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The Fine Print: The following comments are owned by whoever posted them. We are not responsible for them in any way.
byMightyMartian ( 840721 ) writes:
You know, twenty five years ago, everyone was convinced it would be computers built by the military-industrial complex that would become self-aware and take out the human race. Now I'm beginning to wonder if HFT algorithms will be the ones that do it.
byMyLongNickName ( 822545 ) writes:
Here's the rub. For someone like me, I couldn't care less about HFT. I am in it for the long haul. I've invested for almost all of my adult life. I don't invest on hunches, instead I buy broadly and then hold for a long time. My investments do about as well as the broad market and I have almost no trading costs. Even if some doofus thinks he can beat the market (no, they can't), he'll eat up 1-2% of his money on fees.
So let folks be stupid and market time and talk about dead cat bounces and triple witching hours and other mumbo jumbo. In the long-run I will beat the vast majority and I will do so with very little effort on my part.
The reality is the only investors who can beat my strategy are active investors who are involved in the management of the assets they own (like Buffett) and those with insider information (real insidr info, not what your brother in law told you at the cocktail party). So, let the market tank for a couple hours, a couple days or even a couple years. I couldn't care less.
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by7-Vodka ( 195504 ) writes:
You couldn't care less...
Maybe you should know that the big banks who do HFT also co-locate inside the exchanges and front run orders making hundreds of billions per year.
Also, you might want to know that if the market crashes and restarts like today the big banks can get their losing trades reversed and you can't.
All the profit they're making has to come from somewhere. Are you so certain it doesn't come out of your pocket?
byMyLongNickName ( 822545 ) writes:
Can you please cite a source?
bykilfarsnar ( 561956 ) writes:
Here ya go. That wasn't hard.
http://www.globalresearch.ca/computerized-front-running-and-financial-fraud/18809
http://247wallst.com/2012/12/04/high-frequency-trading-a-grave-threat-to-the-markets-and-the-economy/
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bykilfarsnar ( 561956 ) writes:
Sorry, is my argument from authority not authoritative enough?
byMyLongNickName ( 822545 ) writes:
I don't see where the articles address the "reversing of losses" that the GGP cited. HFT may be flawed, but I don't see the items I questioned being addressed.
bywaterbear ( 190559 ) writes:
I don't see where the articles address the "reversing of losses" that the GGP cited. HFT may be flawed, but I don't see the items I questioned being addressed.
Yes, the questions were raised: Look in the '247wallst' article at http://247wallst.com/2012/12/04/high-frequency-trading-a-grave-threat-to-the-markets-and-the-economy/ [247wallst.com] and search for 'why' as in 'Why were the orders canceled?'
In other words, by some unknown mechanism, certain market participants were able to have second thoughts about their trades.
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byAnonymous Coward writes:
As someone who also buys-and-holds, yes, I can be sure it doesn't come out of my pocket. It's coming out of the pockets of:
1) Day traders.
2) Other HFTs that aren't as good.
●ent threshold.
byTsuruchiBrian ( 2731979 ) writes:
The money might be coming out of the pockets of other investors. It also might be coming from efficiency that HFT enables, The economy is not a zero sum game. Efficient allocation of resources leads to less waste and more total wealth. I am not saying that their gains are not to the detriment of others, I am just saying that they aren't necessarily. Also, nobody is forced to invest in the NYSE. They only people getting screwed are people who signed up.
Anyone who thinks the stock market isn't gambling
byJane Q. Public ( 1010737 ) writes:
"The money might be coming out of the pockets of other investors. It also might be coming from efficiency that HFT enables"
I don't know that I'd call it "efficiency". Ease, maybe. Not the same thing.
"Efficient allocation of resources leads to less waste and more total wealth."
Show me where HFT leads to efficient of allocation of resources. I do not agree at all.
Trading in goods leads to efficient allocation of resources. But HFT today happens FAR too fast to have much impact on physical goods or manufacturing. It's only "efficient allocation of resources" if you consider numbers in a computer to be resources.
And in exchange, as this event demonstrates, we have to contend with dangerous and unhealthy volatility.
The Stock Market was intended to "efficiently allocate resources" when stocks represented actual investment in actual goods and services. Today, as often as not they are just derivatives being shuffled around, which don't much affect "resources" other than cash in somebody's pocketbook.
It's hardly anything anymore but a big casino. And even worse, with HFT it isn't successful companies that gain or lose, it's whoever can place his bet first. People who think that makes for a healthy market are off their nut.
