[leverage]

I think you missed my point: if people are reacting to info at the same time (e.g. clicking at the same time) the exchange should receive the message at the same time. Similarly, market data should be transmitted at the same speed, and exchanges should not offer co-location to give one participant faster data than another - This is how they front-run.

[minimax]

I didn't miss your point and you don't have any idea what front running is. Front running is when your broker, your agent who has a legal responsibility to seek the best execution for your order, trades in front of your order. If someone who you have no relationship with manages to react to a news event faster than you do, that's not front running.

If you took away exchange colocation, you'd just have a boom in property values around the exchange as automated traders would still try to get on the shortest network path to the exchange. Exchange colocation is actually a way to level that playing field. Everyone who is colocated has exactly the same network delay to the matching engine as everyone else who is colocated.

[rondon2]

Lewis is not saying that all investors should be given the exact same access to the exchanges. He is saying that some traders are extracting money from the market simply because they have a faster route to the exchange and they are buying/selling ahead of other investors. They are not buying/selling based on market fundamentals, speculation, research.

Millions of Americans invest a large percentage of their retirement money in 401ks because they believe that the US Stock Market is a relatively good place to make long term investments.

When we see examples of people skimming money off of the market it makes us lose faith in the market. That is why this practice should be banned.

[kasey_junk]

The problem is that Lewis either through misunderstanding, narrative purposes, or due to a conflict of interest is implying "buying/selling ahead of other investors". But that is not what is actually happening in the latency arbitrage case. In the latency arbitrage case a HFT uses trade information from one exchange, to update their own prices on other exchanges.

[rondon2]

I find it fascinating that once people that understand the details they feel that nothing is wrong with this, and the people that stand back and look at the big picture see a rigged market.

It is Heisenberg morality. Once you look at it, there is nothing wrong with it. They are just updating prices to reflect demand, but at the same time they are extracting money from the market just because their data center is physically closer to the exchange.

[kasey_junk]

" at the same time they are extracting money from the market" This is the sentiment I don't understand. They aren't extracting any money. HFT market makers provide a service in the form of liquidity. It is natural and expected for the price of liquidity to go up as demand for it rises. There are liquidity purchasers that want to minimize the price of liquidity and therefore obscure their demand. This is also natural and expected. These are the forces that drive price discovery, this is what we want the markets to do.

Computers have made this process extremely fast and efficient to the benefit of nearly every market participant.

[doktrin]

> That is why this practice should be banned.

Which practice, exactly? You described one party having a faster connection than another. That's not exactly something you can "ban". Lewis even acknowledged that relative inequality of this nature will always exist.

[rondon2]

The same way insider trading is banned. It is impossible to prevent 100% of insider information being involved in some trades but you can prosecute people who can be proven to have made trades on insider information.

[doktrin]

I don't think you answered my question.

How do you "ban" a fast connection? How do you even define a fast(er) connection?

[rondon2]

You don't ban faster connections the same way you don't ban insider information. Faster connections and insider information will always exist. What you ban is trading on specific information that puts you at a substantially unfair advantage.

If I'm the CFO of company X I have an unfair advantage when it comes to making trades minutes before the quarterly results are release for my company.