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.
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.
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.
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, and you'd be paying the specialist 12.5c on average per share... Personally I'd rather pay the HFT company.5c than the specialist 12.5c, but perhaps you have some other agenda. Maybe your dad was a specialist put out of business by the new high tech market makers? The other main variety is aggressive, which normally takes the form of some kind of arbitrage. Arbitrage is generally considered beneficial because it aids price discovery and improves efficiency. It also takes money directly from the market makers (HFT profiting from HFT... confused?). Both arbitrage and market making were around before HFT. HFT takes those strategies and makes them faster and smarter. They were inevitable... each speed advantage turns into more profit and less for the competitors. And more efficient markets. There have been hiccups, but with circuit breakers, nothing damaging to the market.
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.
I've analyzed large volumes of market data. Yhere is no evidence that such oscillations occur. If they did, an algorithm could easily make money from them, which would actually damp them.
Everything you said is wrong. Knight nearly bankrupted themselves, hardly a blip on the market as a whole. The flash crash can't happen again, partly because of circuit breakers. HFT market makers have a legal obligation to keep bids and asks in the market, at great cost and risk to themselves. For taking on this risk they can profit quite well. If they fail their obligations they are fined etc. It's easy to lose big making markets. Orders are very rarely cancelled within milliseconds of being submitted. Repeatedly ordering and cancelling is called flickering and is a type of manipulation which is illegal and is monitored for by exchanges and the SEC. Manipulation is taken very seriously and can result in millions in fines. A reasonable percentage of mm orders have to fill, otherwise the exchanges levy extra fees, or worse.
Stop spreading this bullshit. HFT is the reason the markets are so efficient: there is a 1c spread on most stocks now.
There was an independant study done which explains the events much better. The biggest problem was NYSE had gotten very backed up because of a natural response to a huge put option on SPY: options market makers were hedging the options against other options and against shares. Unfortunately, NYSE was timestamping the feed messages on exit from the queue, not at the time the data was produced. Algorithms were unaware that the market data was delayed, and saw a difference in price between nyse prices and all other exchanges, hence they were trying to capture a price difference that did not really exist. THIS caused feedback. This can't happen now: 1. The NYSE fixed their timestamping 2. The exchanges implemented new rules called circuit breakers which halt trading in the event of a large price swing. This rule now triggers occasionally.
That's complete nonsense HFT only trades off public info. Most HFT shops don't have any source of inside information. They aren't in a special position at the exchange - they use sources that anyone can obtain. And most HFT strategies DO trade many exchanges at once. You have no idea what you are talking about.
I'm against the tax for the reasons that it will have only unintended consequences, such as inefficiency and reduced volumes. Most people don't really understand who bears the cost.
But funding a company has alway been a gamble. Plus most shares are in street name, and aren't being bought or sold by the funded company. How do you expect the system to work without allowing shareholders to sell? If you do allow them to sell, you have to have buyers. Lastly you haven't articulated a downside to side trading. Funds that hold stocks buy and sell them to hedge against risk. If they're not allowed to then risk necessarily increases, as do fees to compensate, and returns go down. Open markets are a good thing.
Firstly, you're making some assumptions that a aren't supported. E.g. that competition in speed is bad. That's not new either: the invention of the phone helped increase trading volume and efficiency tremendously. Speed is important to all trades, too, on different scales, which is why liquidity is important.
Secondly, when you talk about being cheaper - cheaper to whom? All the infrastructure costs are an expense to some parties and an income to others. Who are you trying to protect? It's not the small long term investor, or the mutual fund that many people have, or the pension fund, because they have the best prices they can get: less than 1c (in stocks) from actual value. In fact, the investor gets shafted more by his broker. So seriously, whose costs are you trying to mitigate with your clearing house idea? It wouldn't benefit society anyway - it would horribly reduce the traded volumes, and increase inefficiency. Decreased efficiency means some people are being shafted more than necessary.
Why do you think HFT traders trading, for example, Apple is harmful to Apple?
They already made the IPO, the shares are on the street... HFT itself only responds to price changes - it doesn't cause them. Manipulation is illegal, and is punished with fines and possibly being expelled from the exchanges - death for a trading company.
So again, explain how HFT is harmful to the stocks it trades?
"There is frequently no human involvement at all in HFT. It's just scanning bids and asks and offering just a hair above each."
You don't need HFT for this. Just submit a pegged order, and it'll sit at or better than the inside, until it fills. The exchange will keep its price updated for you.
Your argument is ridiculous, because anyone can see the (liquid) markets are really at $0.01 spreads almost the entire time. This is the best you can get (in stocks). Get rid of the HFT market maker and you necessarily get rid of the $0.01 spread.
Go for it - and good luck. You'll find it's cheaper going to your broker, who charges more (and in addition to) than the $0.01 spread (which is the best spread you can get, btw).
Germany has it right - last I heard you have to mark orders as "algorithmic" if they are HFT or similar. They the regulators can look at the orders, cancels and trades and determine correctly what effect they have on the market.
As opposed to just guessing and listening to rumor - much of which is spread by the old traders who used to make money from the 25c spreads and the like.
