[scorpion]

(04-02-2014 04:41 PM)Lou pai Wrote:  

You would cripple the markets if you did that because there would never be any liquidity. If you wanted to sell a stock, who would buy it?

HFT has been around for a long time and is not harming anyone. If you want we could go back to the 90s when you were paying a 100 bucks to execute a trader and there was huge markups in the stocks you traded. Scalping has been around since the invention of the stock market, the only difference it is quicker now.

Who gives a fuck if you cripple the markets? The purpose of a stock exchange is not to facilitate gambling and speculation, it's to allow investors to purchase shares of companies. If you aren't willing to hold onto your shares for at least a year then you aren't investing, you're gambling. We need to get back to an idea of actually owning shares of a company instead of just trading them like fucking baseball cards. If you own a share, you OWN it. You are a partial owner of that company entitled to a fractional share of its profits. If you don't want to become a fractional owner of the company over a long term time horizon, don't buy the stock. There is absolutely no productive reason for stocks to be changing hands as much as they do now, especially with HFT where positions can be held for fractions of a second. It's completely ridiculous and has nothing to do with actually creating wealth.

To be frank, we would be a lot better off if the modern day stock market was crippled. It has long since lost sight of its original purpose and has become nothing more than a gigantic casino and money skimming operation.

[Lou pai]

If you crippled the market you would not be able to buy a stock at all because there would no be exchange.

HFT does not affect the individual investor. If you want to buy a stock and hold for a year, you can. HFT trading only creates competition for other firms in the HFT space, as they are competing against each other. For them it is a race to zero because you have to constantly be faster than your competition.

[scorpion]

(04-02-2014 05:49 PM)Lou pai Wrote:  

If you crippled the market you would not be able to buy a stock at all because there would no be exchange.

HFT does not affect the individual investor. If you want to buy a stock and hold for a year, you can. HFT trading only creates competition for other firms in the HFT space, as they are competing against each other. For them it is a race to zero because you have to constantly be faster than your competition.

Ridiculous. Of course you could buy stock. If you offer a sufficient amount of money, you're going to find a willing seller. Would buying stock be more inconvenient? Sure. And it should be. You wouldn't buy stock just to trade it, you'd buy it because you wanted to actually own a piece of the company.

And HFT certainly does affect the individual investor, how could it not? It's not like HFT algorithms are operating an entirely separate market. They're operating in the same public markets that every other investor is in. HFT firms are able to front run purchases and thereby bid up prices, making other investors pay more. Even if it's only pennies per share, when repeated millions of times you're looking at real money.

Is there some reason that HFT firms are entitled to scalp this money off the market? Are they just so smart and clever that we should just smile and be glad for them when they do this? Of course not. They are simply parasites contributing nothing of value, and essentially generating their profits by increasing costs for everyone else. We don't owe these firms the ability to make risk free money off the backs of other investors. It's pure rent seeking of the worst kind.

[Steve9]

(04-02-2014 10:36 AM)cardguy Wrote:  

I have been interested in this area for the past few years. And I am really glad that Michael Lewis is writing about it since he is the best financial writer in the world.

I have his new book on order.

Here is a shortened version of the book "Flash Boys: A Wall Street Revolt" -

http://www.nytimes.com/2014/04/06/magazi....html?_r=1

[Samseau]

(04-02-2014 05:49 PM)Lou pai Wrote:  

If you crippled the market you would not be able to buy a stock at all because there would no be exchange.

HFT does not affect the individual investor. If you want to buy a stock and hold for a year, you can. HFT trading only creates competition for other firms in the HFT space, as they are competing against each other. For them it is a race to zero because you have to constantly be faster than your competition.

Ultimately, HFT makes it impossible for anyone except for the guys at the top to make lots of money. Sure they only make a penny here and there... but multiplied by a billion and that's millions of dollars each day, made from nothing.

