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by jellicle 3792 days ago
No, they don't. In any panic, HFTs disappear like anyone else. They are middlemen, not producers. They insert themselves into the middle of trades to make profits for themselves.

If I put in a market order when the price is $100, and a HFT firm sees my order, beats me to market, buys up all the $100 offers and then resells the stock to me at $105, my liquidity hasn't been improved in the slightest. All that has happened is that someone has front-run my order and cost me $5/share, extracting profits from my pocket without providing any useful service to anyone.

If you want this comment in more technical terms, here it is:

http://www.zerohedge.com/news/2015-08-25/cutting-through-hft...
2 comments
ctlby 3792 days ago
They don't "insert" themselves, they were there before you came along. Your market order trades with them because their price is the best one currently displayed. As for an HFT firm "seeing" your order and front-running--you're just making stuff up.
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MagnumOpus 3792 days ago
You are totally wrong, to put it simply. He is not making stuff up.

Flash Boys is an entertaining write-up of how the firms are inserting themselves, and how they are "seeing" orders at one exchange before the order arrives at another exchange.

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ctlby 3792 days ago
There you go again with "insertion." HFT market-makers don't thrust themselves between two people who are about to transact. Their orders were already in the market, and you came to them.

The "Flash Boys" case is a funny one. The HFTs did see the orders--but so did EVERYONE else, and in basically the same instant, because all transactions are publicly disseminated. Your point is right in a very narrow sense and very wrong on every axis that actually matters.

I'm mystified as to why Flash Boys didn't valorize high-frequency trading. It's a Moneyball story where the scrappy nerds use computers and math to out-compete the dinosaurs. Oh well.

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tptacek 3792 days ago
And if you put in a market order at $100 at Exchange A and the HFT beats the order to the best-priced Exchange B, buys it all up, and the instrument declines in price to $99.98, they lose money.

A lot of HFT argumentation only makes sense when you assume prices only go up.

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