Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why Do High-Frequency Traders Cancel So Many Orders?

bloombergview.com

Post reply on HN
Print view View original

91–100 of 247 posts

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

#91

Post by Mikeb85 »

sjbase wrote: post #73

The "new" part of this news, which not many have responded to here, is the notion of an HFT tax. The arguments on either side of HFT (liquidity/spread/etc. vs. cost/unfairness/etc.) have been largely unchanged for the last few years. There simply isn't enough data made public to declare a victor. As far as the tax: personally I'm very in favor of slowing down trading... unfortunately, what's being proposed introduces…

> personally I'm very in favor of slowing down trading...

As a retail trader, no.

As an example, yesterday I placed a sell order on $90,000HK worth of a stock. Once I hit 'send', my order was fulfilled before my browser could load the confirmation page, and at the market price I was quoted seconds before.

This is, in large part, thanks to market makers who use HFT. Before this, the broker/market maker might take a spread worth half a percent or more (and being a retail investor, you probably wouldn't get the 'market' price), now it's pennies or less, and at the market price.

Thanks to HFT, spreads are smaller, execution quicker, and it definitely 'levels' the playing field.

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

#92

Post by djyaz1200 »

yummyfajitas wrote: post #85
crdoconnor wrote: post #66

Earlier quoted context omitted.

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

If you pay $100 extra once in your life for the gold iPhone, then Apple has probably cannibalized more of your retirement fund than HFT. Ballpark esitmate: drop $20k/year into retirement (1 lot of SPY/year) x 1 penny/share being robbed from you x 50 year working career, you've lost $50 to the evil HFTs.

True, more than the money it's the problem that all these super talented people are trying to relive Superman 3 instead of curing cancer.

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

#93

Post by joosters »

JoeAltmaier wrote: post #83
joosters wrote: post #80

Earlier quoted context omitted.

You're missing the point, It doesn't mean that at all. Plenty of things could be dispensed with for the benefit of all, zero-sum or not. ZS is not a magic flag that shows something is worthless.

Disagree; it is exactly that flag. Other things may be even worse than zero, of course.

People seem to think that 'zero-sum' is an analytic shortcut to declaring something good/bad. You can't actually do this, however neat it seems. You have to consider all the difficult-to-quantify social impacts and intricacies too.

Almost every attempt to declare something zero sum will miss out relations, factors, dependencies and links because the model they pick is too simple. Hence the never-ending arguments about trying to define something ZS or not.

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

#94

Post by djyaz1200 »

kasey_junk wrote: post #81
djyaz1200 wrote: post #71

Earlier quoted context omitted.

Haha! :) Clever point but grocery stores provide utility. HFT is more like if you set out to go buy a whole lot of peppers (because you have a pepper index fund :) and some guy saw you doing this at the first store... knew that was your plan, called all around town placing orders to buy all the other peppers in town and offered to sell them to you for a premium, but cancelled those orders if you declined.

It's flawed analogies either way, but a better analogy would be you are a store owner with many branches. The worlds largest pepper buyer walks into your store and buys your entire supply. You call your other branches and tell them to change the price on your own inventory because you are assuming that the worlds largest pepper buyer doesnt need just one stores worth of peppers.

Agree that all the analogies are flawed, although funny. Just as the market made this I'm sure the market will find a solution if it really is a problem.

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

#95

Post by astine »

kasey_junk wrote: post #59
astine wrote: post #53

"Here you have an industry that has undercut the business of the big banks, irritated hedge fund managers and been great for small investors. Why would cracking down on that business be populist? Why would it alienate wealthy donors?" For the same reason that people don't generally cheer when a gang war happens. Just because the gangsters are mainly shooting other gangsters doesn't mean the violence isn't costly to s…

I think you are missing his point. HFT is not typically banks ripping each other off. Its a new outside entity that has made the service the banks and traditional market makers provided to their customers much cheaper at the expense of hedge funds and bank profits. In most industries we applaud this disruption.

But, in the mind of the populist masses that Mr Levine it criticizing it is. I don't work in finance and I'm not going to make any judgments on the industry, just to say that people who are opposed to it would be opposed to HFTs as well.

