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HFT Nothing To Worry About (at Least In Australia)

timothy posted about a year ago | from the three-crocs-for-a-lorry-of-shrimp-fair-dinkum dept.

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)."

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Obviously? (2)

fuzzyfuzzyfungus (1223518) | about a year ago | (#44040559)

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? (4, Informative)

ebno-10db (1459097) | about a year ago | (#44040657)

Don't laugh. I had a friend who was working on doing parts of HFT in FPGA's because the software wasn't fast enough.

Re:Obviously? (-1)

Anonymous Coward | about a year ago | (#44040893)

Did you know that I have an asshole...? Did you know that sometimes said asshole is used to do various things...? Did you know... that I sometimes expel flatulence from the asshole of which I speak? Let me make it clear to you what I am saying: I sometimes fart out of my very own asshole. The asshole that is my asshole is used by myself to shoot farts out of! Such a thing!

Re:Obviously? (0, Offtopic)

pitchpipe (708843) | about a year ago | (#44041759)

... I sometimes expel flatulence from the asshole of which I speak ...

You must have terrible breath.

The Real HFT Truth (1)

Anonymous Coward | about a year ago | (#44043879)

In 2006, BHP (one of the busiest tickers on the ASX) saw an average of around 1.6million trades per day (20 non extraordinary business days).

Yesterday the average was ~72k trades. Furthermore the ADV has dropped by 80% over the same period.

HFT only works if there's serious momentum in a ticker's price direction (up or down). The HFT systems detect the momentum before anyone else and take advantage of it - if no one's trading there's no momentum to be had hence no profit - worse still is that if the HFT corp is a market maker or similar, they may have to take a loss so as to meet exchange obligations so as to be entitled to rebates based on resting orders they placed which were executed.

The other way HFT works is by arbitrage. The ASX has a competitor called ChiX that lists all it's major tickers in a colo close to the ASX primary matcher (~3ms RTT colo2colo). The problem is that the spreads are near identical on both exchanges nearly all the time for all the majors, even though its cheaper to trade on Chi-X, so there's very few arbitrage opportunity for the HFT crowd to profit from.

It is pretty easy to do a google for "site:linkedin.com sydney" where is Tibra or Optiver or Liquid Capital or Boronia (Grinham) or SIG and notice how there's a lot more people listing those places as past instead of current (specially Liquid Capital)

A lot of these companies were making money hand over fist during the GFC (because of price volatilities) and nothing else (no special quant math based prediction models etc), now that the volatility is down, trade volumes are down and there's a lot more of them in the market, they're not able to make as much or any profits, hence the huge turnover in staff - Remember this is not an issue of mistakenly employing someone who can't do fizzbuzz (at 150K base +up to 30% bonus, they make sure they know what they're getting).

And that's why you see the likes of Tibra and co trying to hire like crazy anyone and everyone how ever did a machine learning or financial engineering course at uni - they think that if they can even slightly increase the sophistication of their trading strategies from the simple "quickly buy low then sell high" technique that it will allow them to get back on top, make profits and possibly help support Danny's dream of one day being the next 20-20 day/night Packer.

Screw The Big Traders (3, Insightful)

DexterIsADog (2954149) | about a year ago | (#44040569)

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.

Re:Screw The Big Traders (-1)

Anonymous Coward | about a year ago | (#44040637)

"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.

Re:Screw The Big Traders (2, Insightful)

DexterIsADog (2954149) | about a year ago | (#44040721)

Since you apparently only learned to read yesterday, I'll just suggest you google HFT and the big houses' access to market data a few milliseconds earlier than the rest of the world, and let you educate yourself. You probably don't think much. Ever.

Re:Screw The Big Traders (-1)

Anonymous Coward | about a year ago | (#44040835)

Please do us all a favor and move to Greece where you can live out your euro-socialism fantasy without bothering the rest of us.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44040953)

Nice ad hominem, hopefully you don't use that line of arguing on children, it's a form of abuse.

Not ad hom, evidenced conclusion (0)

Anonymous Coward | about a year ago | (#44042941)

But with that neophyte error you've shown that you're fucking clueless.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44040817)

Good luck getting a thoughtful AND informed take on HFT here. You might get one or the other, but not both!

Re:Screw The Big Traders (1)

kajsocc (2955535) | about a year ago | (#44042785)

Good luck getting a thoughtful AND informed take on HFT here. You might get one or the other, but not both!

Ah, you must be referring to quantum argumentation and the political uncertainty principle.