Both in 2012 and 2013, JP Morgan had zero days of trading loses. Please explain how this is fair for anyone? These guys use HFT to make ridiculous cash and now, big banks have so much cash they do not even need to know anything about the companies.

If JP Morgan wants a stock price to rise, they just buy a billion shares and make it rise. Likewise, if they want it to fall, they short and then sell on their own shorts. Impossible to compete.

HFT algo's do cause additional mass harm because it makes it impossible for regular guys to accurately judge the worth of a stock. At any moment in time a stock could have millions of dollars pumped in and out of it, making it impossible for retail investors to appraise companies accurately.

This ultimately hurts job creation, because many companies look to create "attractive looking companies" so they can just pump and dump their own investors. As a result, capital is spent on gambling instead of productivity, while regular workers are left unemployed.

To give a few examples of how HFT screws over the markets.

NASDAQ:AAPL

Apple's stock price in 2012 rose and fell over 100%, within the span on one year. How many investors got fucked because of that, I wonder?

NYSE: TWTR

Twitter's stock price has also risen and fallen 100% within the span of 5 months. This is penny stock territory, except twitter is supposed to be one of the world's largest tech companies. And it behaves like a penny stock.

And these two examples are just the easy famous ones to point out. But if you dig around you can find it everywhere.

[Steve9]

(04-02-2014 08:12 PM)Samseau Wrote:  

To give a few examples of how HFT screws over the markets.

NASDAQ:AAPL

Apple's stock price in 2012 rose and fell over 100%, within the span on one year. How many investors got fucked because of that, I wonder?

NYSE: TWTR

Twitter's stock price has also risen and fallen 100% within the span of 5 months. This is penny stock territory, except twitter is supposed to be one of the world's largest tech companies. And it behaves like a penny stock.

HFT is not the cause of this. This is normal market volatility for extremely popular stocks like Apple and Twitter. Many massive hedge funds have positions in Apple.

Also many small investors have made a lot of money on Apple. The investors who got "fucked" basically fucked themselves by letting the dropping share price scare them into selling at the bottom. Anyone here could have brought Apple at $390 last year and be up 40% already.

The huge volatility is awesome for savvy investors who can control their emotions.

[Lou pai]

Samseau, the markets are not to meant to be fair, there are winners and losers. Traders at JP Morgan are spending all there waking time studying the market of course they are going to make more money than the average investor who turns on their etrade account once a week.

Individuals should not be trading the market but just buying quality stocks and holding them. I personally bought BAC at 6 and haven't sold a single share in 2 years. I also trade stocks and options but that is because I spend a lot of time following the market but I would never try to day trade because I do not have a competitive advantage.

[Sherman]

I do some day trading and find that the HFTs help more than they hurt, because they usually move the price in the direction of the trend.


As for a financial news source, I recommend Puplava. He is balanced and interviews guests that have both pessimistic and optimistic points of view. I use to believe the "America is going to crash" scenario until I listened to Puplava who actually believes that the American economy has a lot of structural advantages over most other economies. I am now more skeptical of the doom and gloom crowd, however Puplava is fair and still presents some people with this point of view.

http://www.financialsense.com/

[berserk]

As I read the HFTs also do stuff like make false orders and then remove them to manipulate price. This is clearly rigging.

[j r]

(04-02-2014 05:34 PM)scorpion Wrote:  

(04-02-2014 04:41 PM)Lou pai Wrote:  

You would cripple the markets if you did that because there would never be any liquidity. If you wanted to sell a stock, who would buy it?

HFT has been around for a long time and is not harming anyone. If you want we could go back to the 90s when you were paying a 100 bucks to execute a trader and there was huge markups in the stocks you traded. Scalping has been around since the invention of the stock market, the only difference it is quicker now.

