I'm a well paid computer scientist and I've never used calculus. Why does everyone need calculus? It doesn't particularly help you understand the news.
Another interesting way to think about it is in terms of seeing if you can figure out where you are in the graph by looking only at the curve. For example, if the frequency curve is a simple blip, you can tell exactly where you are on the frequency axis by looking only at the blip, it's like driving past the Lonely Mountain on the highway. But then you couldn't tell where you are on the time axis by looking only at the curve because the FT of the blip is a sine wave. It would be like driving down a long featureless highway where the mile markers all say "2 pi" - no telling where you are!
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 pages. It was authored by a tenured professor of business at Columbia business school. Is he automatically full of shit because Citadel paid for the study?
"And I wouldn't slow down all trades; I would only slow down the liquidity-removing trade. There's a big difference. I wouldn't change the liquidity-providing trades," Peterffy adds.
But there are various ways of slowing down trading. These alternatives include a transaction tax, as has been implemented in France; a minimum quote life, as recommended by the European Union; and, letting all buy and sell orders in a given second be matched up and prioritized against each other, eliminating the push to shave more microseconds off getting to the front of the queue.
All of these proposed solutions Peterffy opposes.
Instead, he calls for new layers of protection against erroneous trades.
So he is essentially calling for more pre-trade risk checks. (At least in this article. In other selections I pulled up on Google, he's a little all over the map.) But I'll agree with your cited author here at least, HFT needs more pre-trade risk checks to be even safer and better.
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 not be synchronized with the first exchange, and so when prices move in the other exchanges, the market maker is hung out to dry on the first exchange for up to a second. Indeed, unscrupulous people will figure this out in detail and make it happen by quoting opportunistically in the other markets, over and over again, until the market makers are driven out of business. That's not fair to the market makers, who after all were just bringing liquidity in from other sources. And it's not advantageous for customers because the liquidity would go away.
One general rule I would like to see taken more seriously is that participants should not quote a price unless they actually intend it to be filled. This already exists in most exchanges already, but it is a difficult rule to enforce. How do you tell the quote that is based on customer orders or on liquidity in other markets from the quote from a guy who is just probing algos for weaknesses, or propping up a fake price?
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 technology enables practitioners to scour the universe of stock exchanges and exchange traded funds (and even synthetically created positions) and bring more quotes to you at a lower cost.
Maybe next Google will market a version of the giant paper mache eyeballs that the Residents used to wear over their heads, that also takes and uploads pictures to its servers with location information.
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.
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 anything. Sure - money not made by one HFT guy would end up in someone else's pocket. That's true of any competitive enterprise. But without HFT it would be more money winding up in someone else's pocket.
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.
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 them out!
Maybe you think the best thing to do is hook up 1 and 2 directly so they can make their own deals? Welcome to the unregulated dark pools! Maybe person 1 is Anonymous Coward from slashdot, and person 2 is George Soros. Yeah, I wonder who is coming out on top in that transaction.
It is remarkable. You got it exactly backwards even after a very reasonable account of bid/ask spread was given above.
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.)
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 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, but the Pawn Stars did it for me, and so I pay them a small premium so that I don't have to spend even more time and money looking for it myself. That's the benefit of their arbitrage to me.
So are the Pawn Stars thieves too? The bastards! Slap a new tax on every transaction they do. Make them hold every item for at least six months at a fixed price so that every snotty bargain hunter in America can get a good look at their inventory and wait them out.
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
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.
Lol, what in the hell does that even mean? I provided a service to you this morning by spending time sifting through academic studies and provided you with one that informed your mistaken opinion. And I did that for free, so I'm not a leech.
You on the other hand are a stubbornly ignorant troll.
I think the intent of this is to raise the costs and regulatory burdens to the point that only too-big-to-fail banks will be able to afford HFT operations going forward.
