HFT Nothing To Worry About (at Least In Australia) 152
angry tapir writes "Although software-driven high-frequency trading has got a pretty bad rap (being blamed for the so-called 'Flash Crash' in 2012 for example) Australia's chief financial regulator ASIC says that, in Australia at least, it's not cause for concern. After an in-depth study of HFT in Australian markets, ASIC decided to hold off on previously considered regulatory changes (such as implementing a 'pause' for some small trades)."
Obviously? (Score:3)
Why would ASIC be concerned about software-based traders? They know that, while it renders them somewhat inflexible, they are both far faster and substantially more power efficient by doing it in hardware...
Re:Obviously? (Score:5, Informative)
Screw The Big Traders (Score:3, Insightful)
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That's highly inaccurate. The big HFTs no longer make much money, because like most technologies, it has been understood and adopted. Their margins have dramatically receded since the mid-2000's, because all the market-makers (i.e. the bank you place your order through) also have their own high speed machines.
Now, to the part about giving nothing of social value, well that's not really true (and in this context, social value applies only to stock market participant
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Thing is that is a GOOD thing.
You are creating a fake surplus.
Lets say person one sells for X.
Person two wants to buy for Y.
In the normal world X and Y would meet at price Z somewhere in the middle. X walks away with a little less (or more) money. Y ends up paying a bit more (or less) than they wanted but not much.
Now lets put a middle man in the mix. The middle man will buy at X if X lessthan Y then turn around and sell at Y to the other guy and pocket the difference. So Y ends up paying more than the
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What you describe is exactly what the world was like before HFT. Except the man in the middle was a broker or an investment bank. In fact, investment banks and brokers were among the earliest and most vocal of critics of HFT precisely because it took away the business model you just described. HFT reduces the bid/ask spread because it brings liquidity for whatever 1 and 2 are buying in from other sources besides just persons 1 and 2. That's why the investment bankers and brokers hate it. It cuts the
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Dark pools are still required to match your orders within the national bid-ask spread. That is the regulation that matters the most for retail traders, IMHO. Also, note that (except for registered market makers) all trading on the primary exchanges is equally anonymous. You can trade with George Soros on a dark pool, or on the NASDAQ, and you're going to get crushed just the same either way.
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haha. true. :D
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I'd like to see HFT banned, or taxed, or slowed down in some way, just because the big traders use it and their millisecond advantage over the non-insiders to steal a small percentage on each trade. They amass billions by siphoning it away from the majority of people in the market, and in return give us nothing of social value.
You are simply wrong about what HFT does and how it works. HFT (and market makers in general) mean the small trader gets a better price on each trade when trading "at market price" - market makers make money through "time arbitrage" and sometimes inter-market arbitrage. That may seem counter-intuitive, but the benefit to the small trader comes from competition between money makers, and HFT is the ultimate competition.
HFT also makes money by being the first to trade on "news" such as merger announcements.
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HFT comes in two major varieties: aggressive and passive. Passive is usually considered beneficial as it adds liquidity and is the reason the spreads in most symbols are only 1c almost all the time. This means that you and me investors can get our stocks within 1c of it's true value, excluding brokerage fees. Unfortunately the brokerage fees will be more than that - so I don't know why your mad at HFT. Further, without HFT the spreads would be much wider, e.g. 25c like the specialists used to keep them at,
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That is absolutely not true. HFT companies are no different than other trading companies... they do NOT get market data earlier than anyone else... they subscribe through exactly the same channels everyone else at the exchange uses.
There have been some wild stories recently... one about the CME... so it's hard to know which bullshit you're referring to (it's not your fault the media is posting bullshit). Post a link and we can discuss.
Re:Screw The Big Traders (Score:5, Insightful)
"They amass billions by siphoning it away from the majority of people in the market, and in return give us nothing of social value."
How are they "siphoning" anything away from a majority of people?
How are they giving nothing in social value? The money these people make they spend on other business ventures, familial needs, education, healthcare, charity, do you have any evidence at all that this money is going into a black hole of sorts?
I thought not.