Who gives a fuck if you cripple the markets? The purpose of a stock exchange is not to facilitate gambling and speculation, it's to allow investors to purchase shares of companies. If you aren't willing to hold onto your shares for at least a year then you aren't investing, you're gambling. We need to get back to an idea of actually owning shares of a company instead of just trading them like fucking baseball cards. If you own a share, you OWN it. You are a partial owner of that company entitled to a fractional share of its profits. If you don't want to become a fractional owner of the company over a long term time horizon, don't buy the stock. There is absolutely no productive reason for stocks to be changing hands as much as they do now, especially with HFT where positions can be held for fractions of a second. It's completely ridiculous and has nothing to do with actually creating wealth.

To be frank, we would be a lot better off if the modern day stock market was crippled. It has long since lost sight of its original purpose and has become nothing more than a gigantic casino and money skimming operation.

This wouldn't just cripple the stock market; it would cripple the entire economy. There is a whole shadow banking system of short-term securities that companies use to fund their day-to-day operations. It is how they make payroll, pay suppliers, etc. if you eliminated that market, companies would have to hold enormous cash positions just to operate. And that means that small and medium sized companies would all have to fold or get bought my a bigger company with deep pockets.

Companies could go to banks and get lines of credit to operate, but there is not nearly enough liquidity in the banking system for that. Plus, it would just end up giving banks even more power, which is the situation that used to exist when guys like J.P. Morgan controlled the entire economy. It's not really an improvement over the present system.

[scorpion]

(04-02-2014 10:48 PM)j r Wrote:  

This wouldn't just cripple the stock market; it would cripple the entire economy. There is a whole shadow banking system of short-term securities that companies use to fund their day-to-day operations. It is how they make payroll, pay suppliers, etc. if you eliminated that market, companies would have to hold enormous cash positions just to operate. And that means that small and medium sized companies would all have to fold or get bought my a bigger company with deep pockets.

Companies could go to banks and get lines of credit to operate, but there is not nearly enough liquidity in the banking system for that. Plus, it would just end up giving banks even more power, which is the situation that used to exist when guys like J.P. Morgan controlled the entire economy. It's not really an improvement over the present system.

I have no idea why you are equating the commercial paper market with the stock market. Commercial paper is a short term debt instrument that companies use to finance operations, as you stated correctly, but it has nothing to do with a company's stock. My suggestion was for the trading of stocks, not all financial instruments. Discouraging the trading of stock on the secondary market would have almost no impact on a company's ability to raise money, and if anything it would probably result in increased IPO values since investors would be incentivized to buy in early.

Besides, even if you did extend a similarly punitive tax on short term profits derived from debt security trades the end result wouldn't be catastrophic. You'd simply have the securities acting the way they were initially designed to act - as debt securities, not as trading instruments. You would buy one to get a decent return and hold it. It's simple, and it works to provide a valuable economic function to the companies and those who invest in their debt. The excessive trading of these debt securities on the secondary market adds no value to the economy. It's pure gambling.

[Feisbook Control]

scorpion: Not trying to have a go at you, but just wondering what the rationale for your position is.

Personally, none of this stuff makes any sense to me. As with you, it does seem like gambling to me, and a lot of it seems to add absolutely no productive value to anything. I'm a value investor, so I shrug my shoulders at it. My attitude is either 1) how can I avoid getting caught up in the nonsense, or 2) how can I profit from it?

Increasingly in life, I'm finding that I can't get all bent out of shape by other people's irrationality and go on an idealistic mission to save humanity or society from itself. All I can do is make sure I'm not on the Titanic when it goes down. I know that you and I both have major reservations about (post-)modernity. I'll PM you for a (hopefully) longer/broader reply, because I've been wanting to ask you for your thoughts on this for a while, since certain core issues keep coming up and I see that you're someone who is deeply interested in (and troubled by) the current state of affairs.

In the meantime, I'd be interested if you'd elaborate a little more specifically on your thoughts regarding finance/economics.