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byJane Q. Public ( 1010737 ) writes:
s / place his be / place his bet
byTsuruchiBrian ( 2731979 ) writes:
Lets say Alice is willing to sell a share for $10. Bob is willing to buy a share for $20. A HFT sees this discrepancy and immediately buys the share from Alice for $10, sells it to Bob for $20 and makes $10 profit just by being quick. This is the basic idea of what it happening, but because you have many companies competing to do HFT, the differences in buy/sell prices end up being much smaller.
What actually happens is this. The price is of a share is $20. Bob puts out a bid to buy a share at $15. No on
byJane Q. Public ( 1010737 ) writes:
"A HFT sees this discrepancy and immediately buys the share from Alice for $10, sells it to Bob for $20 and makes $10 profit just by being quick."
I know how it works.
"... but because you have many companies competing to do HFT, the differences in buy/sell prices end up being much smaller."
It's more a function of the frequency than the volume. But yes.
"Once the price gets to $14.99, an HFT catches the discrepancy and buys the $14.99 share from Alice and sells it to Bob for $15."
As far as I am concerned, you're just repeating yourself here.
"An HFT could have made more money by waiting until the price dropped to like $10 and selling to Bob for $15, making $5 profit, except that another HFT would have jumped on the opportunity way before the price dropped to $10."
I *KNOW* how it works.
"The efficiency created is that the price of shares is very quickly equalized across different trades and different markets. Because of all the actions of all the trading (a large part being HFT), we know the price is $15. In fact Alice can offer to sell for $14.99 and an HFT will buy the share before Bob even places his bid for $15.01, because the HFT has calculated that someone will offer at least $15."
But that's efficiency of "The Market". That's not "efficient allocation of resources". Not the same thing.
"It is not the trades between the HFT that has positive effects on the economy. It is the trade between the eventual buyer and seller that might not have happened (or happened so quickly) that was facilitated by HFT that helps the economy."
And now we're back to square one. I understand what you are saying: that HFT helps the market find it's equilibrium value faster. And that may be true, in theory.
However, the reality of HFT has been imperfect algorithms and market mista
byJane Q. Public ( 1010737 ) writes:
s / equilibrium value / equilibrium price
byTsuruchiBrian ( 2731979 ) writes:
But that's efficiency of "The Market". That's not "efficient allocation of resources". Not the same thing.
The efficiency of the market leads to efficiency of allocation of resources. This is pretty standard Adam Smith kind of stuff. I don;t know why this would even be a point of contention. It seems obvious to me that markets are facilitating the allocation of resources by deciding winners and losers.
HFT adds market liquidity. Market liquidity is good.
Does HFT causes positive feedback loops? I would say in general it doesn't, but there can be some short term positive feedback loops that eventually get corre
byluis_a_espinal ( 1810296 ) writes:
You couldn't care less...
Maybe you should know that the big banks who do HFT also co-locate inside the exchanges and front run orders making hundreds of billions per year.
Also, you might want to know that if the market crashes and restarts like today the big banks can get their losing trades reversed and you can't.
All the profit they're making has to come from somewhere. Are you so certain it doesn't come out of your pocket?
Profits are not finite, or more precisely, bound in such a manner that forces someone's win to match someone's losses.
byBacon Bits ( 926911 ) writes:
Profits are not finite, or more precisely, bound in such a manner that forces someone's win to match someone's losses.
Don't be silly. Profits are bounded by the value of good and services produced. That is to say, they're bounded by the economy. The value of goods and services produced is finite -- you can only produce so much in one day -- so is the gross revenue, and therefore so are the net profits. Even in the digital world where you could theoretically produce quadrillions of digital licenses of valuable software at the same price, the money supply limits you. You couldn't sell 5 quadrillion licenses for WinRAR s
byBacon Bits ( 926911 ) writes:
Crap forgot to add the important part. Sorry about that:
Because the money supply is limited, just as the quantity of goods and services are limited, so, too, must net profits be a zero-sum game. If someone doesn't give you their money, they're going to give it to someone else or keep it for themselves. You can't get that profit back. You have to get profits elsewhere, but the fact that you lost a sale to A doesn't mean you can make a sale to B. It just means you can't make a sale to A and B both.
byAlgae_94 ( 2017070 ) writes:
I follow similar investment strategies, and here's my take:
Maybe you should know that the big banks who do HFT also co-locate inside the exchanges and front run orders making hundreds of billions per year.
That's very nice that those banks are making money. Front running is illegal already. This practice may affect my purchase prices by a couple pennies if true. That is miniscule compared to the gains realized over holding a good investment long term.
Also, you might want to know that if the market crashes and restarts like today the big banks can get their losing trades reversed and you can't.