So would the guys a few milliseconds behind - that isn't a relevant point. And that's not even what the parent was referring to about "social value". They mean about giving a sense of "worth" to publicly traded companies, which compels them to make sound business decisions. And the "siphoning" refers to a lack of a "level playing field", which is the reason we have laws against monopolies, price-fixing, etc...
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The HFTs are paying the stock exchanges a fee to have access to faster trades. The service HFT provides is market making. When you offer to buy shares at a certain price, there may not be any sellers at any given time. HFT ensures that there is always a seller as long as your buy price is high enough and that there is always a buyer as long as the sell price is low enough.
They essentially provide a similar service as banks. Banks borrow money at a lower rate and and lend money at a higher rate creating
Re:Screw The Big Traders (Score:5, Insightful)
The HFTs are paying the stock exchanges a fee to have access to faster trades. The service HFT provides is market making
If that was a valuable service, the stock exchanges would be paying the HFT guys, not the other way around.
Banks borrow money at a lower rate and and lend money at a higher rate creating profit with each transaction. This was seen as immoral at various times in history, but now we know this serves to create liquidity.
It's still immoral, despite creating liquidity. There's absolutely no reason we couldn't create all the liquidity we want with non-profit, publicly owned financial institutions.
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If that was a valuable service, the stock exchanges would be paying the HFT guys, not the other way around.
It's also profitable, which is why the stock exchange can charge the HFTs and not the other way around. Supply and demand.
It's still immoral, despite creating liquidity. There's absolutely no reason we couldn't create all the liquidity we want with non-profit, publicly owned financial institutions.
We already have them, they are called credit unions. And even credit unions charge more interest to borrowers than they give to depositors. This is how they can pay for business expenses like buildings, websites and the salaries of their workers.
If you think it is immoral to charge interest, then I suggest you refrain from being complicit in this immoral system by never taking out a st
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We already have them, they are called credit unions.
Exactly. So why should banks be legal? They provide nothing credit unions don't, and cause immense amounts of crime. e.g. the 2008 financial crisis was bigger than all property crime put together by a factor of 100.
If you think it is immoral to charge interest, then I suggest you refrain from being complicit in this immoral system by never taking out a student loan or a car loan or a mortgage.
So you're implying that I'm a hypocrit for living in the wor
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Exactly. So why should banks be legal? They provide nothing credit unions don't, and cause immense amounts of crime. e.g. the 2008 financial crisis was bigger than all property crime put together by a factor of 100.
Banks should be legal because nobody is forced to use them, and the freedom of association is a good thing. Nobody is stopping anyone from using credit unions. I choose to use credit unions over banks, even though I get a lower interest rate there.
So you're implying that I'm a hypocrit for living in the world I actually live in, instead of pretending that I live in the world we should strive to live in? Some things don't work until we all decide to do it. Some of those things work a lot better than the non-cooperative alternative. This is what government is for.
No I was not implying you are a hypocrite. I was suggesting the course of action that I would take if I had the values that you did. There are many countries that are more socialist. Even in this country, you can join socialist cooperatives. Just because the
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the freedom of association is a good thing.
The freedom of association is a good thing, until those associations become criminal organizations. Banks are responsible for orders of magnitude more property crime than everyone in jail put together, and practically none of it gets punished. It would be easier to abolish them entirely.
Just because there exists a capitalist economic system in this country, does not mean you are required to participate in it.
Except that I need to eat and pay taxes. I don't get t
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The freedom of association is a good thing, until those associations become criminal organizations. Banks are responsible for orders of magnitude more property crime than everyone in jail put together, and practically none of it gets punished. It would be easier to abolish them entirely.
I don't have a problem with putting people in jail for breaking the law. It's a travesty that no one has been held accountable for the financial meltdown. I don't see this as a good reason to abolish all banks. If our government can not even punish criminal bank managers, then what are the odds of them being able to abolish banks entirely? I don't see how that is easier or desirable.
Except that I need to eat and pay taxes. I don't get to do that unless I please the owners of the means of production.
You only need to pay income taxes if you earn an income. I know lots of people that live in cooperatives. They grow thei
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I prefer capitalism.
Re:Screw The Big Traders (Score:4, Interesting)
I do actually appreciate the value HFT brings to liquidity as a market maker. When I trade, I want to use a limit price rather than a market order, and see my orders filled within 5-10 minutes so I know if I need to adjust my price before I go to work or whatever; trading small-cap stocks I appreciate that it doesn't work quite this way in all markets.