Re:Screw The Big Traders (5, Insightful)

swan5566 (1771176) | about a year ago | (#44040897)

"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...

Re:Screw The Big Traders (1, Informative)

TsuruchiBrian (2731979) | about a year ago | (#44041687)

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.

Re:Screw The Big Traders (4, Insightful)

Hatta (162192) | about a year ago | (#44041829)

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.

Re:Screw The Big Traders (2)

TsuruchiBrian (2731979) | about a year ago | (#44042081)

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 student loan or a car loan or a mortgage. You should also lend other people money interest free so they don't need to turn to immorally usurious banks.

Re:Screw The Big Traders (2)

Hatta (162192) | about a year ago | (#44043053)

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 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.

You should also lend other people money interest free so they don't need to turn to immorally usurious banks.

I'd go even further and abolish the idea of lending and private ownership of capital. Whoever needs the resources most should get them. This should be determined democratically, instead of autocratically.

Re:Screw The Big Traders (1)

TsuruchiBrian (2731979) | about a year ago | (#44043329)

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 there exists a capitalist economic system in this country, does not mean you are required to participate in it. Nothing is stopping you from helping others or being helped by others, and benefiting from group solidarity.

I'd go even further and abolish the idea of lending and private ownership of capital. Whoever needs the resources most should get them. This should be determined democratically, instead of autocratically.

I'm not going to get dragged into a capitalism vs. communism debate. They are 2 completely different systems that value different things (production vs. fairness). I don't think anybody who believes in capitalism should be taking advice on how to deal with HFTs from someone who does not even believe in private ownership of capital.

Re:Screw The Big Traders (1)

Hatta (162192) | about a year ago | (#44043677)

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 to do that unless I please the owners of the means of production.

Re:Screw The Big Traders (3, Interesting)

aaarrrgggh (9205) | about a year ago | (#44042015)

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.

Re:Screw The Big Traders (3, Insightful)

ggraham412 (1492023) | about a year ago | (#44041329)

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.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44041781)

Doesn't all that better technology require the biggest pile of money?

Re:Screw The Big Traders (1)

ggraham412 (1492023) | about a year ago | (#44042931)

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.)

Re:Screw The Big Traders (1)

dintech (998802) | about a year ago | (#44041827)

As someone who works in equities IT for one of the big firms I can confirm that we IT people at least, like HFT customers less than others. They can add sometimes unexpected ramp-ups in data that can cause already-creaking systems to fall over, 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.

What it comes down to is that they cost a lot to support (force investement in systems) but don't always deliver as much value as other more lucrative clients that trade using our algos rather than HFT DMA merry-making in our dark pool.

Re:Screw The Big Traders (4, Insightful)

Hatta (162192) | about a year ago | (#44041787)

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?

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44042627)

"Actual" trades sound like "true" Scotsmen.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44043435)

Only if you're a moron.

Oh, that means you are.

Carry on then.

Re:Screw The Big Traders (1)

ggraham412 (1492023) | about a year ago | (#44042915)

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.

Re:Screw The Big Traders (2)

Hatta (162192) | about a year ago | (#44043209)

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 know where to find that black velvet Elvis, but everyone knows where to find stocks. That's what exchanges are for.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44042099)

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?

Kind sir, please hand me the keys to your car and home. I will sell the car and spend 5% of the profit on charity. That'll take care of the social value of this transaction.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44040729)

Oh yes, just what we need. More government regulation and higher taxes. Who could possibly argue with that.

Re:Screw The Big Traders (2)

punker (320575) | about a year ago | (#44040781)

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 participants). What they provide is liquidity. When you place your order, the HFT programs are often buyer that make sure your order clears as you entered it. They do capture a very small amount of bid-ask spread (on the order of .1 cents/share these days), but they aren't taking it from the traders. They are really taking it from the market-maker banks that clear the orders. These banks have always captured the bid-ask spread (the positive difference in price between the seller's price and the buyer's offer). And this is where the positive part of HFT comes in. Spreads used to be fairly large (on the order of 10 cents/share in the late nineties). Now, they are measured in tenths of a cent. So the buyer and seller (i.e. the people in the market) now keep 9.9 cents of the 10 cents they used to lose to the market maker banks, because the HFTs keep spreads tight.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44041125)

Liquidity my ass.

When the shit hits the fan and the pixels all turn red, these HFT traders will simply pick up their marbles, drive home to the Hamptons, and watch the riots on TV.