Also, the people who applaud 'disruption' are not this sort of populist, they don't cheer because of the damage done to incumbents but because the disruption will hopefully mean better products/services/prices for customers. HFT just does the job of the old investment bankers slightly more efficiently. If you think investment bankers are bad, you're not going to think that more efficient investment are an improvement.

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

#96

Post by librvf »

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?

> 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?

That's not true, not like HFT anyway.

First, you can quickly and succinctly describe the traits and benefits of a smartphone. You can be high-level at first, you don't have to explain how every detail works. There's no question, for example, that a touch screen doesn't actually work as advertised. You can just say that a smartphone is a cellular/wireless computer device with a usefully large touch-screen display.

In contrast, the unknown question with High-Frequency Trading is: is it actually providing value to anyone but the traders themselves? They might say they are "market-making" but are they really market-making (a trading role with proven market value) or are they merely exploiting structural inefficiencies in the trading infrastructure that mostly hurt everybody else? Maybe they are, but they should be able to describe it in a high level terms first (market-making, liquidity, etc.) where their role provides an obvious benefit to the market, and if you don't understand the high-level terms (eg liquidity) you can look them up.

So far as I can tell (and I am willing to be proved wrong here) there is no consensus answer to the question of whether HFT is actually valuable to markets.

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

#97

Post by librvf »

kasey_junk wrote: post #76
crdoconnor wrote: post #70

Earlier quoted context omitted.

>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 y…

> None of which we get from HFT. No but we do get it from market makers. HFT has led to a dramatic decrease in the price of market making. Unless your claim is that market making is not something that should be allowed? > And risk management? Please. They're only managing their own risks. My point about risk management was about the aggregate benefits of the markets, not about HFT providing someone risk management. I…

> HFT has led to a dramatic decrease in the price of market making.

How? It seems like this should not be that hard to explain.

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

#98

Post by JoeAltmaier »

joosters wrote: post #93
JoeAltmaier wrote: post #83

Earlier quoted context omitted.

Disagree; it is exactly that flag. Other things may be even worse than zero, of course.

People seem to think that 'zero-sum' is an analytic shortcut to declaring something good/bad. You can't actually do this, however neat it seems. You have to consider all the difficult-to-quantify social impacts and intricacies too. Almost every attempt to declare something zero sum will miss out relations, factors, dependencies and links because the model they pick is too simple. Hence the never-ending arguments abou…

That I can agree with wholeheartedly.

But I'd add, HFT is like kids playing soccer on the freeway. They don't create value for anybody but themselves, and they screw up things for everybody else. I wish they would go away.

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

#99

Post by crdoconnor »

yummyfajitas wrote: post #85
crdoconnor wrote: post #66

Earlier quoted context omitted.

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

If you pay $100 extra once in your life for the gold iPhone, then Apple has probably cannibalized more of your retirement fund than HFT. Ballpark esitmate: drop $20k/year into retirement (1 lot of SPY/year) x 1 penny/share being robbed from you x 50 year working career, you've lost $50 to the evil HFTs.

TABB group estimated HFT income to be $21 billion in 2009. That's about $65 for every man, woman and child in the US.

Ballpark figure, of course.

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

#100

Post by kasey_junk »

librvf wrote: post #97
kasey_junk wrote: post #76

Earlier quoted context omitted.

> None of which we get from HFT. No but we do get it from market makers. HFT has led to a dramatic decrease in the price of market making. Unless your claim is that market making is not something that should be allowed? > And risk management? Please. They're only managing their own risks. My point about risk management was about the aggregate benefits of the markets, not about HFT providing someone risk management. I…

> HFT has led to a dramatic decrease in the price of market making. How? It seems like this should not be that hard to explain.

Link in the posted article:

http://www.bloombergview.com/articles/2014-03-31/michael-lew....

Quote from the posted article:

" it should be said that market makers have existed in the stock market for a long time and that electronic market makers do the job waaaaaaaaaay cheaper than their human predecessors."

Post reply on HN