U.S. SEC targets 10 firms in high frequency trading probe

[IAS_LLC]

Do you have any reason to believe that all of the mathematicians whose entire edge to trading relies on front-run orders speed, have any other ability to profit than that?

If one's sole game is front-run tactics and said tactics get rendered moot, what next?

I think you are making the mistake that because that the best risk/reward for them right now is "front-running", that they are incapable of other strategies. Is it safe for me to assume that the only trick you have up your sleeve is price action (I'm just guessing here)? I doubt it is, but it is your method of choice because it does what you want it to do within a certain risk tolerance. If you had to, I'm sure you could implement non PA strategies. The algo guys are no different, and in many cases may be better at adapting than the chart traders out there. Not because they are smarter (in many cases they are smarter...), but because of the way they approach problems.

Brains > Guts
Mathematical Edge > Gut Feelings

 

[austinp]

label as you like, there are still only two modes of trading acts: price discovery, and order flow. That's it... you either trade "price" or you trade "flow".

We have no doubt that a tiny, fractional percentage of today's HFT quants would go on to be successful trading price discovery instead of their current order-flow thru speed and its manifestations. There have been the same degree of math experts plying their ability (or lack thereof) to price discovery since the dawn of markets' inception. Thru all this time and even now, a miniscule percentage of overall "quants" create long-term successful programs based on price discovery.

Only the past few years have permitted literal "free money" on the order-flow side from a standpoint of execution speed. Take that artificial edge away, and all those super-successful quants become just another generation of mathematical sheep in a level pasture land.

 

[IAS_LLC]

label as you like, there are still only two modes of trading acts: price discovery, and order flow. That's it... you either trade "price" or you trade "flow".

We have no doubt that a tiny, fractional percentage of today's HFT quants would go on to be successful trading price discovery instead of their current order-flow thru speed and its manifestations. There have been the same degree of math experts plying their ability (or lack thereof) to price discovery since the dawn of markets' inception. Thru all this time and even now, a miniscule percentage of overall "quants" create long-term successful programs based on price discovery.

Only the past few years have permitted literal "free money" on the order-flow side from a standpoint of execution speed. Take that artificial edge away, and all those super-successful quants become just another generation of mathematical sheep in a level pasture land.

Agree to disagree.

 

[austinp]

Financial markets were created to spread risk thru liquidity amongst all tier of participants, small to large. That is the reason any market exists. Spread risk amongst many, and in turn reward relative few.

When all players are trading order flow, everyone participates to "make" a market. That's where volume and open interest are created.

When a few players exist in the market only to front-run the order flow process, they are true parasites. They offer nothing in contribution to real, actual liquidity. Their orders and spoofs and front-runs remove liquidity from actual market participants on the price discovery side.

Markets can easily life without parasitic HFTs that contribute nothing and take everything from the process. Markets cannot live without price discovery participants who take positions that add open interest and volume in reality.

Due to whatever degree of HFT influence the past few years, all financial markets have lost volume, volatility and open-interest on a true basis from peak highs of years past. If you shut down every HFT parasitic operation tomorrow, markets will eventually return to the historical price-discovery process of old. But if you shut out too many price-discovery participants thru parasitic actions, eventually volume and open interest, i.e. true market liquidity will fall below a threshold of market survival.

In other words, markets can and most certainly will get thin enough to self-implode if left unchecked. That process has been taking place for awhile now.

 

[austinp]

Agree to disagree.

there is nothing to debate. Remove the "SOES bandits" HFT parasites of today, and today's quants become yesterday's price-discovery quants. They are no more intelligent or genius today as mathematicians before. The human mind doesn't change, and advanced technology on both sides levels the playing field.

simple as that.

 

[IAS_LLC]

there is nothing to debate. Remove the "SOES bandits" HFT parasites of today, and today's quants become yesterday's price-discovery quants. They are no more intelligent or genius today as mathematicians before. The human mind doesn't change, and advanced technology on both sides levels the playing field.

simple as that.

I'm disageering with the premise that quantitative traders are less capable/adaptable than traditional chart traders. I agree with your discription of price discovery and order flow.

I'm not sure why you think a human trader looking at minute bars on chart is more capable than a well thought out quantitative algorithm that is digesting and analyzing every single market perturbation as quickly as they are generated? I'm not trying to suggest all quants are better than all PA traders.

The human MAY be able to recognize regime change more quickly than an algorithm, but he is also more prone to external influences and risk management violations.