Re:Screw The Big Traders (3, Interesting)

Anonymous Coward | about a year ago | (#44041431)

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 market would really bear and X gets a little less than the market would really bear. Both buyer and seller are in effect screwed in the deal. The only one who wins is the middle man.

This has the effect of over inflating the real true market value by on average abs(x - y)/2. Now do that several billion times per day.

HFT is not about liquidity. It is about pocketing the difference because person 1 does not talk directly to person 2.

Want to know what squeezed out the margin? The internet. People can more closely see what is going on at a much faster pace. So the difference between x and y is much smaller.

Re:Screw The Big Traders (2)

ggraham412 (1492023) | about a year ago | (#44043137)

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.

Re:Screw The Big Traders (0)

Anonymous Coward | about a year ago | (#44042959)

So many pearls before swine.

Re:Screw The Big Traders (1)

garyebickford (222422) | about a year ago | (#44043791)

haha. true. :D

Re:Screw The Big Traders (1)

lgw (121541) | about a year ago | (#44041005)

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. That can be quite a hefty profit, and has nothing to do with "a small percentage on each trade". That's what motivated the technology for sub-millisecond trading - being the first to trade on news is worth a lot - and when that infrastructure is used in market making you get HFT.

Finally, HFT is sometimes used in illegal ways - e.g. pretending to offer something for sale, then cancelling the offer before it can clear - but that stuff is already illegal and we really need to stop making new laws about doing already-illegal stuff "on a computer".

Two stories? (1)

CohibaVancouver (864662) | about a year ago | (#44040575)

*Two* HFT stories on Slashdot's home page? Well played editors, well played -

This a pet topic for these guys?

http://news.slashdot.org/story/13/06/18/0257224/have-we-hit-peak-hft [slashdot.org]

Re:Two stories? (1)

ottothecow (600101) | about a year ago | (#44040785)

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.

Re:Two stories? (1)

ggraham412 (1492023) | about a year ago | (#44043183)

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.

Re:Two stories? (1)

Anonymous Coward | about a year ago | (#44042721)

This is probably because some Slashdot insider saw someone else preparing a story, so they rushed one out to beat them to the front page. Why research which story will get you the most page views, when you can take advantage of someone else's information?

HFT (4, Insightful)

girlintraining (1395911) | about a year ago | (#44040631)

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.

Re:HFT (2)

moosehooey (953907) | about a year ago | (#44040873)

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 (0)

Anonymous Coward | about a year ago | (#44041391)

There are other things which hurt the average trader a lot more than HFT but they're mostly unknown.

Please share then?

Re:HFT (4, Interesting)

moosehooey (953907) | about a year ago | (#44041607)

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]

Re:HFT (1)

girlintraining (1395911) | about a year ago | (#44042667)

Okay, not that I'm disagreeing with anything you have to say but... what does any of that have to do with HFT?

Re:HFT (0)

Anonymous Coward | about a year ago | (#44043139)

It was a direct response to a request to share things BESIDES HFT that hurt the average trader.

Can you honestly not follow a discussion that's only 4 replies deep?

Re:HFT (0)

Anonymous Coward | about a year ago | (#44040895)

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. Theyw ill soon stop using that trick.

Re:HFT (1)

Rockoon (1252108) | about a year ago | (#44041131)

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 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' .. the solution is 'less regulations, specifically the ones creating the problem'

Re:HFT (0)

Anonymous Coward | about a year ago | (#44041143)

>>"What you need to understand about profit is that it is always at the expense of someone else."

This sounds more like a rant against capitalism than HFT.

So is it not possible for two people to engage in a business transaction that is mutually beneficial to both?

Re:HFT (0)

Anonymous Coward | about a year ago | (#44042207)

Mutually beneficial != profit. Excepting the case of bank robbery or some other illegal activity...

If one side is selling something, the other side does not gain profit as a direct result of the transaction. If they intend to get profit, it would come from a subsequent transaction (indirect result). So, yes...it is not possible. :)

anti-markets, not anti-capitalism (0)

Anonymous Coward | about a year ago | (#44042411)

"What you need to understand about profit is that it is always at the expense of someone else."

This sounds more like a rant against capitalism than HFT.

No, it's even stupider than that.

It's not anti-capitalism, it's anti-markets. Even if the proletariat siezes the means of production, this guy's statement will be sitting there, making the proletariat to be a bunch of bad guys whenever their communist factories sell anything they produce.

