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'Flash Boys' IEX stock exchange opens for business

latimes.com

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Re: 'Flash Boys' IEX stock exchange opens for business

#71

Post by MichaelGG »

imcqueen wrote: post #37
tuna-piano wrote: post #12

Earlier quoted context omitted.

This is the thing when I see wall street, and specifically high frequency trading vilified. Income inequality, the plight of the middle class, etc has almost nothing to do with that kind of financial maneuvering. Getting rid of high speed trading won't affect the average person really at all - but yet it's constantly vilified.

You're probably correct here. The part people find a little unsavory is not that it's somehow eroding the middle class. It's the idea that HFT can act as an unnecessary intermediary, essentially taxing a transaction that otherwise didn't need to be disrupted and at scale the amount extracted becomes material. Imagine your neighbor owned a Ferrari and you told him one day you were going to buy a gallon of milk at the…

This is not how it works. It's more like he sees you buy one gallon of milk at 399 then decides to go buy others. He has NO idea if you're going to buy it or not. He's taking a risk.

What your described is more like real front-running: A customer places an order, the evil broker sees it and goes out in front to buy for himself then gives the customer a lower price.

Your buddy in the Ferrari reliably making money requires him to be able to properly predict. AND you're missing the other side of the trade! The poor shopkeep that priced at 399 when you were OK paying 401. Why should he lose out?

HFT market makers solve this.

Re: 'Flash Boys' IEX stock exchange opens for business

#72

Post by MichaelGG »

phonon wrote: post #42
harryh wrote: post #40

Earlier quoted context omitted.

Your intuition about financial markets does not match reality. In financial markets no one knows that you want to buy a gallon of milk (or a share of stock) until your bid has already been submitted. No matter how fast their Ferrari, there is no way for them to get in line ahead of you at the store.

Maybe you should read "Flash Boys" then. They can and do. Orders start at one place, and by regulation then can get sent to many other markets. If you can go to those next markets a little faster, you can front run the order.

Flash Boys uses a totally fabricated use of "front running". It's worse than people that call copyright infringement "theft". That book is probably one of the worst books I've read as far as accuracy goes. At least that I'm aware of.

Seriously, at one point, Lewis suggests that the trading station of some big trader is hacked. That just by typing numbers without submitting an order, stuff jumps. This should send huge red flags off on anyone that's even remotely familiar with anything similar to a computer. But it's another "see how rigged it all is?" anecdote blended in with his nonsense.

Re: 'Flash Boys' IEX stock exchange opens for business

#74

Post by lbotos »

tedunangst wrote: post #45
lbotos wrote: post #16

Earlier quoted context omitted.

I think it's vilified because for some reason people think that the HFTraders are "stealing" from them in the form of tax avoidance and their exorbitant incomes.

What's "exorbitant"?

For the "average" 30 something American, probably anything over 150k.

Re: 'Flash Boys' IEX stock exchange opens for business

#75

Post by sjbase »

chollida1 wrote: post #9
ddinh wrote: post #7

In terms of reducing the ability of speedy traders to gain an advantage in a continuous time market, how does IEX's fixed time delay compare to discretizing the timesteps, so all the trades within some finite interval [t, t+e] are treated as if they came at the same time? This talk presents compares discretization to standard continuous-time bidding, but doesn't go into a lot of detail about how it compares to IEX-st…

The IEX delay and batch auctions are really two completely different things. IEX delays almost all messages in and out by a small amount. They don't delay messages for orders that their own router modifies, their discretionary peg order. This lets their peg orders update before any one, ie HFTs, can update their own resting orders on IEX or at other exchanges in the case of a fill at IEX. It's important to note that…

Do you mind expanding on that last point? I'm interested in your take on how/why a batch auction's advantage is eliminated by the rest of the world trading around them.

Re: 'Flash Boys' IEX stock exchange opens for business

#77

Post by lmm »

naveen99 wrote: post #52
physguy1123 wrote: post #31

Earlier quoted context omitted.

Short story: HFT is generally considered good for retail traders because spreads tend to be lower. You trade both more cheaply and more quickly. However, it's generally not good for large institutions (which are more than just 'big evil hedge funds') because markets react very quickly to movements caused by this big firms. If they decide that something is priced wrong, they won't be able to make many trades taking ad…

I see HFT as good for everyone. Market has a hard time reacting to option spreads when the long option is executed prematurely. I don't see why big players can't use them. Also the market can't react too predictably. Because then the big player could just yank the market around and profit. Some of this is limited by regulations on large holders / insiders.