What about the better bid/ask spreads? That helps everybody in the market - especially the small mom and pop investors who don't have to see a stock price move as far to generate a profit. http://online.wsj.com/public/resources/documents/HFT0324.pdf
It seems to me that since HFT makes liquidity available to everyone, then it is HFT itself that is providing a valuable community purpose. In fact, one of the early criticisms of HFT was that it was detrimental to large, institutional traders like the "too big to fail" big banks.
Why is it good? Because a liquid stock price with a small bid/ask doesn't have to rise as far for me to make a profit.
HFT doesn't matter to 'small' investors.
on
Have We Hit Peak HFT?
·
· Score: 3, Interesting
Critics of HFT say the smaller investors are out because they cannot compete against the HFT crowd even though most brokers offer their own flavors of high speed trade execution.
That's not true, unless by smaller "Mom and Pop" investors the author really means semi-professional, day-trading arbitrageurs. I am a small time investor trying to make retirement savings grow by hunting for safe stocks with high dividend yields. What matters much, much more to me is that I can't get a decent interest rate on CDs or money market because of pro-Wall Street and pro-big bank FED policies.
Why does HFT matter to me? It really doesn't. Sure, in theory some HFT algo is going to snap up bargains ahead of me, but they're also shorting the bogeys so I'm always going to get the fair price. Stop the FUD.
I don't know why this gets tagged "Score:0, Troll".
Here's one better: My non-technical wife has been using Windows 8 just fine since February. I have not had to do any maintenance nor field any questions at home on this, except for looking up the WiFi password and setting up a printer.
Agism in the IT industry has a lot more to do with companies not wanting to pay for experience than it does with any genuine lack of skills on the part of the older population.
My only specific advice to a late bloomer would be: don't sweat the "new" technology and acronym soup that changes every few years. Everything substantial was already done in the late 60's at Xerox Parc, or CERN and the NCSA in the late 80's, but comes out repackaged with new acronyms every time an architecture is refactored to fit the newest hardware capabilities. Focus on what you do well and ignore the rest. If anything, it's much easier to survive as a new programmer nowadays because the coding tools and online references are so powerful.
Slashdot Mirror
There are people who get anxious about buying a drink at a bar? I only get anxious when it's time to pay the tab.
I'm a well paid computer scientist and I've never used calculus. Why does everyone need calculus? It doesn't particularly help you understand the news.
Because it's awesome!
Another interesting way to think about it is in terms of seeing if you can figure out where you are in the graph by looking only at the curve. For example, if the frequency curve is a simple blip, you can tell exactly where you are on the frequency axis by looking only at the blip, it's like driving past the Lonely Mountain on the highway. But then you couldn't tell where you are on the time axis by looking only at the curve because the FT of the blip is a sine wave. It would be like driving down a long featureless highway where the mile markers all say "2 pi" - no telling where you are!
When did the movie "War Games" come out?
And people are still putting back doors into stuff?
Remember when the folks at B&N were hailed as visionary geniuses compared to the doofuses at Borders because B&N had an eReader?
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 pages. It was authored by a tenured professor of business at Columbia business school. Is he automatically full of shit because Citadel paid for the study?
And in fact, Thomas Peterffy (the subject of the NPR podcast you linked to) is much more nuanced on the subject than you lead us to believe. (Sorry - I don't do podcasts: http://www.tradersmagazine.com/issues/26_346/thomas-peterffy-wants-algorithm-controls-110737-1.html)
So he is essentially calling for more pre-trade risk checks. (At least in this article. In other selections I pulled up on Google, he's a little all over the map.) But I'll agree with your cited author here at least, HFT needs more pre-trade risk checks to be even safer and better.
LOL!
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 not be synchronized with the first exchange, and so when prices move in the other exchanges, the market maker is hung out to dry on the first exchange for up to a second. Indeed, unscrupulous people will figure this out in detail and make it happen by quoting opportunistically in the other markets, over and over again, until the market makers are driven out of business. That's not fair to the market makers, who after all were just bringing liquidity in from other sources. And it's not advantageous for customers because the liquidity would go away.