Traders, including HFT, only get trades broken when they execute outside regulations - i.e. outside the clearly erroneous. Usually it's NOT IN FAVOR of the HFT trader - since the HFT traders are usually the fastest to react to changing market conditions. Note that HFT is usually trading spreads - i.e. buying one things and selling another at approximately the same time. When a break occurs, the HFT has only half the trade, either the long or the short position - which is exposing them to market fluctuations, and is very risky.
HFT is a difficult business: it's not like you can simply set up shop, buy a few co-located servers and money starts rolling in.
HFT makes money, and it comes from somewhere, true. But to go further you need to examine how it goes without HFT...
Back in the day, there were specialists who kept the books and made markets. The specialists would keep the markets at a $0.25 spread, because specialists aren't efficient - they're slow, and they can only remain in business if they make a profit. This means when any two Joe Publics want to trade, they pay the specialist $0.25.
Today, the same two Joe Publics pay the HFT company $0.01
That's not HFT, that's market making. And it will happen regardless of the tax. Instead of the apple spread being 0.50/0.51, it'll be 0.47/0.53, BECAUSE NO ONE CAN AFFORD OTHERWISE.
It also means microseconds still count.
The tax would have only unintended consequences.
FYI The France transaction tax EXEMPTED market makers (even HFT), because of this.
That's a misrepresentation of insurance. Ideally there isn't any additional burden on other insurers... I.e. the premium is the cost of the event multiplied by the probablility of the event plus some fees. The mean balance should simply be the fees... hence the insurance company makes money. This is true even if the insurance company only offers "archeological protection insurance".
"The statement that a single analyst can eavesdrop on domestic communications without proper legal authorization is incorrect and was not briefed to Congress,"
What does "proper legal authorization" mean? Weasel words... you're right about propaganda. You're wrong about making it partisan... both parties are complicit in this.
I still believe the NSA is wiretapping at will without warrants specifically identifying individuals and cause. Even seizing just metadata is wrong.
Slashdot Mirror
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.
HFT isn't in the middle and isn't an attack.
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.
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.
I prefer capitalism.
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, and you'd be paying the specialist 12.5c on average per share... Personally I'd rather pay the HFT company .5c than the specialist 12.5c, but perhaps you have some other agenda. Maybe your dad was a specialist put out of business by the new high tech market makers?
The other main variety is aggressive, which normally takes the form of some kind of arbitrage. Arbitrage is generally considered beneficial because it aids price discovery and improves efficiency. It also takes money directly from the market makers (HFT profiting from HFT... confused?).
Both arbitrage and market making were around before HFT. HFT takes those strategies and makes them faster and smarter. They were inevitable... each speed advantage turns into more profit and less for the competitors. And more efficient markets.
There have been hiccups, but with circuit breakers, nothing damaging to the market.
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.
I've analyzed large volumes of market data.
Yhere is no evidence that such oscillations occur. If they did, an algorithm could easily make money from them, which would actually damp them.
Everything you said is wrong.
Knight nearly bankrupted themselves, hardly a blip on the market as a whole.
The flash crash can't happen again, partly because of circuit breakers.
HFT market makers have a legal obligation to keep bids and asks in the market, at great cost and risk to themselves. For taking on this risk they can profit quite well. If they fail their obligations they are fined etc. It's easy to lose big making markets.
Orders are very rarely cancelled within milliseconds of being submitted. Repeatedly ordering and cancelling is called flickering and is a type of manipulation which is illegal and is monitored for by exchanges and the SEC. Manipulation is taken very seriously and can result in millions in fines.
A reasonable percentage of mm orders have to fill, otherwise the exchanges levy extra fees, or worse.
Stop spreading this bullshit. HFT is the reason the markets are so efficient: there is a 1c spread on most stocks now.
There was an independant study done which explains the events much better. The biggest problem was NYSE had gotten very backed up because of a natural response to a huge put option on SPY: options market makers were hedging the options against other options and against shares. Unfortunately, NYSE was timestamping the feed messages on exit from the queue, not at the time the data was produced. Algorithms were unaware that the market data was delayed, and saw a difference in price between nyse prices and all other exchanges, hence they were trying to capture a price difference that did not really exist. THIS caused feedback.
This can't happen now:
1. The NYSE fixed their timestamping
2. The exchanges implemented new rules called circuit breakers which halt trading in the event of a large price swing. This rule now triggers occasionally.
That's complete nonsense HFT only trades off public info.
Most HFT shops don't have any source of inside information. They aren't in a special position at the exchange - they use sources that anyone can obtain.
And most HFT strategies DO trade many exchanges at once.
You have no idea what you are talking about.
I'm against the tax for the reasons that it will have only unintended consequences, such as inefficiency and reduced volumes. Most people don't really understand who bears the cost.
But funding a company has alway been a gamble.
Plus most shares are in street name, and aren't being bought or sold by the funded company.
How do you expect the system to work without allowing shareholders to sell? If you do allow them to sell, you have to have buyers.
Lastly you haven't articulated a downside to side trading.
Funds that hold stocks buy and sell them to hedge against risk. If they're not allowed to then risk necessarily increases, as do fees to compensate, and returns go down. Open markets are a good thing.
