6 ms·

"... millions of trades a day". What is that ? How can that be the reflection of what's going on in the 'real' economy ? I interviewed at an HFT firm once and

• realusername 11y ago
  The feeling is not shared by everyone in the IT field, some people only care about the technology part and the challenges. I agree with you and also consider this industry unethical and I'm not planning to work in it any time soon but I'm sure lots of people don't mind.
  • lintiness 11y ago
    hft is about as unethical as that guy buying that apple you liked before you. speed isn't evil; it's been the deciding force in market based transactions for eons.
    • shiven 11y ago
      Except, it's not some "guy", but some stupid algo which has been given the power to ruin markets.
      • lintiness 11y ago
        how on earth do algos ruin markets?
• patio11 11y ago
  Millions of trades a day each contain teensy, tiny little updates about the state of the economy. Think of them like tweets, not like State of the Union addresses. This married couple wants to send their daughter to college more than they want Google. That hedge fund likes Coke more than Apple. This pension fund doing it's weekly buy of an index to prepare for 2075. The market is these little packets bouncing off each other and summarized. High numbers of them are not unhealthy. On the contrary, it means more information is moving with less overhead loss to middlemen. (By analogy: What's more expensive, 100k tweets, 10 phone calls, or a FedEx envelope? If you say "clearly it's the tweets because there are so darn many" that would be a weird answer for an engineer to believe.) If you believe the world economy is going to heck in a hand basket, there exist ways for you to be richly compensated for that expert opinion by sending your tweets into the machine. (Well, if you're proven right.) HFTs will happily minimize the transactional costs you incur while making that statement, as compared to the sweaty, yelling colluding-against-you jocks they have replaced.
  • thewarrior 11y ago
    But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? That's surely taking things a little too far. Nothing in the real economy changes that fast.
    • wcummings 11y ago
      >But what is the social benefit of the stock markets being synced to the state of the economy at the micro-second / nano-second time scale ? It's cheaper than people doing it, and the lower the latency, the faster a trader can move his position to match changes in the market. What is the social benefit of Twitter loading in 100ms instead of 150ms? Why is latency important for peoples' stupid mobile apps, but not important for financial transactions? >Nothing in the real economy changes that fast. Sure, but you don't want to have to wait for an earnings report to sell your shares when you want to buy a house or something. You want people to always be trading your stock so it's easy to buy and sell. Similarly, when a big pension fund buys or sells a lot of your stock at once you want "people" trading to reduce volatility.
• yummyfajitas 11y ago
  Market makers are highly unlikely to "ruin or starve millions". Consider some graphs of the biggest HFT screwups ever: https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in_the_pan.html https://www.chrisstucchio.com/blog/2012/flash_crash_flash_in... I have no idea why you think an HFT system is somehow more polluting than an ordinary server displaying cat pictures. Could you explain? Insofar as the stock market doesn't reflect "real world" performance that's primarily due to tax induced distortions. That situation is only getting worse as businesses go global, and the crazy US system of taxing foreign income turns double taxation into triple taxation.
• PanMan 11y ago
  I just read Flash Boys[1], which is a fun read, and explains how being faster than others really helps in making money (on the expense of all other traders). Basically: If you buy stocks, the trade is executed on multiple exchanges. When the order arrives at the first exchange, it shows your intent to buy these stocks. If a HFT firm buy them at other exchanges quicker than your order arrives there, they know they can sell the stocks to you, and make (a tiny tiny) profit, at your expense. 1: https://en.wikipedia.org/wiki/Flash_Boys https://en.wikipedia.org/wiki/Flash_Boys
  • kasey_junk 11y ago
    > If a HFT firm buy them at other exchanges quicker than your order arrives there, The crux of my complaint about Flash Boys is that it leaves the reader with this impression, which is usually an incorrect representation of what is happening. A better simplification of what is happening is that the HFT firm is racing to update the price on shares they are already offering (or on buy orders they've already placed). That is, they are more like a shop keeper changing their prices when they notice demand than a ticket scalper racing you to the ticket window.
    • sjg007 11y ago
      No, the HFT buys the cheaper shares and then sells them to you at a higher price.
      • ctlby 11y ago
        It turns out that the only way to be profitable in trading is to buy low and sell high.
      • kasey_junk 11y ago
        We could probably keep going round and round saying "no that's not how it works" and appeal to our technical expertise in the area in question, but instead lets argue it from first principals. On the one hand we have an ultra fast HFT that is just sitting there trying to do only latency arbitrage between 2 venues. On the other we have an ultra fast HFT that is making markets on multiple venues. For the first HFT the upside to their strategy is that they can hold very little inventory. Of course they are not going to be able to buy orders that are already at the correct price. That is, orders that could have been put in place seconds, minutes, days or weeks earlier are going to have time priority regardless of how fast the pure latency arb player is. They are also going to be wrong some percentage of the time. Meaning they are going to have inventory they need to unload and all that entails. Meanwhile the market making HFT has more inventory risk, but they also get some of the latency arb for free, as they are already at those positions. They get some of the latency arb the same way the pure arb player does (ie they are super fast as well) and when they are wrong or lose the race they also have sophisticated inventory management processes in place that they amortize across all of their strategies and not just the latency arb ones. It turns out that the second model is more profitable, and that is very very important when you are investing in super low latent bespoke networks as part of your operational model.
• valdiorn 11y ago
  > A bunch of crooks and gamblers who have no idea what they are doing, while everyone thinks they do. You've just done a huge rant on how they have a smooth-running machine destroying the economy, making billions, being ruthless, and now you say they "have not idea what they're doing". Sorry mate, but these people know exactly what they're doing. In fact, most of them are really fucking smart, and that's why they're able to get away with legally extracting tens of billions of dollars from the markets.
