
Mark Cuban: High-Frequency Traders Are the Ultimate Hackers - adventureful
http://blogs.wsj.com/marketbeat/2012/06/26/mark-cuban-high-frequency-traders-are-the-ultimate-hackers/
======
ezl
_sigh_ i got really excited about this because I was considering the
interpretation of the word "hackers" like we use it in "Hacker News"
(relevant: <http://paulgraham.com/gba.html>)

I know that the startup community at large doesn't largely respect short term
trading, particularly HFT. I understand it, though I honestly think its
misguided and the outrage is disproportionately large, but thats another
story.

The reason why this article _TITLE_ excited me was because I think its totally
true, or least close to true. I think awesome HTFs and algo traders have a
very similar skillset to top notch startup hackers.

Small prop shops ARE startups. You:

    
    
        1. wear a lot of hats
        2. release early, release often
        3. write really fast code, really fast
        4. validate theories against the market (or consumers)
        5. if you're right, keep going, if not, pivot
        6. success is dependent on understanding lots of different sub-specialties
        7. lots of overlapping skills: big data, distributed computing, machine learning
    

At some point, I'd love to get a bunch of hackers together and start a small
prop shop. The jobs are different, but in so many ways it takes the same kind
of person to succeed at either.

~~~
joe_the_user
Oddly enough, I was originally expecting that same thing.

Still, I think it's reasonable to ask the question: where does the boundary
between good, useful hacking and evil, insidious hacking lie? And I think it's
reasonable to not assume that the boundary lies at what is legal _or_ that the
boundary lies at what is "interesting".

I mean, how you produce and profit from spam is a hard, interesting problem.
Flame and Stuxnet might, in some courts, be legal. In fact, a lot of "Black
hats" satisfy many if not all of your list items.

The argument that HFT is working with a nearly zero-sum situation needs to be
addressed. A "normal" startup is _usually_ trying to create "new usefulness".
Where do "props" fit in to this question?

~~~
cynicalkane
Trading is a zero-sum game, but investing is not, and trading exists to make
markets and snipe inefficiencies. The amount of money that can be made here
can be surprising, until you consider that they're oiling the gears for
manifold trillions of dollars in commerce and wealth. Some of that is
gambling, but most of it isn't. Stuff like institutional hedgers and
investment funds are huge sources of market activity.

~~~
jasonwatkinspdx
It's is very hard to see how predicting short term market position unrolling
by individual institutions is making a market or sniping inefficiency. That is
an arms race that creates a minimum cost to enter to compete.

When success at sniping depends upon privileged network access, both human and
technical, it's more a matter of profiting on an inefficiency you enforce upon
everyone else.

------
programminggeek
I have no problem with HFT, but only because it is turning machines into
things that are doing what humans did before, only at a speed that we can't
keep up with as humans with our inherently physical interfaces.

How is HFT different than traditional arbitrage except for the fact that it is
faster and potentially at a scale that normal traders would never be able to
keep up with? How is buying something one second and selling the next
inherently different than buying one day and selling the next? Speed?

Does computers being faster make it any more unfair than when one trader has
access to millions or billions of dollars when I only have access to hundreds
or thousands? I don't think so.

Now, one could argue that HFT disrupts the way that Wall Street has worked for
decades, but really, it is shifting the profit from traders, bankers, and fund
managers to HFT firms. Sure, Wall Street probably doesn't like it, but does
anyone like it when someone disrupts their market and takes their profit?

You could also argue that HFT doesn't add value because HFT firms inherently
don't do anything other than trade millions of stocks only for the sake of
trading them, but how is this worse than day trading or running any other fund
other than the turnover rate?

Perhaps I'm blind to the real issues, but I just don't see a huge difference
between HFT and traditional Wall St. trading, except maybe that it magnifies
the problems inherent in the system due to speed and scale.

~~~
steve8918
The real issue is that in order to get an edge, HFT traders are engaging in
electronic warfare in order to slow down their opponents.

