[alkonaut]

Another reason to just have artificial delays in trading. If every exchange had a minimum of, say, a minute after an order is submitted until it is executed (during which time it couldn't be amended or cancelled of course) it seems you would greatly reduce the risk of "flash crashes"and unnatural manipulation of the market.

I know "market liquidity" is an argument for allowing HFT, but haven't hard a good explanation about why the economy would suffer so much if the ultra high frequency trading just wouldn't exist.

Note: I have about as much knowledge about this as people who suggest how SpaceX should improve. Just sayin.

Of course computer systems everywhere will have issues with an extra seconds (deltas being negative that can't be etc) but most of those systems aren't trading systems. Why is it that "markets" are in the focus of this? At y2k we were worried about planes falling out of the sky. Surely there must be worse things than stock market computer systems being confused?

[kasey_junk]

> but haven't hard a good explanation about why the economy would suffer so much if the ultra high frequency trading just wouldn't exist.

The short explanation is that the speed is a tool for managing risk (like most other market tools) and by removing it, you remove that ability. That risk must be priced into the market somewhere and that will be in the spread that everyone pays.

Will that be worse than what we currently have? Who knows, but what we have is working pretty well with regard to providing liquidity (it is cheaper and easier to get in more markets than ever before and the margins are as low as they have ever been on providing it), so why mess with something that has so few down sides?

> Surely there must be worse things than stock market computer systems being confused?

There are, but Bloomberg doesn't specialize in them, and they don't garner nearly the HN upvotes.

[rectang]

> why mess with something that has so few down sides?

When I look at high frequency trading, it says to me that the game is rigged. It's like going on Jeopardy up against a machine contestant that always buzzes in first.

How on earth can I possibly succeed as an individual investor in a trading environment where institutional investors are so privileged? How many other ways is the ostensibly neutral marketplace overseer profiting by offering those who pay-to-play opportunities to shave pennies, nickels, dimes, and dollars from me?

[jessaustin]

If investing is not your full-time occupation, you shouldn't be trading every day. (You probably shouldn't be trading every week.) If you expect a regularly-traded security to appreciate over the next month, it's entirely possible to enter an order to purchase that security, and later to sell it, without being beaten out of a few pennies by HFT.

[kasey_junk]

> When I look at high frequency trading, it says to me that the game is rigged.

And when I hear this complaint, I don't understand the rationale. Why shouldn't participants that do something professionally, invest in infrastructure, invest in research or other kinds of IP have an advantage. If they didn't that wouldn't be a market, that would be a lottery.

Quite simply, the market dynamics that make it such that you might want to be involved in it as an individual are created by the sophisticated market participants engaging in individual zero sum trades that add up to a beneficial whole and they have been for hundreds of years.

Computers have made this process more efficient and you should be celebrating your ability to trade for cheaper than ever. That you don't is a sign that you don't understand how the markets work now nor how they have ever worked.

Edit: the more I thought about this, the more I decided it was overly harsh. I think well informed participants can disagree about the values of HFT and needn't celebrate it. I do think that the idea that markets don't (or shouldn't) reward more engaged participants is fundamentally broken.

[sirseal]

HFT is a tool of oppression. Who can afford it? Who has the time, capital, and personnel to make and deploy HFT algos? And ultimately, who is really benefitting the most from this technological advance?

[djfm]

Could "High Frequency Trading As A Service" be a thing? Someone provides the infrastructure and a nice API to talk with the market and runs your algorithms on their hyperfast computers at the heart of the stock exchange for a fee.

[savanaly]

> How on earth can I possibly succeed as an individual investor in a trading environment where institutional investors are so privileged?

Economists have sort of argued that it was impossible to succeed in the way you're talking about since long before HFT came along. The classic explanation is presented in https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street.

[cma]

Every day markets shut down at 4pm except for very limited after hours trading. Every weekend down. 10+ days a year, down for market holidays.

We're talking on the order of zero liquidity for 30% of the days (weekends and market holidays) in a given year, and severely limited liquidity outside of market hours.

If liquidity was as important as we like to say, this just wouldn't be the case.

[kasey_junk]

I'm not sure I understand your argument. Let me see if I can restate it:

"If liquidity was really required at the millisecond level, market participants would not accept markets being down for holidays or weekends."

But that is not the point of the millisecond (or sub) resolution. The point is so that the people that provide the liquidity during operational hours can add as much information as they can into their pricing models, thereby requiring them to take on less risk with each bit of liquidity they provide. This less risk gets passed on as savings to the rest of the market participants in the form of smaller spreads. Any increase in that resolution increases the risk to the market makers, who will therefore need to increase the spread to compensate, making trading for everyone more expensive.

This would be true if the markets were only open 4 hours a week as well, though trends are towards more 24x5 (at least) trading, not less (and I think that is a good thing).