[berserk]

(04-02-2014 10:48 PM)j r Wrote:  

(04-02-2014 05:34 PM)scorpion Wrote:  

(04-02-2014 04:41 PM)Lou pai Wrote:  

You would cripple the markets if you did that because there would never be any liquidity. If you wanted to sell a stock, who would buy it?

HFT has been around for a long time and is not harming anyone. If you want we could go back to the 90s when you were paying a 100 bucks to execute a trader and there was huge markups in the stocks you traded. Scalping has been around since the invention of the stock market, the only difference it is quicker now.

Who gives a fuck if you cripple the markets? The purpose of a stock exchange is not to facilitate gambling and speculation, it's to allow investors to purchase shares of companies. If you aren't willing to hold onto your shares for at least a year then you aren't investing, you're gambling. We need to get back to an idea of actually owning shares of a company instead of just trading them like fucking baseball cards. If you own a share, you OWN it. You are a partial owner of that company entitled to a fractional share of its profits. If you don't want to become a fractional owner of the company over a long term time horizon, don't buy the stock. There is absolutely no productive reason for stocks to be changing hands as much as they do now, especially with HFT where positions can be held for fractions of a second. It's completely ridiculous and has nothing to do with actually creating wealth.

To be frank, we would be a lot better off if the modern day stock market was crippled. It has long since lost sight of its original purpose and has become nothing more than a gigantic casino and money skimming operation.

This wouldn't just cripple the stock market; it would cripple the entire economy. There is a whole shadow banking system of short-term securities that companies use to fund their day-to-day operations. It is how they make payroll, pay suppliers, etc. if you eliminated that market, companies would have to hold enormous cash positions just to operate. And that means that small and medium sized companies would all have to fold or get bought my a bigger company with deep pockets.

Companies could go to banks and get lines of credit to operate, but there is not nearly enough liquidity in the banking system for that. Plus, it would just end up giving banks even more power, which is the situation that used to exist when guys like J.P. Morgan controlled the entire economy. It's not really an improvement over the present system.

Here is the thing, now you're once again doing what I always accuse econ and finance guys of doing, you are confusing a current state with fundamentals.

Derivatives and all these fancy short term instruments do not create liquidity or capital, they are in fact only new debt and the more of them are created the less people know who is actually owing how much and to whom. That is a huge reason why the credit crunch happened. The derivative market had become so complex that an external shock essentially collapsed the entire market, because no one really knew how much outstanding debt there was.

Have you ever considered that companies, and I am not talking about (investment) banks, should grow by re-investing their profit into their business instead of being involved in all kinds of crazy market operations.

Most of the huge american businesses today grew in a time where there was none of this modern debt derivative business going on.

The boom and bust cycle of modern capitalism might even be almost eliminated if companies grew more organically and slower, while the FED kept their dirty hands out of the market.

The idea that the current financial market promotes growth is a huge lie and can be seen in job numbers, exports and new business registrations. The only ones who profit are the financial industry like quite literal leeches that suck money out of the system and into their own pockets.

[ElBorrachoInfamoso]

The fact that the people doing HFT aren't forcing anyone to trade with them and they're still making money is proof that they are creating value.

For every trade they made, there was someone on the other side who implicitly thought the trade was worthwhile. If someone doesn't want pay more than a certain amount for a stock, the solution is simple, place a limit order.

High-frequency traders are just the latest type of market maker. They are essentially bookies. Of course they make consistent profits. They are middlemen who match buyers with sellers. Smart bookies only serve as intermediaries and take on little risk.

Michael Lewis has made a career out of calling Wall Street ugly names. He's a great, entertaining writer, but never forget that what he writes is sensationalism at best and propaganda at worst.

[KorbenDallas]

They're front running. They are not essentially "bookies".

Being in the gambling industry I want to enlighten you on your false claim that bookies are just intermediaries that take on no risk. You can read some other threads and research on your own to understand why HFT is essentially skimming the market and while not illegal, has created a broken system.