One general rule I would like to see taken more seriously is that participants should not quote a price unless they actually intend it to be filled. This already exists in most exchanges already, but it is a difficult rule to enforce. How do you tell the quote that is based on customer orders or on liquidity in other markets from the quote from a guy who is just probing algos for weaknesses, or propping up a fake price?
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 technology enables practitioners to scour the universe of stock exchanges and exchange traded funds (and even synthetically created positions) and bring more quotes to you at a lower cost.
Maybe next Google will market a version of the giant paper mache eyeballs that the Residents used to wear over their heads, that also takes and uploads pictures to its servers with location information.
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 anything. Sure - money not made by one HFT guy would end up in someone else's pocket. That's true of any competitive enterprise. But without HFT it would be more money winding up in someone else's pocket.
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.
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 them out!
Maybe you think the best thing to do is hook up 1 and 2 directly so they can make their own deals? Welcome to the unregulated dark pools! Maybe person 1 is Anonymous Coward from slashdot, and person 2 is George Soros. Yeah, I wonder who is coming out on top in that transaction.
It is remarkable. You got it exactly backwards even after a very reasonable account of bid/ask spread was given above.
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.)
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 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, but the Pawn Stars did it for me, and so I pay them a small premium so that I don't have to spend even more time and money looking for it myself. That's the benefit of their arbitrage to me.
So are the Pawn Stars thieves too? The bastards! Slap a new tax on every transaction they do. Make them hold every item for at least six months at a fixed price so that every snotty bargain hunter in America can get a good look at their inventory and wait them out.
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
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.
Lol, what in the hell does that even mean? I provided a service to you this morning by spending time sifting through academic studies and provided you with one that informed your mistaken opinion. And I did that for free, so I'm not a leech.
You on the other hand are a stubbornly ignorant troll.
I think the intent of this is to raise the costs and regulatory burdens to the point that only too-big-to-fail banks will be able to afford HFT operations going forward.
What about the better bid/ask spreads? That helps everybody in the market - especially the small mom and pop investors who don't have to see a stock price move as far to generate a profit. http://online.wsj.com/public/resources/documents/HFT0324.pdf
It seems to me that since HFT makes liquidity available to everyone, then it is HFT itself that is providing a valuable community purpose. In fact, one of the early criticisms of HFT was that it was detrimental to large, institutional traders like the "too big to fail" big banks.
Lower bid/ask spreads: http://online.wsj.com/public/resources/documents/HFT0324.pdf
Why is it good? Because a liquid stock price with a small bid/ask doesn't have to rise as far for me to make a profit.
That's not true, unless by smaller "Mom and Pop" investors the author really means semi-professional, day-trading arbitrageurs. I am a small time investor trying to make retirement savings grow by hunting for safe stocks with high dividend yields. What matters much, much more to me is that I can't get a decent interest rate on CDs or money market because of pro-Wall Street and pro-big bank FED policies.
Why does HFT matter to me? It really doesn't. Sure, in theory some HFT algo is going to snap up bargains ahead of me, but they're also shorting the bogeys so I'm always going to get the fair price. Stop the FUD.
I don't know why this gets tagged "Score:0, Troll".
Here's one better: My non-technical wife has been using Windows 8 just fine since February. I have not had to do any maintenance nor field any questions at home on this, except for looking up the WiFi password and setting up a printer.
Maglev train, of course!
Agism in the IT industry has a lot more to do with companies not wanting to pay for experience than it does with any genuine lack of skills on the part of the older population.
Amen.
My only specific advice to a late bloomer would be: don't sweat the "new" technology and acronym soup that changes every few years. Everything substantial was already done in the late 60's at Xerox Parc, or CERN and the NCSA in the late 80's, but comes out repackaged with new acronyms every time an architecture is refactored to fit the newest hardware capabilities. Focus on what you do well and ignore the rest. If anything, it's much easier to survive as a new programmer nowadays because the coding tools and online references are so powerful.