One of the worst things they are doing is "quote stuffing", which means
submitting bids and cancelling them tens of thousands of times per second.
They stuff the exchanges with quotes and eventually cause a huge latency with
respect to the quotes that are shown by the exchange, such as NYSE, NASDAQ,
etc. However, they aren't affected because they can see the prices because
they have a raw data feed. This gives them an edge relative to the other
traders that don't have their own raw feed straight from the exchanges, and
they use that to basically shoot fish in a barrel.

This was one of the main causes for the flash crash in 2010. The excessive
quotes

The thing is that they could stop this by implementing a minimum time for a
quote to exist, something innocuous like 100 ms, but they don't because this
would be a detriment to the HFT shops.

The other thing is that HFT shops behave like market makers, and they claim to
provide liquidity, however, they have no obligation to provide liquidity, like
real market makers. So just like during the flash crash, they turned off their
machines, and the markets went haywire. So they want their cake and eat it
too. If they are going to trade like market makers, they need to have the
obligation to continue to provide liquidity.

~~~
javert
If I recall correctly, wasn't there, like, an extremely fast recovery from the
flash crash? Why does the flash crash even matter? (I'm not being snarky at
all, BTW.)

~~~
steve8918
A lot of people lost a lot of money during the flash crash, through margin
calls, stop loss hits, etc. It also called into question the stability of our
markets. If people lose confidence in our stock markets, then people stop
trading on them.

If we have another flash crash, you can bet that the already-low volumes on
the markets will be met with even lower volumes, which could damage our
economic recovery. Most peoples' 401ks are tied to the stock market, and the
last thing we need is a generation of un-retireable people because they lost a
lot of their retirement on the stock market.

~~~
scotch_drinker
This is something people miss entirely in this argument, the fact that lots of
investors have trailing stop trades in and in a flash crash, those people get
their asses handed to them. Then we immediately start having a credibility
problem. Once you have a credibility problem, the end game is getting close.
When you combine that with things like the MF Global bankruptcy where client
accounts were stolen from, you start to think maybe the game is rigged. Or at
least I do.

~~~
steve8918
Exactly. $1.6 billion lost from customer accounts that were not supposed to be
touched, and no one is arrested? It just evaporated into thin air? The entire
thing is disgusting, and I pulled out most of my money from my futures trading
account exactly because of this, because I didn't have confidence that I would
see my money again. Hedging through futures is something that many commodities
producers do in order to have predictable revenues, and they just lost their
shirts because of criminal fraud, and nothing is going to be done.

~~~
getsat
Haha, I hope you don't have a 401(k).

------
javert
It's clear why we need investors.

Why do we need day traders? Well, they can only exist because the investors
exist, and they provide the function of pricing the market accurately. And
provide liquidity to investors. Nobody is arguing that we should ban day
trading.

Why do we need market makers? Well, they definitely benefit the day traders,
because they do lower the bid/ask spread, once again making pricing more
accurate. And provide liquidity to day traders.

So what I'm proposing is that we only "really need" investors - but day
traders are good for investors, and market makers are good for day traders.
Thus, market makers are good for investors.

I'd be legitemitely interested to hear criticism of the above argument. I've
been learning about market making recently, and I'm certainly sure that
there's still more for me to learn.

~~~
_delirium
I don't disagree in broad terms, but I think it's also quite possible that
_some_ configurations of trading will result in the "support" tail wagging the
investment dog. At least, that would be the expected result if you think of
markets like a dynamical system; in non-trivial dynamical systems (which I'd
assume the economy is), the usual case is that there are significant internal
dynamics (feedback loops, attractors, etc.) that in a number of cases will
modulate, and may even dominate, the movements caused by external inputs. If
that transfers to trading, there may well be pathological market dynamics that
have little to do with the fundamentals of providing services to (ultimately)
investors. Whether the dis-value of those pathologies produced outweighs the
value of the services provided would then be the relevant question. Viewed as
a machine, does the machine that includes the HFT lubricants run better in
general, or is the reduced friction offset by a undesired effects such as
greater risk of malfunction?