It limits the ability of value investors who do fundamentals research to profit. Arguably those investors are the ones who actually ensure efficient allocation of capital (the supposed purpose of the market). There's kind of a paradox of efficient markets - the more efficient the market is, the less value can be gained selling information to it.

Re: 'Flash Boys' IEX stock exchange opens for business

#78

Post by tuna-piano »

fleitz wrote: post #61
modoc wrote: post #34

Earlier quoted context omitted.

How does that really help me if I'm buying/selling a specific stock (vs. being in a larger fund, etc...)? My, again very lay, understanding is that the HFT is likely to push my buy price up slightly and make money in the middle of me a non-HFT seller, and push down the price slightly on the sale side, again making money as a very fast middleman. I may have that completely wrong though.

Unless you are exceeding the liquidity on a single exchange HFT will never affect you. Here how it works... Imagine you want to BUY 10000 MSFT... You send your order to exchange A, it does a partial fill for 1000 orders, and sends the remainder to exchanges b,c,d. An HFT firm sees your order to exchange A knows its not going to fill and sends its own orders to buy the liquidity on B,C,D and then sends sell orders at…

I kind of agree with your underlying premise, but when I invest in a mutual fund / ETF, isn't that a giant investor that might be affected by HFT? And if that was costing the fund money, wouldn't that affect me (without me seeing it directly)?

Re: 'Flash Boys' IEX stock exchange opens for business

#79

Post by usefulcat »

fleitz wrote: post #61
modoc wrote: post #34

Earlier quoted context omitted.

How does that really help me if I'm buying/selling a specific stock (vs. being in a larger fund, etc...)? My, again very lay, understanding is that the HFT is likely to push my buy price up slightly and make money in the middle of me a non-HFT seller, and push down the price slightly on the sale side, again making money as a very fast middleman. I may have that completely wrong though.

Unless you are exceeding the liquidity on a single exchange HFT will never affect you. Here how it works... Imagine you want to BUY 10000 MSFT... You send your order to exchange A, it does a partial fill for 1000 orders, and sends the remainder to exchanges b,c,d. An HFT firm sees your order to exchange A knows its not going to fill and sends its own orders to buy the liquidity on B,C,D and then sends sell orders at…

"You send your order to exchange A, it does a partial fill for 1000 orders, and sends the remainder to exchanges b,c,d. An HFT firm sees your order to exchange A knows its not going to fill and sends its own orders to buy the liquidity on B,C,D and then sends sell orders at a higher price to B,C,D, your order fails to fill and you have to issue a new order at a higher price."

Maybe, but that seems like a pretty risky strategy. A simpler and far less risky strategy that would look very similar (admittedly only if you're looking exclusively at orders on the book and not fills) would be for HFT market makers to cancel or reprice their existing resting orders on exchanges B, C, D in response to getting or seeing a large fill on A.

In the strategy described by the parent, in addition to having to cross the spread, the HFT firm would also be at the back of the line at the next price level (unless maybe they already have an order there? but no guarantee that it's the right size, or maybe they have multiple small orders and cancel whatever is in excess of the position..).

So I'm genuinely curious: is what the parent describes something that is really that commonly done? This is one of the things that made me highly skeptical of Flash Boys. It seemed to me they observed a phenomenon, came up with a single explanation for it and never even considered any other possibilities that didn't fit the chosen narrative.

Re: 'Flash Boys' IEX stock exchange opens for business

#80

Post by harryh »

patio11 wrote: post #70
mmodahl wrote: post #36

Earlier quoted context omitted.

Nerds making money and people gunna hate.

I'm not generally a fan of viewing the world in terms of an extended version of the social struggle from high school, but given that this actually does do a reasonably accurate caricature of human market makers versus HFT firms, this has always confused me regarding HN's reaction to HFT. In one corner, we have sweaty alpha male jocks [+]. In the other corner, we have geeks with computers. The geeks ran the table on t…

I thought about your question on my walk home from work today. I decided that as much as jocks vs geeks is a powerful force, a more powerful force is people's distrust of middlemen. People don't really understand that liquidity provisioning is a service that needs to be paid for. They think that if we could just wipe all middlemen off the face of the planet that buyers could just trade with sellers and we'd all save a little bit of money on trading fees.

So it's not so much that HN has sided with the jocks over the geeks. It's that (some portion of) HN dislikes both of them. And since the geeks killed the jocks the geeks are all there is left to dislike.

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