  • auntienomen 11y ago
    10s of billions? That's a bit optimistic. The best HFTs, of which there are a handful, have revenues of roughly $1 billion. That's revenue. Their net profits are usually in the $10 to $100 million range. (See for example, Virtu's recent IPO filing.) These are successful global businesses, but they're hardly outliers in that crowd. Hell, Twitter had more revenue last year.
• CyberDildonics 11y ago
  It can be solved by an exchange that makes trades every second or on some time interval that is minuscule to a person but enormous to a computer. People seem to defend HFT for some reason (the front running kind, not the necessary arbitrage kind) but they never seem to answer the question of why someone who is not an HFT firm would want to trade on an exchange that caters to high frequency traders (as basically every exchange does).
  • cli 11y ago
    >It can be solved by an exchange that makes trades every second or on some time interval that is minuscule to a person but enormous to a computer. I do not see how that will solve the problem. Suppose firm A and firm B both want to buy stock X at prize Z. There is only enough X at prize Z for one of those firms. Both firms send their trade orders withing milliseconds of each other. In your time interval scheme, which firm gets to buy the stock?
    • ctlby 11y ago
      CyberDildonics is basically proposing frequent batch auctions as described in the Budish paper. It won't work, largely for reason you state. The appropriate solution is for exchanges to add a _random_ delay to each order (emphasis on _random_, a fixed delay a la IEX does nothing). ParFX is doing just this.
      • kasey_junk 11y ago
        Random delays already exist. The infrastructure of every exchange introduces them. Its a standard part of any HFT model to think about what happens when you hit one. It certainly doesn't remove the speed game. I think a better way to change exchanges is to dramatically decimalize the price levels. Right now the difference between 2 price levels a) adds a floor to the minimum spread and b) prevents strategies from truly competing on price requiring them to compete on time.
        • ctlby 11y ago
• Shivetya 11y ago
  As with many other industries, humans can be come obsolete for the day to day operation, in this case the second by second changes. People still write the rules by which they operate and those rules have made the day of floor traders more and more obsolete. I really see no difference here than the days cars replaced horses, milk delivery came to an end, newspapers struggling with the digital age. Come a generation if not less people will look back at our ways and go "how quaint". The solution is to adapt to what technology brings so that we can better ourselves. so while it may be unfair now the technology will spread to where everyone operates that way
• Mikeb85 11y ago
  It's not a reflection of the economy. Capital markets are a place where firms go to acquire capital, people with excess capital buy securities, and firms (eventually) return that capital. The markets are only a reflection of the pricing of those securities, which sometimes but doesn't always correlate to what's going on in the economy.
• aldanor 11y ago
  There's an unobvious upside: HFTs generate liquidity. Liquidity is good for everyone in the end.
  • jellicle 11y ago
    No, they don't. In any panic, HFTs disappear like anyone else. They are middlemen, not producers. They insert themselves into the middle of trades to make profits for themselves. If I put in a market order when the price is $100, and a HFT firm sees my order, beats me to market, buys up all the $100 offers and then resells the stock to me at $105, my liquidity hasn't been improved in the slightest. All that has happened is that someone has front-run my order and cost me $5/share, extracting profits from my pocket without providing any useful service to anyone. If you want this comment in more technical terms, here it is: http://www.zerohedge.com/news/2015-08-25/cutting-through-hft-lies-what-really-happened-during-flash-crash-august-24-2015 http://www.zerohedge.com/news/2015-08-25/cutting-through-hft...
    • ctlby 11y ago
      They don't "insert" themselves, they were there before you came along. Your market order trades with them because their price is the best one currently displayed. As for an HFT firm "seeing" your order and front-running--you're just making stuff up.
      • MagnumOpus 11y ago
        You are totally wrong, to put it simply. He is not making stuff up. Flash Boys is an entertaining write-up of how the firms are inserting themselves, and how they are "seeing" orders at one exchange before the order arrives at another exchange.
        • ctlby 11y ago
          There you go again with "insertion." HFT market-makers don't thrust themselves between two people who are about to transact. Their orders were already in the market, and you came to them. The "Flash Boys" case is a funny one. The HFTs did see the orders--but so did EVERYONE else, and in basically the same instant, because all transactions are publicly disseminated. Your point is right in a very narrow sense and very wrong on every axis that actually matters. I'm mystified as to why Flash Boys didn't valorize high-frequency trading. It's a Moneyball story where the scrappy nerds use computers and math to out-compete the dinosaurs. Oh well.
• snowwrestler 11y ago
  It's amazing to me that people get so worked up about HFT when the same arguments apply to 90% of "tech" companies. > Are the people writing these algorithms even remotely thinking that the trades can ruin or starve millions ? No they can't, by definition, high frequency trades have very small price deltas and each one matters very very little to the broader market. An abstract way to think of HFT is that it condenses money out of information. This is exactly what ad-driven businesses like Google and Facebook do too, but HFT doesn't require massive databases of information about all of us, plus it is more energy efficient because it doesn't have to send the same copy of a cat GIF over the air to 350 million people just to make half a cent in ad sales.
• yxhuvud 11y ago
  Why do you think the stock market exist to be a reflection of the real economy? It exists to provide liquidity for selling and purchasing stocks. Nothing more, nothing less. Being faster actually helps with that purpose.
• jmorphy88 11y ago
  It's really a national failure that this entire industry isn't shut down with ruthless force. Utter financial parasitism by people who don't give a damn about who is affected downstream.