------
bokonist
" _As far as narrowing spreads, that’s absolutely true, but in absolute terms
what does it translate into? For the individual investor it might save them a
quarter a month._ "

In a properly designed, information age stock market there should not be a
spread. All stocks should trade via a programmed, black box auction that runs
on an interval. The HFT practice of creating phony orders that are immediately
canceled, just to gain visibility into the current bids and asks, would be
eliminated. No seeing other people's bids, and then front running them, no
canceling orders. You put in a limit order for the value of the stock, and the
stock goes to the highest bidder. All the extra pennies and quarters go to the
shareholder, nothing to the HFT algorithms (unless they provide actually value
such as market making or smoothing irrational volatility). It's the most
efficient design for stock market trading possible.

~~~
zhoutong
This is not efficient. If you use interval bidding, there will frequently be
gaps in market prices. Remember that at any instant, the order book (bids and
asks) represents only a small portion of market sentiment (real demand and
supply). The market prices move smoothly when people are able to react to
order changes and price spikes. If it's a black box, it's very easy to
manipulate the market in a massive scale.

For example, AAPL is $600 now. Under your system, $600 is the price that
generated the highest volume in previous bidding event. (There will be sellers
placing orders under $600, and buyers over $600 - they'll all be settled at
$600 and the exchange obviously wants to maximize this overlap, hence the
price). If a large institutional investor wants to manipulate the price, he
can place huge buy and sell orders at $700. And very likely in the next
bidding event the price of AAPL will move to close to $700, because that will
be the price that maximizes the overlap. This is almost impossible in current
market system, because you have to continuously buy from all the sellers who
are willing to sell at $700 to get the price. Meanwhile, traders (especially
day traders) will add to the order book to take advantage of this irrational
move. In a black box, irrational moves can't be detected and corrected by
other market participants. So you can't really get the idea of the actual
matching price in a black box system.

When you place a buy order, if there's overlap with any sell orders, it should
be matched and executed instantly. Otherwise it will stay in the book to wait
for sell orders. The market equilibrium is reached when the spread is minimal
and no trade occurs. (Yes, this is in theory.) However, in your "efficient"
system, there's no market equilibrium, because buyers and sellers are
discouraged from making their real demand and supply invisible. The exchange
has the incentive to maximize trade volume, so the only way to result in zero
volume is no overlapping orders in the entire interval, even when the buyers
are sellers have no knowledge of any orders. This only happens when people
have no confidence or interest to trade at all. Again, it makes market
vulnerable to be manipulated.

In China, stock exchanges partially adopted your idea. In Shanghai Securities
Exchange, the first 10 minutes (9.15am to 9.25am) of the day is set to be non-
continuous bidding period. In Shenzhen Securities Exchange, the first 10 mins
and last 3 mins are the same. This was introduced to reduce market
manipulation because the order book is empty at the beginning of the day.
However, after the period, trade starts continuously and all remainder orders
in the bidding event will automatically enter the order book. This way, the
price movement of the whole day is smooth with minimal spikes, while the
opening and closing prices reflect market sentiment more accurately.

Generally, the more the visible orders, the more smoothed the price. Interval
bidding discourages order placement because the next price is absolutely
unpredictable. It can be adopted in extremely illiquid market situations
though.

~~~
nhaehnle
This is why we have Game Theory and Mechanism Design. Mathematicians and
computer scientists study the different types of auction methods for their
properties. Let's take a look at your example:

 _AAPL is $600 now. (...) If a large institutional investor wants to
manipulate the price, he can place huge buy and sell orders at $700._

All your example shows is that a good auction mechanism should avoid this
possibility of manipulation. But that's easy enough: the investor's buy at
$700 will be matched with sells that are closer to $600, the same as in the
current system. The sell at $700 doesn't affect anything.