What I have a problem with is the other games that HFT plays with algorithmic trading. Edging out arbitrage on a narrow buy/sell spread is much different than playing momentum with fast trades to disrupt the market for financial gain.
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The HFTs are paying the stock exchanges a fee to have access to faster trades. The service HFT provides is market making. When you offer to buy shares at a certain price, there may not be any sellers at any given time. HFT ensures that there is always a seller as long as your buy price is high enough and that there is always a buyer as long as the sell price is low enough.
They essentially provide a similar service as banks. Banks borrow money at a lower rate and and lend money at a higher rate creating profit with each transaction. This was seen as immoral at various times in history, but now we know this serves to create liquidity. There is always someone willing to lend you money and always someone willing to borrow it from you as long as you are ok with market interest rates.
If you don't like the non-level playing field of the NYSE, then you can simply abstain from participating in it. This stock exchange is not a public service, it is a private enterprise. It is not supposed to be fair. It is supposed to make profit for it's owners by attracting customers (traders), and one thing it has decided to do (along with many other exchanges) is give preferential treatment to customers who are willing to pay for a higher level of service.
You would get the same liquidity without HFT as it has been done in prior years without the listed drawbacks that HTF introduces. To your second point, yes, it is a private institution, but it's also subject to SEC regulation unlike other industries because of the unique considerations of public trading, so restricting things like HFT would not be unprecedented, and much of the SEC rules is to provide a level playing field.
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I don't think you would get the *same* liquidity without HFTs. I think you may be able to get adequate liquidity without them in certain areas. Liquidity is a function of the number of entities willing to trade at any given time. Removing HFTs removes the total number of willing traders at any given time.
Yes the NYSE is subject to the SEC, but it doesn't have to be. I feel that the SEC provides a false sense of security and does more to create the appearence of fairness (e.g. imprisoning martha stewart)
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None, even to the HFT.
When HFT submits an order to an exchange it's out of their hands. The order could trade before any cancel arrives.
I don't know why people claim this is bad or a standard practice. It's neither.
By SEC regulations every order anyone submits has to be bona fide. If you don't intend to trade it's considered manipulation, and is illegal.
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This assume an environment of only one HFT. Yes one HFT can cancel it's offer to sell at $10, but then another one will just swoop in and sell.
If no HFTs are willing to make a "real" sale at $10, then that means you're offer to buy is lower than the market value anyway.
IF there were only one HFT I would say this is extremely exploitive, but because there are many competing HFTs, they make very small margins on each trade. They do enough volume to make this very profitable, but because of the competition,
Re:Screw The Big Traders (Score:4, Insightful)
There is so much FUD around HFT it is hard for people to think rationally about it. I had wasted the following study on a troll once already earlier this morning and therefore it would be a shame not to repost it: http://online.wsj.com/public/resources/documents/HFT0324.pdf [wsj.com]
Maybe someone may be bothered to actually learn something about HFT before they declare it the spawn of Satan. The upshot: "Based on the vast majority of the empirical work to date, HFT and automated,competing trading venues have substantially improved market liquidity and reduced trading costs for all investors. Share prices are almost surely higher as a result of this reduction in trading costs, benefiting long-term investors. Higher share prices also have favorable implications for firms\ cost of equity capital. " Exactly, and that makes FUD out of the sentiment that HFT is somehow squeezing out mom and pop investors, or siphoning billions out of the market.
In fact, do you know who doesn't like HFT? The investment banking arms of too-big-to-fail banks. Yes, they run HFT operations as well, but they would love to see a return to the days when the roost was ruled by the company with the biggest pile of money instead of the other guy who had better technology. Every time one of these articles shows up I am amazed by the number of supposedly technically minded slashdotters who come out on the side of big banks over the guys who write software for a living, and the trolls who can't be bothered to even understand what HFT is before they attack it.
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What it comes down to is that they cost a lot to support (force investement in systems) but don't alway
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If you didn't have HFT playing in your dark pool, that would probably mean that you wouldn't have market makers. That would increase the time-to-fill for all of your market-taking clients, as they would have to match up with each other, by happenstance. Some of them would
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Putting the HFT systems in the same environment as everything else seems rather stupid.