Yes, bookies usually make good money every year and attempt to get the same amount of money on both sides, so, they can make their 10% and be happy. Bookies, no matter how smart, can still lose their ass. This occurs when they are located in a city with a popular home team that is kicking ass. This happened last year in Denver to the bookies there.

Denver was covering the spread and hitting the over week in and week out to start the season and virtually ALL the Denver sports bettors were hammering Denver and the Over. I heard from a buddy that by the 5th week many small time bookies had gone bust and only the extremely well rolled were still in business.

[KorbenDallas]

So yea, HFT trading ALGO's aren't like bookies. Even bookies don't book wins 1250 days in a row.

[RexImperator]

Pros/cons aside, it is pretty interesting to see where the engineering comes in:

http://www.cielonetworks.com/site/white-papers.html

Quote:

The Microwave Radio Low Latency Networking Revolution: The relentless drive to achieve a lower latency advantage in trading network data transmission has continued unabated. Even before the fastest new latency optimized fiber networks were completed, a number of astute HFT firms and consultants were investigating potential technologies that could transcend the transmission media speed limit imposed by fiber optics. If fiber could only achieve data speeds of about 2/3rds that of light in a vacuum, what technology and medium would support connectivity appreciably closer to that ultimate speed?

The answer became obvious: light through the atmosphere – well, not light, but lower frequency electromagnetic radiation that also travels at very close to “c” in the Earth’s atmosphere – radio waves. Specifically, highly directional microwave radio signals that travel just above the Earth’s surface from point to point drew the interest of a number of pioneering HFT firms and industry innovators.

So they have put up a series of microwave towers in order to shave milliseconds off the data transmission time from Chicago to NYC.

[Ardbeg]

(04-03-2014 06:33 AM)ElBorrachoInfamoso Wrote:  

The fact that the people doing HFT aren't forcing anyone to trade with them and they're still making money is proof that they are creating value.

For every trade they made, there was someone on the other side who implicitly thought the trade was worthwhile. If someone doesn't want pay more than a certain amount for a stock, the solution is simple, place a limit order.

High-frequency traders are just the latest type of market maker. They are essentially bookies. Of course they make consistent profits. They are middlemen who match buyers with sellers. Smart bookies only serve as intermediaries and take on little risk.

Michael Lewis has made a career out of calling Wall Street ugly names. He's a great, entertaining writer, but never forget that what he writes is sensationalism at best and propaganda at worst.

Exactly! Just place a limit order.

I did my first trade almost twenty years ago when I was 13. I had to pay $35 and the bid/ask spreads were quoted in 1/8th fractions. These days I trade about 100 times a year, and I pay $7.00 for my orders to be filled instantaneously. Felix Solomon of Reuters and others have given robust critiques of Lewis's allegations.

While I like Michael Lewis writings, I think this book falls a bit short.

[ElBorrachoInfamoso]

(04-03-2014 07:16 AM)KorbenDallas Wrote:  

They're front running. They are not essentially "bookies".

Being in the gambling industry I want to enlighten you on your false claim that bookies are just intermediaries that take on no risk. You can read some other threads and research on your own to understand why HFT is essentially skimming the market and while not illegal, has created a broken system.

Yes, bookies usually make good money every year and attempt to get the same amount of money on both sides, so, they can make their 10% and be happy. Bookies, no matter how smart, can still lose their ass. This occurs when they are located in a city with a popular home team that is kicking ass. This happened last year in Denver to the bookies there.

Denver was covering the spread and hitting the over week in and week out to start the season and virtually ALL the Denver sports bettors were hammering Denver and the Over. I heard from a buddy that by the 5th week many small time bookies had gone bust and only the extremely well rolled were still in business.

Go back and read my post again. You clearly didn't understand it the first time.

Smart bookies only serve as intermediaries and take on little risk.

Smart bookies are well capitalized and only intermediate if they have access to a diverse customer base. Show me a bookie working the South Bronx when the Yankees are killing it and I'll show you a dumb motherfucker losing money.

