Completely understand why HFT must exist
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I agree that we should all detest "crony capitalism". But, the 'crony' part refers to the government. For a devil's advocate's argument: why should a private exchange be able to make rules as it sees fit? Why is it wrong that someone pays the extra mile for the technology and closer server? How fair is fair?
Now, I'm all for everyone should play by the same rule. That being said, only a portion of HFT has to do with the sort of 'absursive' market marketing that everyone likes to trash. A great deal of the others are simply high speed stats arb strategies of sorts.
So it sounds like your problem is with the exchange, not with HFT?
Now, I'm all for everyone should play by the same rule. That being said, only a portion of HFT has to do with the sort of 'absursive' market marketing that everyone likes to trash. A great deal of the others are simply high speed stats arb strategies of sorts.
So it sounds like your problem is with the exchange, not with HFT?
wait, aren't you the guy who spends a good chunk of time in the politics/religion forum bashing the left and pushing conservative/libertarian views?
now you're talking about getting out-competed and think it's a shame that profits aren't being distributed over a wider "collection" of people? ha!
conservative when you're ahead, liberal when you're behind i guess.
there's nothing stopping you as a trader in investing in the infrastructure required to compete in the hft world. just like there would be nothing stopping you as a backyard foundryman from investing in the infrastructure to become a major steel producer. there's nothing unfair about getting out-competed, when you don't have the money to compete.
crony capitalism in hft? ummm, where exactly?
I can accept 2 things related to full information...
1. An exchange without the cover of fairness from the SEC and govt.
If it is the wild west let the public know.
or
2. A exchange in which the govt ensures fairness.
What we have here is the false idea of fairness and govt protection. The Cronies have taken SEC, Govt regulators, and Cabinet positions. These posts or filled by banker emeriti or people who know they will be hired by the bankers... Much as generals know they will be defense contractors someday. . Cronies have been getting the benefits and the bailouts. Cronies have had the money to buy such influence because member banks own the fed and the member banks have produced enormous wealth for some of it top bankers.
If the banks and exchanges want to go all private.. then release then eliminate the FED and return all the tax payer dollars from the bailout and all these VA and FHA mortgages.
3. I would even accept full disclosure ahead of time.
What we have seen is HFT people getting quotes early for a few years and then it being disclosed.
What we just saw was apparently some people got better feeds from the NYSE and then later it being disclosed.
4. What I do not like is co located servers.... when I was younger I joined exchanges... now I choose not play. I would prefer an even playing field so I could play again and more of the public might too.
In fact, it's never been cheaper or easier to do just that.
Whether it's smart to get involved in that game, at this stage of its evolution, is an entirely different question...
@jem... no one is going to counterpoint you when you think it's ok to broadly and off-topically expand the scope of your argument. in the course of a couple of posts, you've gone from collectivist laments to crony capitalism to fha loans. while i don't doubt your broad and general wisdom, i think it's better suited for showing lefties their place vs trying to educate auto-traders about the intricacies of their business.
All your points 1-3 are valid.
However, how much you or me really loose due to micro - millisecond market player.
Realistically the fastest we can trade is in second time frame without going into more costly infrastructure/overhead. And within that second time frame market price shift should not matter that much because your strategy would have to be based on much longer time frame.
I would say it is not a factor and HFT guy may actually operate at a loss which is your gain - probably about 50% of time.
Markets were never fair and now are a little bit more transparent with new technology.
As to the principle and technology:
Flashing bids/offers on some internal loop and then disseminating them when they are history is kind of playing without risk. They hit only profitable price differences that are visible to them which amounts to being market maker who by definition front runs order flow by matching customer orders.
These guys exploit microstructure of the markets and various speeds at which internal networks operate compared to external loops and play inter-market arbitrage without much risk.
One alternative is to go back to phones and specialists so fund manager can call specialist and fix prices of their holdings.
Another is to simplify rules so they are enforceable and institute central queuing system or tokenization and any quote in the system is controlled by that queue not by local exchange after it is launched. It can be cancelled or modified but at lower priority than executing order. Payments and crossing orders from different exchanges would follow certain predetermined protocol. That way everybody has skin in the game and if somebody wants to slow the system with quotes will automatically slow themselves as well. I guess such system could be gamed as well.
So what is your idea of even playing field and who would provide continuous liquidity and quotation to the markets knowing that they are taking excessive execution risk?
this is fantasy, only if one makes an extreme effort to understand it. otherwise, it's gibberish.