There aren't the jobs in R&D, it's as simple as that. Not even 1 in 10 physics PhD's goes on to be a professor. It might not even be 1 in 100.

Re: Algorithmic Trading is Not High Frequency Trading

#68

Post by gaius »

davidw wrote: post #64
known wrote: post #62

Earlier quoted context omitted.

trading = zero sum and investing != zero sum

This sounds reasonable, but I simply don't know enough about trading to determine whether it's true or not. Anyone care to comment on it? It seems that if there were no trading at all, the world would be worse off.

It's completely wrong, because it ignores both time and risk. It's worth real value to me to have money now rather than later. It's worth real value to me to give you some money, and you take some risk off my hands. And on the other hand, if you think my risk is lower than I think it is, and if you have money to spare, let's make a deal.

Remember, if both parties aren't better off, why would the trade even happen?

Re: Algorithmic Trading is Not High Frequency Trading

#70

Post by davidw »

gaius wrote: post #68
davidw wrote: post #64

Earlier quoted context omitted.

This sounds reasonable, but I simply don't know enough about trading to determine whether it's true or not. Anyone care to comment on it? It seems that if there were no trading at all, the world would be worse off.

It's completely wrong, because it ignores both time and risk. It's worth real value to me to have money now rather than later. It's worth real value to me to give you some money, and you take some risk off my hands. And on the other hand, if you think my risk is lower than I think it is, and if you have money to spare, let's make a deal. Remember, if both parties aren't better off, why would the trade even happen?

> Remember, if both parties aren't better off, why would the trade even happen?

That certainly is true for goods and services, but it just seems awfully abstract from, say, high frequency trading as a profession. How much value is that adding to the world, compared with, say, going out and creating something? I'm not saying it should be banned or anything along those lines, just that I'm not convinced that it's adding much to the world. Even things like games or movies make people happy, even if they're not 'productive'.

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