It's so stupid, that your brain failed to believe how amazingly stupid it was. It's like you're standing next to a wall, and you glance at it, and see a ten-foot-around circle. "Huh, a big circle. Weird. Whatever." But I look at the wall, and realize: that's Cthulhu's pupil. You're not to blame. You're not stupid for thinking that's a circle on a wall. I don't fault you a bit, and I prefer your world. But you're wrong. Just like you were wrong about the magnitude of how stupid the GP is.

Re:HFT (0)

Anonymous Coward | about a year ago | (#44041225)

These fractions of a penny here and there add up because it gets compounded by interest rate.

Interest rate compounding has nothing to do with it. You do it a hella lot and that adds up. If you have a penny, with the current interest rate compounding at the end of the year you'll have ... a penny. Ok, assuming you're one of the privileged few who can access the Fed funds rate, you'll then have ... a penny and about a thousandth of a penny. Meaning about 0.1% interest rate. Banks won't even give you that. So best of luck on that compound interest.

--
captcha: increase

Re:HFT (1)

kajsocc (2955535) | about a year ago | (#44041493)

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 more objective form of profit. But it still doesn't necessarily come at the expense of someone else! I could just be a retailer: as a business, I buy apples from people, cheap, but I aggregate (or deaggregate) them, hold them for a while, have to get rid of the ones that don't sell, to stick prices on them, to handle the credit card transactions, to do the advertising, buy the building and parking lot, etc. etc. But you're still willing to sell me that apple for "half price", because you don't want to have to deal with any of that stuff, and we're both okay with that. We *still* both benefit.

I'm not saying profit never comes at the expense of someone else, not at all. Theft is an obvious example. Even in a supposedly clear, negotiated trade it can happen: for instance, if you're unaware of the true value of what you're giving up (or getting)--this is called asymmetric information. In extreme cases, this can amount to fraud.

But to say profit is *always* at someone else's expense? Far from it.

Sometimes I think *de*regulation is the answer (3, Interesting)

ron_ivi (607351) | about a year ago | (#44040653)

People keep saying that HFT needs to be regulated to avoid crazy spikes and crashes due to algorithms with stupid positive feedback loops.

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 (5, Insightful)

girlintraining (1395911) | about a year ago | (#44040765)

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.

Re:Sometimes I think *de*regulation is the answer (1)

Anonymous Coward | about a year ago | (#44040967)

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 that people learn about markets, about logistics, about profit per hour (just profit is for noobs).

Re:Sometimes I think *de*regulation is the answer (1)

kajsocc (2955535) | about a year ago | (#44042151)

I wouldn't say EVE is purely unregulated. First of all, the developers make conscious decisions about what prices they would like to see for certain things and what incomes should be obtained for various activities, and (try to) adjust the item creation and/or disposal mechanisms to direct the economy. There are also (unsubstantiated, AFAIK) claims that the developers use confiscated assets from banned players (botters, real-money traders) to adjust PLEX prices. And speaking of botters and RMTers: that's some regulation right there, moreso of botters than RMTers.

I think these activities by a central authority, taken to affect the market according to what they feel is good or to protect other players, are tantamount to regulation. That said, I certainly wouldn't call EVE as regulated as RL markets.

Re:Sometimes I think *de*regulation is the answer (4, Informative)

girlintraining (1395911) | about a year ago | (#44042855)

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.

Re:Sometimes I think *de*regulation is the answer (1)

kajsocc (2955535) | about a year ago | (#44042051)

They don't take the rest of us with them. HFTers are often trading their own stock, or the stock of others who have already agreed to it; if HFTers make mistakes and lose it all, it's on them. I say if they make mistakes, let them fail. If they are trading neither their own stock nor the stock of others who have already agreed to it, they may be criminally liable for fraud (IANAL).

To be more explicit: If you own 10 shares of stock, it doesn't matter if there's a flash crash for a few minutes while people get their algorithms back in shape. You still have 10 shares of stock through the whole thing. You don't gain or lose *anything* unless you make a trade before the price returns to its sane level. Any changes in the value of your portfolio when you make no trades are known as "unrealized" gains/losses which represent the dollar-value you would have *if you were to make a trade at that time*. When you make a trade, you "realize" that gain or loss.

But I understand your concern: businesses do typically pass their costs on to their consumers, and I won't say there is no regulation needed. I believe what is needed is that it be very clear whether or not *your* shares are being traded without your explicit consent for every trade. Arguably, this is already the case, as investment banks are required to inform people of what they're investing in, and in this case, they may be investing less in stocks than in high-frequency trading algorithms. That should *not* happen unless the customer knowingly allows it.