If I'm a long term investor, I generally have no trades on a given day, therefore, I have no trading loses to reverse. If I were going to trade an investment, I would have established what I believe the value to be. If the market went awry like today and the prices where not what I thought the values were, I WOULD NOT TRADE DURING A PANIC.
All the profit they're making has to come from somewhere. Are you so certain it doesn't come out of your pocket?
The profit of every company and individual has to come from somewhere. Why would I assume it's at my expense with no evidence that it is?
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bydelt0r ( 999393 ) writes:
I WOULD NOT TRADE DURING A PANIC.
That's what everyone says, until they panic.
byAnonymous Coward writes:
Actually, front running is illegal, and if you as a retail customer call your broker and have a valid reason (and sometimes if you dont) your trade will be broken. Would be much harder for an institution to do so.
byfrinkster ( 149158 ) writes:
You couldn't care less...
Maybe you should know that the big banks who do HFT also co-locate inside the exchanges and front run orders making hundreds of billions per year.
Also, you might want to know that if the market crashes and restarts like today the big banks can get their losing trades reversed and you can't.
All the profit they're making has to come from somewhere. Are you so certain it doesn't come out of your pocket?
HFT exists to take advantage of arbitrage situations. They are reactive to changes in the market and colocating inside exchanges helps them to react quicker. It is certainly a profitable venture, as you can see.
Big Banks do not get any sort of priority over anyone else when having trades reversed. For starters, you are certainly not trading on the exchange for yourself, are you? You have a brokerage account, right? In that case, broker XYZ made the trade in their name. Your ownership of that stock exi
●h your current threshold.
byalexander_686 ( 957440 ) writes:
I will point out something to buy and hold investors
The Bid / Ask spread has dropped by 90% in the past 30 years. You used to pay .5% to 2% for each trade – not it basically nothing. Moving to decimalization helped, but it is the HFT that really collapsed the spread. This is even truer for ETFs then for normal stock.
The fees that mutual funds and ETFs (which a lot of buy and hold investors hold) have also collapsed the past 30 years. Specifically for index funds, they have fallen by 90%. There are a lot of reasons for this, but about a quarter to a third is lower trading costs, which can be traced backed to HFT.
So, you save about 1% to get into a investment, and about .25% each year if that investment is a mutual fund.
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bygirlinatrainingbra ( 2738457 ) writes:
Yeah, but even if the transaction cost has decreased, they can screw you over in other ways, like timing your sale for the time of day they want to say it occurred so that you get the lowest possible price and timing your purchase for the time of day so that you get the highest possible price. The big brokers, as market makers, can game your transactions so as to make themselves, as market makers, the most amount of money and still be able to say with a straight face that "they carried out your transaction
byggraham412 ( 1492023 ) writes:
What does any of that have to do with HFT?
bygirlinatrainingbra ( 2738457 ) writes:
dude, read the GP post. I was replying to the GP post's contention that HFT has helped everyone, including the buy-and-hold-er by decreasing transaction costs. I respectfully disagreed. You may need to read in "thread mode" to see the give-and-take of the conversation to which I was responding. :>)
bykhallow ( 566160 ) writes:
Again, what does that have to do with HFT? HFT is not a huge label covering every way that you can get screwed on the stock market. It's trades that happen on a very short time scale. The gimmicks you mention can be done with human traders and don't require HFT.
bygirlinatrainingbra ( 2738457 ) writes:
True, and what did the initial hacking of the AP Twitter account have to do with HFT? Has anyone shown definitively that any burps that occured in HFT transactions were caused by the algorithmic automatic trading or that they occurred because of human intervention? Again, I replied to the contention of the (prior) GGP post, not to the concept of HFT in general.
bykhallow ( 566160 ) writes:
Has anyone shown definitively that any burps that occured in HFT transactions were caused by the algorithmic automatic trading or that they occurred because of human intervention?
Oh, ok. That is a good point.
To answer your question, I haven't seen any such evidence. However, there are a number of quotes [bloomberg.com] from market professionals indicating that the market reaction to the twitter message was very fast. They might be lying - if one did fall for the message, it would be extremely embarrassing and damaging to your business if it became known that you lost a portion of your customers' investment portfolios to a fake news twitter.
But showing the involvement of HFT would require an a
byAnonymous Coward writes:
Did you know those trades in those "dark markets" get printed to the tape too?
bylgw ( 121541 ) writes:
timing your sale for the time of day they want to say it occurred so that you get the lowest possible price and timing your purchase for the time of day so that you get the highest possible price.
My broker offers me a 2-second execution guarantee on most trades. Maybe you should look into that.