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Let me get this straight...
> They can add sometimes unexpected ramp-ups in data that can cause already-creaking systems to fall over
So, your systems suck.
> potentially impacting other non-HFT clients. This is partly bad management of older and less interesting systems but partly because they are an unpredictable lot.
Partly?!?!?!?!?!
Sheesh, if you can't handle ramp ups and ramp downs, your code / systems aren't designed right. Screw the HFT guys, they'll be using other people aside from yourselves to
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> You're absolutely right, they weren't designed right.
Well, they were designed right back then when markets behaved the way they did. Things change. I know people on designing medical software now that wouldn't design it the same way 5 years ago.
Finance is no different. 10 years ago, you would never have considered Hadoop or anything like that, but now, large distributed systems are exactly what people are looking at instead of running batch all the time.
> I thought old, inappropriate systems at bank
The very premise is suspect (Score:4, Insightful)
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HFT isn't in the middle and isn't an attack.
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The upshot: "Based on the vast majority of the empirical work to date, HFT and automated,competing trading venues have substantially improved market liquidity and reduced trading costs for all investors. Share prices are almost surely higher as a result of this reduction in trading costs, benefiting long-term investors. Higher share prices also have favorable implications for firms\ cost of equity capital. "
You are mixing apples and oranges here. Automated trading and HFT are not the same thing. Automated trading does provide substantially improved liquidity and reduced trading cost. HFT on the other hand does not demonstrably reduce trading costs (or at best the jury is still out on that) and the liquidity it provides means your transaction can go through in a fraction of a second rather than in one second. It provides no liquidity when the market is under stress as the HFT machines are plugged out immediatel
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HFT and automated trading are two terms without precise definitions. HFT can only be done by automation, though, so it's at least a subset.
So to say automated good, HFT bad is odd, to say the least.
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That's the most ridiculous analogy I've ever heard. Exchanges have message and fill percentage limitations. Market makers have to constantly adjust their orders or be stomped into oblivion. Yet the exchanges, most traders, anyone who has done serious research, and even regulators recognize that market makers improve markets. make them more efficient and reduce costs to trading. That's why France's transaction tax EXEMPTED market makers. (Which actually *IS* unfair)
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That's the most ridiculous analogy I've ever heard.
Welcome to the internet, newcomer!
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On what basis is it a good idea to evaluate liquidity with a stopwatch? You can't arbitrarily assign good effects to "automation" and bad effects to "HFT". Indeed, if you eliminate the bad "HFT" liquidity according to your stopwatch (or through some other arbitrarily introduced synchronization point), you will hang the market makers out to dry, they will cease to operate and erase the good effects you ascribe to "automation".
The article I posted has actual content if you read beyond the first and last
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It does seem to be trending that way.
However, I'd say the costs are still in the range of tens of thousands per year in direct HFT related costs. (Colocation $50K, switch upgrade $10K, server upgrade $5K, NICs $2K.)
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Actually, it takes much less than you'd think.
The hard part is the actual strategy... these days you need smarts in addition to the speed. Once upon a time speed was enough.
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There is progress being made on controlling such crashes. Since the flash crash, the exchanges have instituted better safety measures. There are many more price limits today on a per-stock basis that, when breached, can automatically trigger a stop in trading.
One problem with the1-second tic solution is that it would drive market makers away. Market makers will quote a price in one exchange based on a price of a similar product or combination of products in other exchanges. The other exchanges will n
Re:Screw The Big Traders (Score:5, Insightful)
How are they "siphoning" anything away from a majority of people?
Easy, the value they extract through arbitrage would otherwise be retained by the parties making actual trades.
How are they giving nothing in social value? The money these people make they spend on other business ventures
So do any other sort of theives, what's your point?
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Easy, the value they extract through arbitrage would otherwise be retained by the parties making actual trades.
That's not true. You're missing the essential point of arbitrage, especially HFT arbitrage. It reduces bid/ask spreads and thus lowers the costs associated with making trades. They do this by tapping in to other sources of liquidity and delivering it to you. Yes, they make a small profit for doing this. The alternative is to pay more to a broker or run the risk of paying up to a wider bid/ask spread.