So in fact the price will move the same as it would in continuous buying.

~~~
zhoutong
Not exactly. In a black box, there will be less orders because market
participants are discouraged to be market makers, because the point their
orders have been triggered is also likely the point the market deviates
significantly and they have no chance to cancel or stop loss immediately in a
non-continuous market. Market makers are resistance of such manipulation. And
most market makers place orders to fill the "gaps" in the order book. Without
a visible order book, it's much more risky to provide liquidity without any
actual demand or supply for the shares. I think it's okay to assume that less
than 1% of traders place orders based on real supply and demand. You know you
would sell AAPL if it spikes to $700 today, but you won't place an order until
that happens. (The financial market is an incomplete coverage of demand and
supply anyway, so the more liquidity, the better.)

~~~
bokonist
_AAPL is $600 now. (...) If a large institutional investor wants to manipulate
the price, he can place huge buy and sell orders at $700._

To what profit? The investor would lose their shirt. Let's say period A had 20
shares sold and 20 shares bought at around ~$600. Period B the investor enters
with 50 shares being sold at min price $700.00 and 50 shares being bid on at
max price $700.01. In period B there are also another 20 shares from other
people being offered at min price $600.10 and 20 being bid on at $600.00. The
auction runs and the most seller advantageous clearing price is $700. The
institutional investor gets 20 shares from the $600.10 but at the clearing
price of $700. The investor exchanges 30 shares between his right and left
hands. So overall, the investor has on net bought 20 shares at a ridiculously
inflated price. This was a stupid, money losing strategy for the investor.

 _You know you would sell AAPL if it spikes to $700 today, but you won't place
an order until that happens._

Why not? Under my system, at every interval you could simply put a limit order
in for selling at a minimum $700. In fact, I suspect a few hedge funds would
pop up that specialize in figuring out a true and accurate price of a stock
according to the fund's analysis, and then placing, constant, across the board
limit orders that would automatically snap up shares in the case of
irrationality. If the market was as jump and irrational as you think it would
be hedge funds would make a killing by being smart and rational, until enough
entered the market with standing limit orders that the price smoothed out.

 _Without a visible order book, it's much more risky to provide liquidity
without any actual demand or supply for the shares._

And yeah, under my system market making actually requires work/risk, not just
riskless front running. The free lunch is gone. That is the point. There would
be less volume. Buyers and sellers would trade slightly slower trade execution
(waiting for the auction interval) for the benefit of not paying any tax to
market makers.

~~~
zhoutong
> And yeah, under my system market making actually requires work/risk, not
> just riskless front running. The free lunch is gone. That is the point.
> There would be less volume. Buyers and sellers would trade slightly slower
> trade execution (waiting for the auction interval) for the benefit of not
> paying any tax to market makers.

The spread earned by market makers is definitely not a tax. They earn the
money from (increased volume * reduced spread). Suppose you anticipate AAPL
will rise from $600 to $601 based on your fundamental/technical analysis. If
there're no market makers, the wouldn't be enough liquidity to inspire any
confidence to take the trade. The order book would be like:

    
    
                601.00  3
                600.50  1
      5  600.00
      2  599.00
    

There's no point to make that $1. It's simply too risky. If there are a buyer
and a seller they both want to trade 1 share instantly. They pay $0.50 in
total to liquidity providers in the market (compared to private settling).

If there are lots of market makers, the order book would look like this:

    
    
                   600.10  950
                   600.05  401
      1200  600.00
       450  599.95
    

Of course, you will choose to trade and make the $1 if market moves as
expected (and a lot of people will make similar decisions). At this time, if a
buyer and a seller comes, they will pay $0.05 in total to market makers
compared to private settling.

I know that your original intent is to make the "private settling" option
available in the market by aggregating all orders in an interval and execute
at once. If that really happens, the order book (which is hidden from public)
will look like this:

    
    
                600.50  2
                600.00  3
      5  601.00
      2  600.00
    

Execution price: $600.60 (Weighted average of overlapping orders). Volume: 5
shares.

In this case, it seems that both the buyer and the seller received a benefit.
But actually it's not true. If your aim is to make profit by selling at $601,
rationally you will keep buying until the price reaches $601. The maximum
price you're willing to pay is actually $601. However, when you see a selling
order at $600, you will place a $600 buy order instead (and you pretend to
have a demand only at $600 or below because you know it will be fulfilled
anyway). In a non-continuous system, you're forced to signal your true demand
at $601 so that you are able to take advantage of favourable prices when
you're lucky (and orders get executed only when you're lucky).

> If the market was as jump and irrational as you think it would be hedge
> funds would make a killing by being smart and rational, until enough entered
> the market with standing limit orders that the price smoothed out.

They are exactly market makers. The market will be "jump and irrational"
without these market makers, especially when everyone signals their true
demand. That's why black-box auctions usually yield much higher prices than
public auctions when people are rational (i.e. not counting the emotional
effects of public bidding). It's just how market works. Similar concepts can
apply to free rider problem as well (for public goods). You know that the
national military can provide you security worth $1,000 a year, but obviously
you pretend to be unwilling to pay anything when the service can only be
provided for free. Market equilibrium price quickly reaches $0 with no guess
work.

The way market works makes the prices very predictable. Even the flash crashes
are smooth ( _with_ the market makers). The "riskless front running" is a
symbol of market competition. Yes, some guys are going to offer you one cent
better, they should have the priority in the queue.

I don't want to comment on the influence in economic activity. What I know is,
more liquidity = less risk for holding shares. What market makers earn is not
a tax. It comes from the money that bigger market makers will earn anyway
($0.01 spread with 50 shares traded vs $0.50 spread with 1 share traded).

------
kristianp
Here is Cuban's blog entry in which he states that HFT-ers are (the bad type
of) hackers: [http://blogmaverick.com/2010/05/09/what-business-is-wall-
str...](http://blogmaverick.com/2010/05/09/what-business-is-wall-street-in/)

------
ajays
I keep hearing about HFT, and have read about it a little. But there's a
surprising dearth of data.

Can someone come up with a data set? For example: here are N inputs to the
program. If the program can make a decision D in time T, then it can make
money. Or something to that effect. I have no idea right now what the inputs
to these HFT programs are; what the expected actions under the time
constraints are; and how the effectiveness is measured (in terms of the given
data). Someone please enlighten me.

