Is High Freq Trading a Bubble?

J

jonnysharp

Ive watched over the years firms like renaissance technologies, getco, wolverine, optiver, citadel, etc....grow into powerful profit generating machines and a true force to be reckoned with, and estimates is the top HFT firms made 21B last year when everyone else was looking into the abyss and over 70% of volume traded on stocks is conducted by these firms. Competition amongst exchanges has helped these firms flourish. Now the media spotlight is on them and social movement could change the rules going forward. My question is; is HFT a bubble? or is it a more fundamental shift into how markets are made? The more traditional on-floor market maker now competes for order flow with these firms and has loss significant business to them. Are these firms better equipped to price markets and provide liquidity than the traditional mm's? Maybe its an evolution towards those with the most sophisticated risk management systems, those with the best hedging capabilities to manage their inventory will win? But then again, we have seen many bubbles in finance over the last 10 years, IPO, CDS, CDO, stat arb, commodities, etc.....many players within those fields blew up.

Thoughts?
 
First, a lot of these "firms" DON'T provide "liquidity"!
What they do is in many cases manipulate prices.
The structure of the US market has changed in the last few years because of the stupid & greedy exchanges allowing these leeches to suck the small investors dry, 1 penny a share at a time.
The good thing is, some exchanges in other parts of the world are recognizing this stupidity & are beginning to prohibit it.

There's also a backlash among investors against these scumbags & hopefully they'll be put out of business.
 
The MMs and Ss era is gone....in the name of efficiency....

And the bottom line is that it does not matter what the label is of those that risk taking stock....to stay around...they have to make money....

The rub comes when businesses conflict....

My belief is that there will be a form of first come first served HFT market whereby the b/a is closed vs the MMs and Ss....and that conflicted/fragmented businesses will be reduced vs the present....

Proper or meaningful regulation requires a far less fragmented marketplace....


May the best set of BATS models win...and be lumped into a truly universal venue....

Would love to be able to seamlessly trade US, Euro, and Asian stocks for 20 cents per 100...etc....

And turn it on and off....based on my hours....
.................................

Oh....and by the way ....HFT will be in a bubble....when you see a Mfund stating HFT capabilities....
 
Yes, yes we have all heard that. I would say however, in the majority of their collective trades, they do provide liquidity, as they are trading for the spread and rebates. They have recently banned flash orders, even though anyone can get access to that information and there may be a few predatory algorithms that attempt to front run institutions, but isn't that the Darwinian way of the world, to the smartest goes the spoils? I mean it is a fair playing field at the institutional level, direct access to exchanges, and its up to the firm how much capital, human and technological resources they design, develop and employ. Its just like back in the 90s when everyone was complaining about MSFT being a monopoly and being unfair, well this argument goes against the very foundation of the capitalist system, freedom to achieve what you can achieve, why must we punish and regulate our brightest when they become too successful? Why should the government decide who makes the 0.01c spread? shouldn't the free market decide that?

Look at the reduction in trading costs since the advent of electronic trading, average spread in 1996 on liquid listed stocks was 31c, in 2000 it was 9c now its about 1.7c, how has that negatively affected the average investor? more competition means tighter spreads which makes the economy as a whole more efficient.
 
Calling somebody a "liquidity provider" because they trade to get the rebates is BS. These scumbags do NOT provide liquity. In fact, they TAKE liquidity! Yeah, they add billions of shares traded but instead of helping the system, they manipulate & bleed it dry. Did their "liquidity" help in any way last year's drop? No.

HFT does not "provide liquidity"! They just rob smaller traders to enrich themselves.

First, tighter spreads was not originated through HFT. Second, what the hell is the use of a "tighter" spread if the price itself is 5x more volatile on a minute by minute basis??? That's where the bs/ripoff is. Tighter spread is an illusion these con artists dangle in front of naive investors!
 
risktaker, are you saying HFT shops increase the underlying volatility in the markets?

can you provide an example of how HFTs rip off the small trader?

bob, not sure what your trying to say? that definition is correct and is common knowledge.
 
Yes. Just look at market dynamics of last 3 years. They correlate with increased HFT to a T!

And their profits come at the expense of small traders/investors because of the manipulated activity.

Take Goldman, for example. You think their HFT algorithms are so special? HFT algorithms don't contain Einstein math. What Goldman's algorithms DO contain however are more sinister shit like how to *really* screw the market to their advantage which they really, really want to keep away from you since much of it is illegal. So they pretend it's special, super secret stuff.


Quote from jonnysharp:

risktaker, are you saying HFT shops increase the underlying volatility in the markets?

can you provide an example of how HFTs rip off the small trader?

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