The guys on Pawn Stars do arbitrage on second hand items. They buy low, use a propietary knowledge ba
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It reduces bid/ask spreads and thus lowers the costs associated with making trades
You cannot extract money from a system and simultaneously lower costs. All the money an HFT guy makes would have ended up in someone elses pocket if he didn't get there first.
They buy low, use a propietary knowledge base to estimate fair value, factor in business costs, assume risk that items won't sell at an expected price, and try to turn a profit. I may not know where to find a velvet black-light poster of Elvis
You don't k
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Actually you can - all you have to do is offer the same product/service as someone else and do it for less. Some stocks are cross listed on multiple exchanges. What if I could get you shares from another exchange that you don't have access to more cheaply? And that's all I'm claiming; it's not magic or even bitcoin mining or anyth
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Actually you can - all you have to do is offer the same product/service as someone else and do it for less.
Think about it in terms of cash flow. Like Kirchoff's law applied to dollars instead of current. All the dollars that go into the system have to come out of the system. If some of those dollars end up in an HFT traders pocket, that's less for the rest of the traders. It's mathematically impossible for this to be anything other than zero sum. We're not talking about fractional reserve banking or a
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Think about it in terms of donuts. If I buy a donut every morning for a dollar, and someone comes along and offers an equivalent donut for 75 cents, going forward I'll take the cheaper donut and save 25 cents a day. The HFT guy is the guy offering cheaper donuts.
If you're thinking about this in terms of physics/conservation laws, make sure you have identified all of the sources and sinks. Productivity increases are a source of value. And that's where the increased value comes from with HFT: the techn
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Not true.
Because of HFT arbitrage, the prices are always very close to where they should be, such that there isn't much money to be made in arbitrage. You have to have very low costs to make any money at it. As a result, the two traders you are talking about are actually much closer to actual value than they would be without the overall influence of HFT.
Two stories? (Score:2)
This a pet topic for these guys?
http://news.slashdot.org/story/13/06/18/0257224/have-we-hit-peak-hft [slashdot.org]
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Certainly compared to the trading that is done by a bunch of big dudes yelling at each other on a trading floor.
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Well considering it involves programs and hardware being designed to work as fast as possible (to the point where you are hitting pesky physical limitations such as the latency on the speed of light through a fiber), I'd say it qualifies as news for nerds.
Certainly compared to the trading that is done by a bunch of big dudes yelling at each other on a trading floor.
Except nobody is talking about hardware or software! LOL!!!
I think the problem is that we tend to get news articles that focus on the politics of HFT, or legal decisions, etc. Almost nothing gets posted about the technical side.
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OK, here's the technical low-down:
REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED fast servers REDACTED REDACTED REDACTED REDACTED REDACTED co-located REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED high performance REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED
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HFT (Score:5, Insightful)
HFT isn't a system stability problem as much as it is an access problem. What it does is increase the cost of entry into the market -- those who don't engage in HFT wind up paying for those who do, and so it winds up penalizing people with smaller portfolios and shifting the costs of it onto them. What you need to understand about profit is that it is always at the expense of someone else. And HFT is the sublime example of how to nickle and dime the less fortunate to death. These fractions of a penny here and there add up because it gets compounded by interest rate. Over time, the spread between those who have it and those who don't will grow; As is the trend in any investment-based system.
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I have heard the argument that the HF traders are actually taking money from the exchanges, rather than the other traders (because they reduce buy/sell price spreads, it's actually beneficial for the traders). That is why they've gotten so much publicity (because the exchanges have big lobbying budgets). There are other things which hurt the average trader a lot more than HFT but they're mostly unknown.
Re:HFT (Score:5, Interesting)
Things like 1% management fees and high expense ratios on 401(K)s (which can end up costing you 3/4 of your retirement money), combination life insurance/savings plans (almost always a ripoff), and more specific to day-traders, things like how the AP sells early access to hedge funds, insider trading, that type of thing. I would argue that even the ads on CNBC trying to convince people that they can make money day-trading qualify as a scam. Also, see this video:
http://finance.yahoo.com/blogs/daily-ticker/yes-markets-rigged-survive-shark-infested-waters-143233110.html [yahoo.com]
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Okay, not that I'm disagreeing with anything you have to say but... what does any of that have to do with HFT?