Re:Sometimes I think *de*regulation is the answer (0)

Anonymous Coward | about a year ago | (#44042111)

If this were an unregulated TRUE free market, the idea of something being "too big to fail" doesn't exist. They would be big, and they would fail. Then the medium sized businesses that were doing sane things would buy them out for pennies on the dollar, and would then become the big business.

Re:Sometimes I think *de*regulation is the answer (1)

deego (587575) | about a year ago | (#44043775)

>> 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.

That argument is the logical equivalent of justifying Crime B because somehow it balances out Crime A.

Re:Sometimes I think *de*regulation is the answer (1)

HornWumpus (783565) | about a year ago | (#44040783)

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.'

Re:Sometimes I think *de*regulation is the answer (0)

Anonymous Coward | about a year ago | (#44040797)

Good lord! Who pays for stability when the banks or big business flounders en masse

Hint: It's not big business or the banks

NO THANKS

Re:Sometimes I think *de*regulation is the answer (0)

Anonymous Coward | about a year ago | (#44040859)

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.

Maybe I misunderstood you, but I think what you're saying is that without regulation, the banks will be more careful before executing a trade after learning their lessons.

WHERE HAVE YOU BEEN THE LAST FIVE YEARS? Have you not read the news about banks shitting all over us (the 99%)? If HFT is not regulated, the (rich) people running these transactions will continue toying around with our moneyand who will end up paying for it if all goes to shit (which it will)? The 99%you and I. Since it seems like we're not gonna properly start prosecuting those assholes who lost our money in the last economic crash, they will never learn. I would rather have these transactions be regulated to mitigate the chance of something like that happening again.

Yours truly,
AC

Sometimes I think people have no memory (1)

bussdriver (620565) | about a year ago | (#44041043)

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 the USA - it is slow but it'll do the trick.

Re:Sometimes I think *de*regulation is the answer (2)

ShanghaiBill (739463) | about a year ago | (#44041153)

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 crash.

Re:Sometimes I think *de*regulation is the answer (2)

Too Much Noise (755847) | about a year ago | (#44041385)

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 (1)

kajsocc (2955535) | about a year ago | (#44041751)

The issue at hand causing the disagreement you're seeing is that really that there are actually multiple kinds of "HFT". HFT is just high-frequency trading, which in simplest form is just trading more quickly than we've been able to do before. Very much more quickly.

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. (In fact, it is mathematically impossible for a market maker to reduce liquidity, other than by pulling out of the market (i.e., stop trading), just by virtue of how their trading method works: through limit orders, rather than market orders) Market making has been done for years and years and years, and was in existence well before HFT came along. People doing this used to be called specialists.

Other kinds of trading often, but not always, take liquidity, and are therefore capable of adding volatility. Most hedge funds, mutual funds, index funds will use this kind of trading. When done in HFT, it usually amounts to all the "evil" things or "dirty little tricks" you hear about when you hear about the bad side of HFT: frontrunning, tiny statistical arbitrage between similar stocks, paying to get market information microseconds before others, etc. In other words, this is the kind of HFT that gives the whole thing a bad name.

(By the way, the big "flash crash" came during a time of low liquidity, where a lot of market makers had already pulled out because the market was stressing their algorithms too much. This led to the stress overloading more market makers, causing them to pull out as well. A classic cascading failure. A lot of the algorithms that stayed in the market were the arbitraging algorithms, which weren't sure whether they were making huge amounts of money or losing it, because the prices were all haywire.)

Re:Sometimes I think *de*regulation is the answer (1)

Too Much Noise (755847) | about a year ago | (#44043113)

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 some exchanges still have it and it does use electronic quoting nowadays. However, this little detail does disqualify the majority if not all HFT shops from market making in the conventional sense.

Now, the good part that fast electronic trading does (which is not exactly the same as HFT) is pricing arbitrage between exchanges. Securities listed on multiple exchanges and/or in dark pools often enough get crossing prices, where one can arbitrate the difference and re-bring quotes in line. For example, when a price starts moving on one exchange (due to a block trade, let's say) price propagation is something that nowadays happens a lot faster. Similar things can be done with arbitrages between underlying instrument prices and derivative ones. If you choose to include this in HFT, then I'll grant you it's a good thing and it does improve liquidity[*]. It still does not make HFT players market makers, but arbitrageurs are good for price discovery[**]. However, you can't quite separate this part from the *ahem* 'evil' one, as you called it. It's simple market opportunity taking. Well, at least you cannot unless you start requiring a set of conditions that would make it unprofitable to engage in the behaviour you want to prevent.

