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.
As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impa…
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.
It does no such thing. Market makers prefer not to interact with people that have a directional view as they may move the market. If a market maker gets caught with inventory and the price is moving they will lose money. Market makers tend to be less involved in price formation then other types of investors.
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…
I believe the repricing behavior you describe is far more common now than the more aggressive strategy. Several years ago, before the exchanges got rid of "flash" orders, a variation of the more aggressive strategy was common, but under limited circumstances. The way it worked was that after a limit order was partially filled on exchange A, it would show the remaining size at the limit price very briefly before routing it to the other exchanges (this was the "flash"). If the limit price was a few ticks through the other exchanges best prices, the HFT's would take those prices out and offer at the order's limit price. Less risky because they knew the order would be automatically executed at that price as long as there was an offer there.
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.
The technology put a lot of people out of work and at the same time eliminated a loophole that wealthy people had to take advantage of the markets. That is a recipe for vilification. Think of the wrath of the unemployed truck and taxi drivers that will be aimed at the evil computer programmers and engineers who perfect self-driving cars and trucks. The headlines will be amazing.
The technology targets the wealthy people who were taking advantage of the markets.
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…
That analogy is tempting but inaccurate. Pretty popular with the Mike Lewis "the market is RIGGED against the LITTLE GUY and we're all MAD AS HELL" crowd, but in the end it's hyperbole. IEX is not for the little guy. IEX is for the really big guy. Institutional investors. They are tired of having the market run away from them on large orders. A closer analogy would be that the neighbor is the owner of the local super…
Yours was the comment that made me understand how the spread economics described elsewhere in this thread worked, thanks for that. The average price increase in the absence of the HFT bids was the part that made it click.
Fun trivia from Flash Boys they originally were going to use the full name Investor's Exchange, but the url was unfortunate: www.investorsexchange.com Hence they use the short form IEX.
Ah yes bringing back memories of expertsexchange.com
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.
It does no such thing. Market makers prefer not to interact with people that have a directional view as they may move the market. If a market maker gets caught with inventory and the price is moving they will lose money. Market makers tend to be less involved in price formation then other types of investors.
> It does no such thing. Market makers prefer not to interact with people that have a directional view as they may move the market. If a market maker gets caught with inventory and the price is moving they will lose money.
Are you claiming this doesn't impact the profitability of those people with directional views?
As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impa…
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…
A clarification on my other sister post: options allow one to lock in a price for cheap even at large volumes. For example expiring options can be bought for nickels in premium, with each one locking in price for 100 shares.
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.
> Getting rid of high speed trading won't affect the average person really at all - but yet it's constantly vilified. You could say the same thing about ebola.
It affects a lot of average people in certain parts of the world terribly.
As a mostly lay person, for me it's vilified because my understanding of it is that HFT has a significant advantage over my own personal trading, and that through this advantage HFTs are able to make "more" profits than would be possible without HFT. My brain tells me that some of these profits are likely at my own trades' expense, and that while markets and economies rise and fall, my own profits are negatively impa…
You don't do the kind of trading HFTs do. No matter whether trading is done with hand signals or in FPGAs, you were never going to be making markets. Meanwhile, cost of trading for normal people like us has gone through the floor. And we're only really looking at the last 15 years when we think about trading costs, but even steeper reductions precede that, and it was all brought about by replacing human market makers…