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What you need to understand about profit is that it is always at the expense of someone else.
I agree with most of the rest of what you said, but I can't agree here. Despite typically being measured with currency, profit is often subjective; in fact, that's why we trade in the first place: I want an apple more than I want the money you're charging for it, and you'd rather the money than the apple. When we complete our transaction, we both think we've gained.
Now if I turn around and sell that apple for twice what I paid for it, I'll have no apple and more money than I started with. That's certainly a
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just make it so there is no 'do overs' and make them stand by the trades they make ie dumping stock below real value due to a glitch.
Exactly.
.. the solution is 'less regulations, specifically the ones creating the problem'
The problem isnt with HFT's. The problem is with the exchange commissions setting up rules that dont treat each trade equally, and at least in America the exchange commission is an arm of the government. The upshot of this fact is that the government has created the problem with some of its regulations, so the solution isnt contained in 'more regulations'
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This is bullshit too. All trades are regulated the same.
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There are no do-overs... this is crap. Broken trades occur when the trade prices occur outside the NBBO, which is outside regulations. In other words, the trades weren't legal trades. The HFT company often loses money on these, and they always increase risk.
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And profit is not measured by whether you have more currency after a series of trades. It's measured by whether you have more assets which have monetary value after a bunch of actions. Actual money makes up a very small sliver of the things with value.
Sometimes I think *de*regulation is the answer (Score:4, Interesting)
I think the opposite would actually work better.
If the official rules stated "HFT is totally *un*regulated --- feel free to run your buggies, most insane, glitchy, and flawed HFT software" --- immediately all the other HFT software systems would be coded to watch for crazy non-justified buying&selling.
With all this regulation, if one bank's trading software starts going insane, the other banks start following them (and creat a positive feedback loop) under the assumption that in such a regulated industry the insane software must know something. If it were further de-regulated, the other software would assume the other software was poorly coded, and basically LOL at the bugs and profit from it until someone pulled the plug on the bad algorithm. And with that risk - I imagine a *lot* of interested would be in automating such plug-pulling checks so they happen in a very small number of miliseconds so the market can't crash too far before the kill switch hits.
Re:Sometimes I think *de*regulation is the answer (Score:5, Insightful)
If the official rules stated "HFT is totally *un*regulated --- feel free to run your buggies, most insane, glitchy, and flawed HFT software" --- immediately all the other HFT software systems would be coded to watch for crazy non-justified buying&selling.
I love magical thinking like this. It keeps me employed. In other news, "too big to fail." Businesses don't pay for their mistakes: You do. That's the reason for regulation... it's to assure a baseline level of sanity... so when they screwup, they don't do it so badly that they take the rest of us with them.
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There is an example of a purely unregulated market; EVE Online.
You know what, it is a very stable market.
This is because everyone knows that a market price could have been manipulated, that there are scams. So everyone is distrustful and does their homework on the real cost of things.
But within EVE Online everyone is a professional trader, not some dude/mom/dad who just gambles some money on the stock market from behind his PC like it happens in the real world.
I suggest that everyone plays EVE Online so tha
Re:Sometimes I think *de*regulation is the answer (Score:5, Informative)
There is an example of a purely unregulated market; EVE Online.
I play EVE. It's not a "very stable market". Goonsquad decided to attack miners in highsec. Mining is one of the main ways raw materials are generated for product generation, and when they did that, key resources to fuel starbases (oxygen isotopes, etc.) shot up massively in price. It would be the realworld equivalent of bombing oil pipelines and refineries.
As you get farther away from the main trade hubs and out into nullsec, prices can easily triple for commodities. And many alliances have policies to prevent anyone else from getting in on their lucrative cartels of freighter transports bringing needed supplies out.
But within EVE Online everyone is a professional trader, not some dude/mom/dad who just gambles some money on the stock market from behind his PC like it happens in the real world.