Firstly, you're making some assumptions that a aren't supported. E.g. that competition in speed is bad. That's not new either: the invention of the phone helped increase trading volume and efficiency tremendously. Speed is important to all trades, too, on different scales, which is why liquidity is important.
Secondly, when you talk about being cheaper - cheaper to whom? All the infrastructure costs are an expense to some parties and an income to others. Who are you trying to protect?
It's not the small long term investor, or the mutual fund that many people have, or the pension fund, because they have the best prices they can get: less than 1c (in stocks) from actual value. In fact, the investor gets shafted more by his broker.
So seriously, whose costs are you trying to mitigate with your clearing house idea?
It wouldn't benefit society anyway - it would horribly reduce the traded volumes, and increase inefficiency. Decreased efficiency means some people are being shafted more than necessary.
Why do you think HFT traders trading, for example, Apple is harmful to Apple?
They already made the IPO, the shares are on the street... HFT itself only responds to price changes - it doesn't cause them. Manipulation is illegal, and is punished with fines and possibly being expelled from the exchanges - death for a trading company.
So again, explain how HFT is harmful to the stocks it trades?
"There is frequently no human involvement at all in HFT. It's just scanning bids and asks and offering just a hair above each."
You don't need HFT for this. Just submit a pegged order, and it'll sit at or better than the inside, until it fills. The exchange will keep its price updated for you.
See, for example, http://www.nasdaqtrader.com/content/productsservices/trading/MMPegOrder_factsheet.pdf
Your argument is ridiculous, because anyone can see the (liquid) markets are really at $0.01 spreads almost the entire time. This is the best you can get (in stocks). Get rid of the HFT market maker and you necessarily get rid of the $0.01 spread.
They can.
Block trades occur all the time.
Go for it - and good luck. You'll find it's cheaper going to your broker, who charges more (and in addition to) than the $0.01 spread (which is the best spread you can get, btw).
A very sane comment.
Germany has it right - last I heard you have to mark orders as "algorithmic" if they are HFT or similar. They the regulators can look at the orders, cancels and trades and determine correctly what effect they have on the market.
As opposed to just guessing and listening to rumor - much of which is spread by the old traders who used to make money from the 25c spreads and the like.
Quit spreading lies.
Traders, including HFT, only get trades broken when they execute outside regulations - i.e. outside the clearly erroneous. Usually it's NOT IN FAVOR of the HFT trader - since the HFT traders are usually the fastest to react to changing market conditions. Note that HFT is usually trading spreads - i.e. buying one things and selling another at approximately the same time. When a break occurs, the HFT has only half the trade, either the long or the short position - which is exposing them to market fluctuations, and is very risky.
HFT is a difficult business: it's not like you can simply set up shop, buy a few co-located servers and money starts rolling in.
You have to have a real trading strategy.
HFT makes money, and it comes from somewhere, true. But to go further you need to examine how it goes without HFT...
Back in the day, there were specialists who kept the books and made markets. The specialists would keep the markets at a $0.25 spread, because specialists aren't efficient - they're slow, and they can only remain in business if they make a profit. This means when any two Joe Publics want to trade, they pay the specialist $0.25.
Today, the same two Joe Publics pay the HFT company $0.01
Now, explain your point again?
That's not HFT, that's market making. And it will happen regardless of the tax.
Instead of the apple spread being 0.50/0.51, it'll be 0.47/0.53, BECAUSE NO ONE CAN AFFORD OTHERWISE.
It also means microseconds still count.
The tax would have only unintended consequences.
FYI The France transaction tax EXEMPTED market makers (even HFT), because of this.
That's a misrepresentation of insurance.
Ideally there isn't any additional burden on other insurers... I.e. the premium is the cost of the event multiplied by the probablility of the event plus some fees.
The mean balance should simply be the fees... hence the insurance company makes money.
This is true even if the insurance company only offers "archeological protection insurance".
Where do you think the government's money comes from?
You're actually saying you want all your peers to pay for it...
Oh - I suddenly believe the new story.
"The statement that a single analyst can eavesdrop on domestic communications without proper legal authorization is incorrect and was not briefed to Congress,"
What does "proper legal authorization" mean? Weasel words... you're right about propaganda. You're wrong about making it partisan... both parties are complicit in this.
I still believe the NSA is wiretapping at will without warrants specifically identifying individuals and cause. Even seizing just metadata is wrong.
We see the same thing over and over - some whistleblower reveals evidence, the claim is denied. But the evidence is still there. They've already started demonizing Snowden:
http://www.newyorker.com/online/blogs/comment/2013/06/edward-snowden-nsa-leaker-is-no-hero.html
http://www.nydailynews.com/news/politics/dick-cheney-blasts-nsa-leaker-edward-snowden-traitor-chinese-spy-article-1.1374229
They even got to his dad:
http://www.foxnews.com/politics/2013/06/17/exclusive-father-edward-snowden-urges-son-to-stop-leaking-come-home/
How is that a failure?
If they'd lost more money than intended, that would be a failure.
Even losing less would be a success... making money is a big success.