[cma]

I worked in technical risk management for a large market maker in the US. The latency arms race just drove things towards riskier and riskier practices in our systems.

Soft-realtime systems in C++ instead of safer garbage collected runtimes.

Parsing market data on FPGAs or Cell processors instead of in code written with emphasis on safety.

Distributed trading systems that couldn't afford the latency budget to pass everything through centralized risk management, and therefore not taking into account the entire order book before authorizing a trade. Instead a series of compromises and less optimal failsafes.

It also just lead to more expensive practices--communication between threads using spinlocks instead of the normal waking a waiting thread through a system call; basically converting the spreads we could capture into data center waste heat in order to beat out the next guy.

Artificially slowing things down a bit would have just reduced costs and increased safety for everyone.

[kasey_junk]

That is a bit of an orthogonal issue, but I would say that it doesn't show that the speed of HFT is a problem to the broader market. For instance as a market participant I largely do not care about the implementation of any given market makers risk configs. In fact, even with all the nasty bits in HFT, it is loads better than the system it replaced. There is an open question about if it can be made even better.

I'd also suggest that your experience (many of which I share) do not necessarily mean that speed is making things riskier, only that your centralized risk management was not as good at lowering the cost of risk as opposed to getting fast. As for the dc energy to spread arbitrage game, that is the result of far reaching policy decisions well outside of HFT and I largely agree that energy is too cheap.

I think that any artificial slowing of the market is likely to have really bad unintentional issues. I'd much rather we incentivize the market to fixate on something we care about (ie price) rather than try to subvert the laws of the market.

One approach that appeals to me is to remove the sub-penny rule that is artificially propping up spreads.

[cma]

>as a market participant I largely do not care about the implementation of any given market makers risk configs

Why? It could severely hurt market liquidity (which everyone claims is so important) if there is a mistake that sparks a panic.

> was not as good at lowering the cost of risk as opposed to getting fast

Can you reword this a bit? I don't understand what you are saying.

> I think that any artificial slowing of the market is likely to have really bad unintentional issues.

Can you give some examples?

> One approach that appeals to me is to remove the sub-penny rule that is artificially propping up spreads.

This would be a decent thing to do, it would take some money out of market making, reducing the returns fueling the latency arms race a bit. Lower returns would also give less justification for some of the risks that are taken today.

A transaction tax would help in a similar way, but work more broadly against other high volume, low latency, low value traders. Index-to-underlyings arbitragers (maybe not the best example; sub-penny would decimate (hurr) them as well), etc.

[mlrtime]

Globally markets are 24/7/365 (+/- 1s). You are speaking of just one particular market.

[cma]

Liquidity of an altogether different basket of securities (or a somewhat overlapping basket) isn't relevant to the point.

[denim_chicken]

> it is cheaper and easier to get in more markets than ever before and the margins are as low as they have ever been on providing it

High enough that the firms are at least receiving a normal profit. And given the opportunity cost that all these smart people incur by working in this industry, this normal profit is rather big, and no doubt that the extraction of this normal profit has non-neglible deleterious effects on the economy.

[kasey_junk]

> High enough that the firms are at least receiving a normal profit.

As did the system of pit traders that it replaced. The margins and accompanied spreads are lower now than previously.

> no doubt that the extraction of this normal profit has non-neglible deleterious effects on the economy

As with any market activity, it needs to be compared with the benefits it provides.

[thibautx]

> If every exchange had a minimum of, say, a minute after an order is submitted until it is executed (during which time it couldn't be amended or cancelled of course) it seems you would greatly reduce the risk of "flash crashes"and unnatural manipulation of the market.

Sorry, but a minute delay is definitely not a solution to your idea of unnatural market manipulation. Artificial delays can be seen in the Chinese equities markets - trading halts given a +/- 10% intraday move, trading halts for up to 10 trading days before news announcements, you can only see quotes every half a second -- all measures to benefit retail traders over institutional traders, a paradigm the American markets inherently oppose. HFTs solve that problem by providing retail investors the same kind of access as institutional investors.

>I know "market liquidity" is an argument for allowing HFT, but haven't hard a good explanation about why the economy would suffer so much if the ultra high frequency trading just wouldn't exist.

HFT is a natural effect of electronic trading in contract to traditional forms of market making and liquidity providing. More often than not, thin spreads are often returned back to retail investors.

Other than some anecdotal evidence of "flash crashes" [1][2], how does HFT negatively impact the market?

https://en.wikipedia.org/wiki/2010_Flash_Crash

http://www.bloomberg.com/bw/articles/2012-08-02/knight-shows...

[pyre]

> Why is it that "markets" are in the focus of this?

Well, it is a Bloomberg article, so their subject matter might be skewed towards the market.