The big brokers, as market makers, can game your transactions so as to make themselves, as market makers, the most amount of money and still be able to say with a straight face that "they carried out your transaction as you requested".
I see my trades work as expected - if the bid or ask displayed is bigger than my transaction, I get that price or better. If the market is thin I'll use a limit or stop order to make sure I don't get burned. It's good to pay attention to this stuff when trading, but really it's not like a broker is going to cheat his customers without it getting noticed.
They can also play on the "dark markets" where bigger transactions and movements occur, so that the rest of the market and the little schmoes never really see the momentum of the full market.
The best scam of the past few decades was conning a co
byAnonymous Coward writes:
I am fairly sure no dark pool is allowed to execute outside of the national best bid and offer, at least for non-block trades
http://en.wikipedia.org/wiki/Regulation_NMS
●ath your current threshold.
byalexander_686 ( 957440 ) writes:
No, mutual funds have trading expenses - because we are talking about the fund's trading costs - not yours. What do you think happens when you buy some shares of a mutual fund – that the portfolio manager sits on the cash you just sent in? No, they take your money and invest it – i.e. buy stuff with it – i.e. trade with it. And those trades are not free – trust me on that. Even if you sit and hold you position in a index mutual fund, other people will be buying into and selling out o
byfeynmanfan1 ( 1803416 ) writes:
Don't HFT strategies constantly submit and cancel bids very rapidly in order to gain market information and so naturally decrease bid/ask spread? Where this might hit the buy and holders is by distorting the market, for instance the last 6 years of s&p market volatility has been on the high side. Coincidentally, volatility increases the profitability of most HFT strategies. I've also heard a HFT guy argue for the value of price discovery produced by HFT, to that I ask do the value of things in the re
●ath your current threshold.
byNadaka ( 224565 ) writes:
You should care about HFT.
When you place a bid to buy a stock, A HFT can see that bid, use canceled offers to find the maximum you will pay and and canceled offers to find the lowest the market offers, then buy up stock to fill your bid and sell it to you. All within a fraction of a second and never having to go through with any of those intermediate canceled bids. HFT is a gigantic siphon that removes value from the market by ensuring sellers get the lowest price possible and sellers get the highest price
byNadaka ( 224565 ) writes:
edit: that second "sellers" should have been buyers.
byTsuruchiBrian ( 2731979 ) writes:
The market is not supposed to be "fair" in the sense that we should all profit the same amount. The market is fair in that people play by the same rules. If you think HFT is easy money, then you can invest in a company that does it and be guaranteed immense profit.
HFT doesn't necessarily remove value from the market. This assumes that the market's value is static. Yes they are making money, but they are also crunching a bunch of numbers constantly and causing the prices of stocks to quickly converge to
byPoolOfThought ( 1492445 ) writes:
I read your comment about why one should care about HFT, and it all sounds sinsister and scary, and yet, as the buyer you still get the stock at exactly the price you said you were willing to pay. Sure you might have gotten it for less (maybe) without these other automated traders, but if you wanted it for less then you could have simply bid less and gotten it at that lower price. The HFT would have still satisfied your bid as long as there was a profit to take, right? And if it was a perfectly even trade t
bylgw ( 121541 ) writes:
Fake bids or asks that you never intend to carry through on are already illegal, HFT or not. There's plenty of money to be made by being the first to trade on a headline, and by helping buyers and sellers find a common price in the middle (when the buyers and sellers aren't there quite at the same time - that time arbitrage what a market maker does).
byrodarson2k ( 1122767 ) writes:
I'm sure glad that HFT exists to help me reach my common price in the middle within 9 microseconds instead of two seconds. I was really pissed off in the late 90s when my stock order had cleared only a few seconds before my browser page had updated.
It's much better now that the order's cleared a few dozen milliseconds before the packet confirming placement of my order has made it back to me.
To liquidity, AND BEYOND!
bylgw ( 121541 ) writes:
If you're trading at "market price", you'll get a noticeably better price now than in the 90s, as the bid/ask gaps are much smaller with competing market makers. If you're placing a stop/limit order, the broker's fee for those has come way down - often the same as a market order. It costs me less to trade now, I can worry less about getting screwed on a market order, and since I'm not trying to day-trade there's no downside.
bygatkinso ( 15975 ) writes:
Whew! I am relieved! For a second there I was under the impression that the price little guys pay for stock doesn't reflect these shenanigans. Thanks for clearing that up!
byAnonymous Coward writes:
The normal average investors cannot beat your strategy.
A shitload of HFTs and other people can and do, and are stomping your strategy to death and making it less profitable.
● your current threshold.
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