Finally, going back to my original post, please do follow the link in there. It's not about 'the' flash crash, but one of the many single-stock flash crashes that happened since. This one was on GOOG, which is not an illiquid stock, and lasted less than 2 seconds. That's quite different from fat-finger crashes where extra-large orders are mistakenly placed and clear all the bids in the books on their way to the great below. (and btw, I do wish that my posts on this topic would stop getting irrelevant replies about the SPY flash crash when I'm not referring to that one and not even the same type of phenomenon)

[*] by decreasing quote spreads, which is the main proxy used for liquidity measuring. Still, I am yet to see convincing evidence for the part HFT played in this as opposed to the general improvement in connectivity between markets.

[**] However, having an option quote react faster to the price change of the underlying does not necessarily mean I'll get more liquidity for it. The liquidity question is thus tricker than it seems.

Re: Re:Sometimes I think *de*regulation is the ans (1)

kajsocc (2955535) | about a year ago | (#44043747)

Thanks for the informed reply. I'm aware that the crash you mentioned and the crash I mentioned are not one and the same. The link you gave provided little insight into its cause. Do you have any more information about it? The crash I mentioned wasn't due to a fat-finger trade either, just a really large trade placed as a hedge, but done in a time of low liquidity.

As for what I would consider HFT: it is a bit of a grey area and hard to draw a precise line, for which I'm sure you'll forgive me, but as I see it, it is entirely independent of the "why" the trades are being made, just the timing, and is a bit of a relative thing: how fast a trade is turned around, how new the information must be to act on it, and so on, somewhat relative to what everybody else is or had been doing. Things like holding a stock for 10 seconds before selling it, getting your orders in before anybody else, and so on, and doing this regularly and as part of a business model--these things I'd call HFT.

My focus is on the underlying mechanisms the trader/algorithm uses, not any kind of official designation or requirements. Automated market making would therefore in my opinion fall under this category, for most liquid assets. (For less liquid assets, trades are likely slower, so it'd be something I wouldn't consider high-frequency.) Officially designated market makers, under this perspective, are simply HFTers employed with a specific algorithm (make trades at the quoted prices) and specific requirements (always stay in the market / provide a minimum amount of liquidity at all times). In exchange for these requirements, they may get certain benefits such as liquidity rebates or better information.

I would like to point out that much of the debate as to whether HFT increases or decreases volatility hinges upon what exactly you consider to be HFT. If you take market makers and arbitratrageurs out of your definition, if you even can (you pointed out the difficulty here), I believe most of what is left is going to be those increasing volatility. And then you could say HFT increases volatility, or removes liquidity. But doing that seems a bit arbitrary to me. If you look at it from this perspective, I think you can understand why people make the claim that HFT reduces volatility or adds liquidity. How would you define the line and why would you put it there?

Re:Sometimes I think *de*regulation is the answer (1)

ShanghaiBill (739463) | about a year ago | (#44043207)

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.

Re:Sometimes I think *de*regulation is the answer (1)

kajsocc (2955535) | about a year ago | (#44043939)

The term frontrunning can be used to refer to the illegal practice of a broker placing his own order ahead of that of his customers', but it can also be used to refer to any practice which attempts to trade before another known trade, such as watching the trades in the market and determining, statistically speaking, when an index fund is re-weighting its positions, and buy/sell ahead of them on the stocks they haven't yet traded. The former is illegal, the latter (relying only on public information) is legal.

True arbitrage, say of the same asset between exchanges, does increase liquidity; I was unclear. I meant trading with non-equivalent (but similar) stocks; buying Coke when Pepsi goes up a fraction of a cent, and vice versa. Such a strategy can spread volatility from stock to stock. Alone, I would say it usually decreases volatility, but that it can also increase volatility as well, depending of course on what the other parts of the market (what it is arbitraging with or against) are doing. I believe the detractors primarily focus on the volatility increases, and the supporters primarily focus on the volatility decreases. *shrug*

Re:Sometimes I think *de*regulation is the answer (0)

Ryanrule (1657199) | about a year ago | (#44041477)

Liquidity IS volatility.

Re:Sometimes I think *de*regulation is the answer (1)

kajsocc (2955535) | about a year ago | (#44041591)

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)

Re:Sometimes I think *de*regulation is the answer (1)

Ryanrule (1657199) | about a year ago | (#44041691)

Ok now do volatility. Maybe you dont know what that word means.