Show me a gambling ring with a big bank roll and bookies working in multiple cities and I'll show smart motherfuckers who consistently make a profit. Their risk is mainly a legal risk not a business risk.

HFT by the nature of modern financial markets has easy access to a diverse customer base. The next piece is being well capitalized. The final piece that is not so important for sport bookies is technology. HF traders need the fastest connections and good computing power.

The linked article focused on the successful traders. I bet you all the money in my bank account that we could find hundreds if not thousands of people who tried HFT but failed because they were either under capitalized or lacked the technology i.e. lacked the capital to purchase the right technology. Those people lost money. HFT is not guaranteed money.

[KorbenDallas]

Long term, bookies make a killing. The denver episode only took out the small fish, and sure the big rollers got hit, but it was a blip in an otherwise lucrative endeavor. But I lol'd when you said smart bookies stop taking bets when the home team is playing well. Not true at all. The edge in sports betting is built into the bet. Bookies generally charge 10% extra to bet an even money game. So, if a game's odds are exactly 50/50 a book will charge 550 to win 500. A bookie who refuses to take a bet simply because the home team is on a roll? Is a bookie that will lose all his customers. The reason being is that the odds go up if a team becomes a huge favorite. So, the bookie, is generally always getting the better end of the bet.

Bookies are not intermediaries. Even the books in Vegas. There is, however, people who are simply intermediaries in the sports betting world. They are called "Sports Betting Exchanges", which, have become popular in Europe and particularly the UK. Sigh... And yes, sports betting exchanges have ZERO risk, they charge a small fee and two different gamblers simply use the exchange as an intermediary.

Just the fact that you don't understand booking makes me question your conclusions about HFT.

[RockHard]

Just ran into this http://www.chrisstucchio.com/blog/2014/h..._hft.html.

I don't know anything about the source, but as I understand it, his argument is "never place a market order or a limit order that's currently in the money". Actually, he claims there's a pennies advantage to putting a limit order in the money.

Typically when I buy I have my eye on a particular security at a particular price, so I put in a limit and wait for it to fill. I'm sure the HFT gets a piece of my order anyway as it works its way to getting filled. My portfolio is so small I never put more than $10K into any one security, so I doubt they care much either. It seems to me that this stuff is just noise to someone who holds long term, but OTOH, Lewis raises concerns that this could cause a crash and that point is disturbing.

[ElBorrachoInfamoso]

You don't understand English dude. You clearly did not understand what I wrote so the "logic" in your argument wasn't built on a sound foundation.

Why would anyone take your opinion on HFT seriously when it isn't even clear you know what HFT is? Is English you second language? Your confusion would be understandable in that case.


"Bookmakers do not generally attempt to make money from the bets themselves but rather by acting as market makers and profiting from the event regardless of the outcome."

Now paraphrase that and prove you understand English. To me that says bookies attempt to avoid a payoff that depends on the outcome of the event i.e. they avoid taking on that risk.

"By adjusting the odds in their favour or by having a point spread, bookmakers will aim to guarantee a profit by achieving a 'balanced book', either by getting an equal number of bets for each outcome or (when they are offering odds) by getting the amounts wagered on each outcome to reflect the odds."

That clearly indicates that bookies are acting as intermediaries.


Most of the strategies followed in HFT are analogous to market making.

[KorbenDallas]

I don't understand HFT. I do understand booking. And I do understand that the BATS CEO admitted he lied. BATS CEO Admits He Lied On CNBC

[KorbenDallas]

Yea, bookies aim to achieve a balanced book, but considering its illegal in most of the US except Vegas, bookies in other cities almost never have their books exactly balanced.

[Glaucon]

It is not rigged. There was a way to make money, they took it. Kudos for them, I would have done the same. We are the suckers here, while they snort cocaine off from 10/10 escorts ass.