~~~
ajtulloch
Sure:

1\. Data set - order book of your chosen stock exchange. Events being streamed
in at rates up to 1Gb/s [1]. This is the entire set of actions affecting the
order book - bids, offers, cancellations, adjustments, etc. - it's huge. If
you want to get fancy - most do - you would typically pull in several of these
feeds (or subscribe to a consolidated feed) containing several exchanges, and
look to arb any price/book inefficiencies.

2\. Actions - given the changes to the order book, figure out how you need to
change your positioning to make money. Time is everything here - steps here
are counted in tenths of milliseconds, and overall response times in low ms.
HFT firms even try to minimise cable lengths within the colocated datacentres
to shave the time to response down even further.

3\. Effectiveness - if you didn't blow up, and if so, if you made money -
typically you'd examine intraday PnL volatility, returns, etc. and assess
yourself on those and other metrics.

~~~
ajays
How about releasing some data? Do some feature generation and come up with
features, along with the desired action (the best possible action, given that
you know how things are going to go in the future). Then us clueless types can
see what all the hubbub is all about :-)

------
kristianp
I for one don't agree with HFT. Why should our best hackers and mathematical
minds be wasted on something so shallow as gaming the market?

Would a small randomised delay introduced by the exchange into each stock
trade (or price datum) reduce the incentive for HFT?