Re:Sometimes I think *de*regulation is the answer (1)

kajsocc (2955535) | about a year ago | (#44041847)

Wiktionary says:

- A quantification of the degree of uncertainty about the future price of a commodity, share, or other financial product

And wikipedia says:

- In finance, volatility is a measure for variation of price of a financial instrument over time.

As liquidity increases, we can trade more without affecting the price much (leading to lower volatility, whichever of the above definitions you like); as liquidity decreases, smaller traders can have a large impact on the price (leading to higher volatility, again whichever of the above definitions you like).

Of course, I think you'll agree that the first definition is more difficult to measure objectively. Perhaps through option prices. Also, liquidity providers can pull out of the market at any time, so just because there's liquidity now doesn't mean it's going to be there in a few weeks, days, or even hours.

Re:Sometimes I think *de*regulation is the answer (0)

Anonymous Coward | about a year ago | (#44042331)

Hmm...

Liquidity [reference.com]
2: the ability or ease with which assets can be converted into cash.

Volatility [reference.com]
3: changeable; mercurial; flighty: a volatile disposition.
4: (of prices, values, etc.) tending to fluctuate sharply and regularly: volatile market conditions.
5: fleeting; transient: volatile beauty.

The more easily stocks can be "converted into cash" the more easily the price of said stocks is able to be manipulated to change/fluctuate. Which would be the opposite of a stable situation...

Re:Sometimes I think *de*regulation is the answer (1)

kajsocc (2955535) | about a year ago | (#44042649)

"Converting in to cash" means this: let's say I want to sell 1 share of GOOG. GOOG is trading at 900-ish right now. So I'd get about $900. Great.

But now let's say I want to sell a billion shares of GOOG. Every sale needs a buyer. Am I going to be able to find enough buyers willing to buy a billion shares of GOOG *all* at $900? No, probably not. I'll get $900 for the first share, maybe even the first ten shares. But after I've exhaused the buyers at $900 I have to start selling at $899.9999 or so. And then $899.9990 maybe, on down the line. (Also, trick question: it's impossible, there are only 331.77M shares of GOOG anyway. :P)

This phenomenon is called "slippage" and represents a lack of liquidity: it is harder to convert your assets into cash if doing so causes the price to drop as you're selling. If my first shares are sold at $900 and the last are 2% lower, then I'll probably have a slippage of about 1% on my sale, taken as a whole. GOOG is highly liquid, but nothing is going to be "perfectly liquid". When there is less liquidity, smaller traders can move the price more with their trades (by the very definition of liquidity). As such, the quoted price you see (which in the case of stocks is typically the price of the last trade) is often harder to predict or swings more (higher volatility).

But not all HFT is "adding liquidity" which is why there's a bit of a debate about whether HFT increases volatility or decreases it. The answer is that it depends on the kind of HFT.

Re:Sometimes I think *de*regulation is the answer (1)

girlintraining (1395911) | about a year ago | (#44042237)

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.

Re:Sometimes I think *de*regulation is the answer (1)

ShanghaiBill (739463) | about a year ago | (#44043075)

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.

Re:Sometimes I think *de*regulation is the answer (0)

Anonymous Coward | about a year ago | (#44043233)

... further de-regulated ...

You mean like derivatives? People have definitely forgotten what happened there.

What about when the US federal bank (company) told everyone to borrow against their house? Banks stopped doing due diligence because it was other people's money. No law against that.

What about Moody's or S&P giving 'AAA' ratings to loans held by jobless people? No need for due diligence again.

What about when AIG started selling 16 insurance policies on the one loan? A little thought reveals what will happen next.

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.

Nobody went to jail because so much of their activities were legal. Finance is essentially gambling with a big likelihood of winning (usually). It is difficult to prove that bankers willfully rigged the game. It's also why the LIBOR scandal, where bankers willfully rigged the game, can never be prevented.

Money is a law unto itself and any government that puts profit first is the boss of nothing (except military-industrial welfare).

Just tax it. (1)

darkwing_bmf (178021) | about a year ago | (#44040709)

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.

Re:Just tax it. (0)

Anonymous Coward | about a year ago | (#44041035)

More taxes!!! The solution to all the worlds problems.

Re:Just tax it. (0)

Anonymous Coward | about a year ago | (#44042685)

No taxes!!! The solution to all the worlds problems.