Like hell they are. Most people avoid serious trading because of the lack of easy access to information on sales volumes, pricing, etc, market volatility, and (unlike the real world) getting your products to one of the main trade hubs is risky. If blowing your ship to hell is cheaper than the cost of losing their ships to the police (concord), they'll blow it up. There's no jail in Eve -- in 15 minutes you're just like every other pilot again... and they'll loot your wreck and be on their merry.
I suggest that everyone plays EVE Online so that people learn about markets, about logistics, about profit per hour (just profit is for noobs).
And I'd suggest they play it to understand why government regulation and military protection of traders and merchants leads to vastly lower costs to society, and to see first hand how far the effects of market manipulation can travel.
And you're leaving out another critical component of Eve that isn't at all like the realworld: You're never sure who you're trading with. Identities can be traded, and because of this, and the interface mechanics, you can be buying supplies from your enemies one day, and selling arms to them the next.
And all of this "free market" love makes people incredibly distrustful, very manipulative, and economic power equates directly with military power. And what's more interesting... the distribution of wealth looks pretty much like it does in the United States: 1% controls over half the total wealth in the game... and that 1% can be very petty, self-centered, and short-sighted. Kings and kingdoms alike are created and destroyed every day -- there is no stability. In nullsec, you always have an exit strategy... a way to burn your assets and get out quick, because if the enemy doesn't fuck you over, your would-be kings claiming to be on your side will.
Eve is the wild-wild west, seen through the lens of a hundred spreadsheets. When it's a game, this can be fun. When it's real life... do you really want to go to bed one night and wake up the next with your house on fire and your neighbors looting each other, you, and everything else as the next Great New Power rolls in? Because this is a frequent occurrance in the game.
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All well and good until Goldman-Sachs makes a mistake.
They will simply have their pet politicians say: 'Timeout, OK we're backing out all the trades (that would otherwise have sunk our sugar daddy). Too big to fail.'
Sometimes I think people have no memory (Score:2)
Can people remember beyond 1 year? Is it cultural that some areas have less memory than others?
Rather than address the obvious fault in the parent's post, I'll suggest another problem:
War. Not necessarily all out war, but hacks or even directing large corporations under the control of the enemy could screw up such a system much easier than the old fashioned methods for undermining an enemy's economy.
Long term, it would be wise to join the Chamber of Commerce and help them in promoting the destruction of t
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People keep saying that HFT needs to be regulated to avoid crazy spikes and crashes due to algorithms with stupid positive feedback loops.
There is no evidence that HFT causes spikes and crashes. Actual evidence says the opposite: by increasing liquidity, HFT reduces volatility. HFT was initially blamed for the "flash crash" in 2010, but when the investigation was complete, it was found that most HFTers had pulled out of the market during the crash, and HFT played no role in causing or exacerbating the crash. In fact, the crash would have been less severe if HFTers had better models which would have allowed them to stay active during the cr
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There is no evidence that HFT causes spikes and crashes. Actual evidence says the opposite: by increasing liquidity, HFT reduces volatility.
Actual evidence from the guys who monitor these kind of things says nothing of the sort. I wish people would stop spouting this line about HFT and liquidity. Here [nanex.net] is a relatively recent GOOG flash crash (April 22 2013) likely due to HFT (based on timespan and number of trades, number of orders placed per trade and number of exchanges involved).
Re:Sometimes I think *de*regulation is the answer (Score:2)
Some kinds of trading, including high-frequency trading, add liquidity; participants that do this are called market makers, and market makers reduce volatility by making it cost more to move the price.
Apologies, but you are mistaken. Market makers, in order to qualify as such (and receive the official designation from an exchange) have to satisfy certain condition that are not satisfied by HFT operations. The relevant ones for the 'provide liquidity' part are: to always maintain bid/ask quotes and stand by to execute trades at the quoted prices. There are rare exceptions when one can pull off, but that's the gist of it. Bit of a quaint notion nowadays, what with multiple connected electronic venues, but
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The link you gave provided little insight into its cause. Do you have any more information about it?
The way I see it it's about the structure of the trades. From their text above the plots:
The price dropped from $796 to $775 in about 3/4 of a second, then rebounded to $793 a second later. The drop invovled 307 trades and 57,255 shares from 10 exchanges + dark pools. During the drop, there were 5 orders placed for every trade executed (meaning 4 orders placed/canceled for every trade).