~~~
sskates
Can someone explain this mindset to me? That there is somehow a fixed amount
of mathematical talent in the world and if there are people whose preferences
make taking a job in HFT optimal then society is necessarily worse off.

~~~
jberryman
Well, speaking broadly about finance vs other more productive fields of human
endeavor, there is a staggering amount of brain drain of the (very much
finite) graduates of ivy league schools to the finance industry:

[http://www.wbur.org/npr/146434854/stopping-the-brain-
drain-o...](http://www.wbur.org/npr/146434854/stopping-the-brain-drain-of-the-
u-s-economy)

I think it's obvious that that doesn't mesh with the narrative we tell
ourselves about the importance of higher education to society at large.

------
cletus
This post is being used as somewhat of a stalking horse for any number of
other agendas and soapboxes, which I guess isn't surprising, so I'll join the
fray.

1\. There is a misconception about market makers and the nature of a spread.
In particularly illiquid markets, market makers allow you to buy and sell
immediately. This is a service. The spread pays for this service. The more
liquid a market is the lower the spread (eg it is essentially if not actually
zero on US Treasuries);

2\. For those questioning our brightest and best being "wasted" on HFT, I see
comparatively better value on all the bright minds being wasted on social
networks;

3\. Finance is a constant arms race. The flavour of the month is HFT. In 5-10
years it'll be something else where low-latency transactions are just taken
for granted. This kind of market is a gold mine for innovators as the existing
players need a certain amount of innovation just to stand still (relative to
the other players). There is classic "mine the miners" opportunity here;

4\. There is a lot of highly-leveraged trading that goes on, automated and
otherwise, beyond the world of HFT. (I believe) Warren Buffett describes this
as "picking up nickels in front of a bulldozer" [1]. In extreme market
situations, market models go out the window and the highly leveraged are the
first to go to the flames. Just ask Bear Stearns [2] with its 35:1 leveraged
ratio.

5\. Financial institutions have access to way more data and cheaper (typically
free) transactions compared to the average investor. It's common practice to
do things like whipsaw the market to hit stop loss orders and the like.
Honestly, unless you're a bank in the short term it is an insider's game;

6\. A lot of the problems with the lack of transparency, assymmetry of
information between parties and bad behaviour (like flooding exchanges) comes
down to a failure of regulation. The SEC is either toothless or has been
subverted by political interests. Much of what happens in the US just doesn't
happen in Australia (to the same degree at least). Just take all the fake
documentation in the US housing bubble. How bank executives, loan originators
and the like didn't go to jail for this is really astounding;

7\. Banks and market funds have limited to no downside risk. If things go
horribly pear-shaped the US Federal government will-- _and has_ \--bail them
out. This breeds an adverse appetite for risk. I subscribe to the view that
the Federal Reserve, the World Bank and the IMF are in large part welfare for
investment bankers; and

8\. Banks and funds are too large. If something is "too big to fail" then it's
too big and needs to be broken up.

That is all.

[1]: <http://en.wikipedia.org/wiki/Long-Term_Capital_Management>

[2]: <http://en.wikipedia.org/wiki/Bear_Stearns>

~~~
yaix
"""The SEC is either toothless or has been subverted by political
interests."""

Or politics is subverted by financial interests? If you have to find your own
financial sponsors in order to run for a government office, it is hardly
surprising that finance runs the show.

------
evolve2k
'Is the market supposed to be a platform for companies to raise money for
growth and to create liquidity and opportunity for shareholders as it has been
in the past? Or is the stock market a laissez-faire platform that evolves
however it evolves? The missing link in all the discussions is: What is the
purpose of the stock market?'

------
asto
If a person is successful in one business should we subject ourselves to his
idiotic views on another business?

 _By definition they can’t go into an equity unless there already is
liquidity._

HFTs who are usually market makers [1] maintain liquidity in the market by
constantly having buy/sell orders open for many instruments/scrips. In their
absence, a counter trade may not exist for matching against when you or I put
out a sell/buy order. Being able to sell/buy a scrip/instrument within seconds
is a valuable service that investors appreciate. In India, the securities
exchange regulator mandates that all market makers make a minimum value of
trades per day. I am not sure of the exact current values in each segment but
it's in the order of millions of rupees. This is how regulators create
conditions of liquidity so that markets are nicer to trade in especially for
retail investors.

 _The missing link in all the discussions is: What is the purpose of the stock
market?_

The stock market can be divided into a primary market and a secondary market.
The primary market exists to finance companies. When they IPO, cash is
generated which they can use to fund business activities. The secondary market
exists to encourage purchases in the primary market and to efficiently
discover the price of the securities. Without a liquid secondary market, very
few investors would be interested in a primary market.