Tax everything. No, really! (1)

Overzeetop (214511) | about a year ago | (#44042907)

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 and reduce liability. OTOH, it would reward short supply chains (local suppliers would have an advantage over distributed goods), long term investments, and punish multi-layer shell corporations meant to shield/dodge local taxes and reduce liability.

I find it interesting that investment brokers, real estate agents, copier companies, energy supply companies - nearly everyone in business - basis their price on the cost of service or a fraction of the gross transaction, but the government only charges you based on your profit. Can you imagine if you offered to pay electric bill only if you made a profit, and you wrote the rules to minimize what constituted profit?

Must be getting cynical in my old age, (1)

neo-mkrey (948389) | about a year ago | (#44041121)

because when I read "ASIC decided to hold off on previously considered regulatory changes", the first thing I thought was somebody got bribed.

Oz is such a contradiction (3, Informative)

ThatsNotPudding (1045640) | about a year ago | (#44041369)

Austrailia has a world-wide reputation of being laid-back, easy going, and - sometimes - incredibly rational (real gun laws in response to mass killings).

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 (1)

reluctantjoiner (2486248) | about a year ago | (#44043469)

Unfortunately following our Great and Powerful friends into whatever folly they get themselves into has been Australia's foreign policy since federation.

HFT benefits small traders more than large ones (0)

argoff (142580) | about a year ago | (#44041421)

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.

Re:HFT benefits small traders more than large ones (0)

Anonymous Coward | about a year ago | (#44042279)

Are you saying that the playing field needs to be leveled to be more fair to the guys who have billions? Fuck, man, you might need to get that checked out.

Show Me.. (1)

SuperCharlie (1068072) | about a year ago | (#44041553)

So as an individual with say.. $2-$5k to play around with.. how do I get in on this HFT thing?

Re: Show Me.. (0)

Anonymous Coward | about a year ago | (#44041933)

Go to www.dukascopy.com For 5k you get direct access to an ECN network. As long as you know Java you can write a HFT. You can even upload your scripts to thier servers so your scripts run on the same servers that the broker uses.

It's not the number of trades that's the problem (1)

Eightbitgnosis (1571875) | about a year ago | (#44042057)

It's the latency afforded by buying rackspace directly within stock exchanges that poses a problem.

How does HFT work? (1)

MetalOne (564360) | about a year ago | (#44042169)

Lets just assume 100 shares and say player1 is asking $10.04 and player2 is bidding $10.00, and there are no other players. For starters, I don't really understand how a transaction happens at all here. It would seem that one of these two would need to modify their bid or ask. So now lets say you are a new player3 and are employing high frequency trading. The most obvious thing that comes to my mind is that you could get in the middle of this and buy at $10.04 from player1 and then sell at $10.00 to player2 and lose $0.04 cents. Clearly this is no good. Alternatively player3 could place a bid at $10.02 and hope that player1 will lower his ask. If this transactions occurs then player3 can start asking at $10.03 and hope that player2 will now up his bid. If this goes as planned player3 makes $0.01. There would be a window of risk here for player3. The stock has been bought at $10.02 and the only buyer is bidding $10.00 and the ask has just come down from $10.04 to $10.03. There is no guarantee there will ever be a buyer at greater than $10.02. If this what actually goes on, then player3 is sort of facilitating a transaction. The spread was originally too wide for either player1 or player2 to move. player3 has essentially lowered the spread and enticed both player1 and player2 to make a transaction. The above is really sort of a big question. I have no idea what HFT is really doing.

free market works (1)

Laxori666 (748529) | about a year ago | (#44043655)

1) New previously-unexploited market opportunity is discovered/developed (e.g. HFT).
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 said market, reducing the profit margin while providing more benefit to people in said market. Eventually there isn't much money to be made in it at all and it's just another product/service everyone takes for granted.
b) If we're unlucky then the market gets regulated too much, stunting its eventual development of another taken-for-granted product/service, leaving it prone to disruption whenever the regulations change.

[*] People above have already given many reasons why HFT ends up benefiting the market, for example punker's post [slashdot.org] .

ASIC Regulation (1)

reluctantjoiner (2486248) | about a year ago | (#44043659)

ASIC declining to regulate HFT shouldn't be considered an endorsement of the practice. As it is, they are flat out trying to root out insider trading and abuses of Corporations Law. (e.g. Trading while insolvent; embezzlement etc etc). It doesn't have a great reputation on either front. There's the odd successful case now and then, but that seems to be the exception rather than the rule.

Having said that, I'd rather have it than not, but it would be nice if it could be made a little more effective.
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