Having about 1.5k quotes posted in 0.75s (with 80% being canceled) surely shows that HFT algos were active and yet did not
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frontrunning
Frontrunning is illegal, regardless of whether it involves HFT. An obvious solution is to make it illegal for a single company to be both a broker (trading on behalf of their customers) and a trader (making money on their own trades).
tiny statistical arbitrage between similar stocks
No, arbitrage increases liquidity, decreases volatility, makes the market more efficient and stock prices more fair, and is a Good Thing.
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Liquidity IS volatility.
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Lolwut? No, it's the opposite, *by definition*. See here [wiktionary.org]:
liquidity
2. (economics, countable) An asset's property of being able to be sold without affecting its value; the degree to which it can be easily converted into cash.
(emphasis mine)
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Ok now do volatility. Maybe you dont know what that word means.
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In fact, the crash would have been less severe if HFTers had better models which would have allowed them to stay active during the crash.
This is pure speculation, not a fact.
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In fact, the crash would have been less severe if HFTers had better models which would have allowed them to stay active during the crash.
This is pure speculation, not a fact.
It is enough of a fact to be accepted by the SEC. One of the recommendations of the 2010 investigation was to find a way to keep HFTers active during periods of volatility. Perhaps even requiring them to actively trade in order to keep markets liquid.
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What about when Goldman-Sachs started selling loans that would default so they could collect 16 insurance payouts instead. Yeah, no need to regulate that.
If it were widely known to be not regulated, the insurance companies could have (a) done more proper due-dillegence, and (b) could have set appropriate premiums.
Probably is that the insurance companies were under the impression that there was regulation in place that Goldman knew how to bypass.
Same with most of your examples.
Just tax it. (Score:1)
If there were a transaction tax on stock market trades, that would eliminate whatever advantage there is. These guys make money on low margin high volume trading. Just about any transaction tax will make those low margins disappear.
The disadvantage is trades might now take minutes instead of seconds due to decreased volume. But maybe that's not a bad thing.
Tax everything. No, really! (Score:2)
Move from the current "income" and "gain" tax basis to a gross receipts tax. Every transaction is a taxable event - retail, wholesale, personal, business. It turns out that the rate would be exceptionally low - 2-3% tops. It would result in larger markups on long supply chains, make day trading very costly from a tax perspective, increase the cost of most items at the retail level, and burden corporations - especially holding companies and multi-layer shell corporations meant to shield/dodge local taxes an
Must be getting cynical in my old age, (Score:1)
Oz is such a contradiction (Score:4, Informative)
But on the other hand, they keep electing right-wing governments more than willing to be trained poodles for US corporate and foreign policy.
Being the Lapdog has Bipartisan Support (Score:2)
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HFT benefits small traders more than large ones (Score:1)
If you have billions in capital, it is extremely hard to move around billions in assets without all the small traders taking notice, and piling on before you can reach your full position. That's why large traders like Buffet absolutely hate day traders, and has never split his stock, causing shares in his company to be valued at over $65000 per share last I checked. Being able to trade freely and quickly is one of the few great equalizers in large capital markets.
Show Me.. (Score:2)
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It's not the number of trades that's the problem (Score:2)
free market works (Score:2)
2) Initial enterers into said market start making bucketloads of money.
3) People complain and say this should be regulated, its not fair to X, Y, and Z, this is a plague on society, etc.
a) This of course conveniently ignores the fact that when trades are done voluntarily they are only done because both parties think they will benefit[*].
4) If we're lucky and the market doesn't get regulated too much, more people enter sa
ASIC Regulation (Score:2)
Having said that, I'd rather have it than not, but it would be nice if it could be made a little more effective.
But are they useful? (Score:2)
There is a strong case for imposing a lower trading frquency. I would have said a one-hour timestep but some people go as far as proposing a one-day step. After all, stock exchanges clos
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That's what HFT market-makers do (whether registered or de-facto). They compete with each other to quote a spread that is tight enough to receive the order flow from player1/player2, but wide enough so that they are still profitable on average. HFT market makers are good for the market in most conditions. The biggest downside is that they have long since starved out all of the old specialist market-makers, and so when u