HFT is only doing what was already done since many years ago manually. Humans
make the same mistakes computers are being programmed to make today. In their
defence, they execute exactly as asked - they feel no fear, doubt or greed -
unlike a human trader . Should we treat them as being harmful because
computers make mistakes at a significantly faster rate? HFT is a still nascent
concept. With sufficient regulation, we will likely be able to get rid of the
problems and retain the advantages.

[1] <http://en.wikipedia.org/wiki/Market_maker>

~~~
JonnieCache
_> hould we treat them as being harmful because computers make mistakes at a
significantly faster rate?_

Yes. Significantly doesn't really cover it. When you increase the rate of an
activity by many orders of magnitude and put an AI behind it, it _becomes a
totally different activity,_ even if the mechanics are notionally the same.

------
yaix
HFT is just another area where everybody knows that it is broken, it does not
serve any useful purpose for society, and everybody knows that eventually it
will lead to a huge crash. And nobody does anything, because there is just too
much quick money to be made. Humans...

------
romansanchez
Does anyone know if the software used for HFT is built in house or is there a
particular vendor that specializes in this particular market?

~~~
josephagoss
From what I have read, its all in house, the software (including the
mathematical algorithms) is the most important center point of a HFT shop. No
vender would sell a competitive software system because they would make more
money using it themselves.

------
ajtaylor
"To say they’re adding liquidity is like saying spitting in a thunderstorm is
adding liquidity." Best quote of the whole article!

------
bogger
MC is confused.

High frequency trading covers a broad range of trading strategies, some of
which are beneficial to market participants.

In particular, were all automated market making to be banned, we would see a
huge jump in the cost of trading.

The fuss about HFT is distracting people from the much more serious problem of
good old-fashioned insider trading, which remains rampant.

------
wikkiwa
Here's an interview with a pro high frequency trader from a top shop if you're
interested. [http://techzinglive.com/page/1049/185-tz-interview-james-
tho...](http://techzinglive.com/page/1049/185-tz-interview-james-thomas-
headlands-technologies)

------
infinii
There's the sentiment that exchanges allow this because they are "businesses".
What's to to stop exchanges from front running the HFT front runners without
their knowledge and stealing all the marbles?

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dm_mongodb
it seems to me that the exchange adding a small random delay (say 1ms) on
message reception would dampen the benefits of speed and then there would be
less work invested in saving a few microseconds here and there. you still have
program trading but a little bit of silly dynamics is dampened.

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mkramlich
HFT has some qualities which make it unattractive to me:

\- strategically, it's an unbounded arms race, due to competing against lots
of other HFT forces all trying to squeeze profits quickly out of micro
opportunities in bid/ask numbers, news leak/announce gaps, etc.

\- due to above, there are high technical and talent costs just to have the
minimum setup needed to play in that game

\- also following from the first thing, HFT becomes an additional profit
motive for adding destructive, dishonest political vectors to society, such as
corruption and propaganda, in order to time trades, do front running, insider
trading, war profiteering, bankster conspiracies, etc.

\- short-term thinking

\- lastly, you're fundamentally not building anything real or positive for the
rest of society outside HFT and your direct clients/owners; or making the
world a better place; to others, you're just a parasite on the money flows,
adding more noise and chaos, and arguably risk, to the economy

I like to compare it to the alternative, strategically-speaking: LFT (low
f.t.)

\- lower costs (your fixed & marginal costs "scale down" better, which is also
better in the startup phase. Think lemonade stand, a small simple web SaaS,
contract development -> software product company, etc.)

\- longer-term thinking & bets (buy & hold; future trends, etc.)

\- actually building, investing, helping others, bringing new
products/services to the market, solving problems for others for profit

LFT could be used to describe traditional stock investing, it could include
personal relationship investing, personal health/skills investing, building
lifestyle businesses, building startups to flip, doing R&D, invention &
marketing, etc.

Both HFT and LFT can make you wealthy on the top end scenarios. But LFT scales
down to the low end scenarios and early phases better, and you can tangibly
and visibly see improvements to the world that you've made happen. Both can
benefit from hacker thinking. But to me, it's clear which is the healthier
choice for the individual and society, in the long run.

