>The behaviors that we want in our markets, price discovery, liquidity, easy risk management
None of which we get from HFT.
HFT cannibalizes the research done by value investors (oh, but it's not legally front running if they're not your customer!), rendering that a market for lemons, so there goes price discovery.
HFT floods the market with more liquidity than it needs during normal periods (there is no benefit to you being able to trade at split second intervals. nada. none) and then extracts it all during periods of market distress when liquidity would acually be useful.
And risk management? Please. They're only managing their own risks.
No but we do get it from market makers. HFT has led to a dramatic decrease in the price of market making. Unless your claim is that market making is not something that should be allowed?
> And risk management? Please. They're only managing their own risks.
My point about risk management was about the aggregate benefits of the markets, not about HFT providing someone risk management. If you have some risk that you want to sell, there will be a buyer for it because of the aggregate sum total of all the zero sum transactions available in the markets.
It's directly causal, algo's fighting for better position directly decrease the spread. Competition has the effect of removing unnecessary markup as the next guy who sells just a bit cheaper or offers just a bit more wins until the price is as close as possible to barely profitable. Humans are too slow to play such a tight game, computers aren't.
By a factor of 25, and it's only not more because there's a law against making them any smaller. And it's very much because of computerization; whether you consider it to be HFT is a question of whether you count the early days when computerized firms competed on price or the later ones when the aforementioned law meant they could only compete on latency.
" it should be said that market makers have existed in the stock market for a long time and that electronic market makers do the job waaaaaaaaaay cheaper than their human predecessors."
Given that the posted article made that comparison and it matches my experience in the industry it seemed ok to "pretend" that electronic market making was a subset of HFT.
I understand that these terms are used differently by different people, so maybe you can define what you mean to make it more clear what you think the distinctions are.
[edit] You've edited your comment since I replied to call me a shill. Full disclosure, I have worked in HFT and make no secret of it. I do not currently.
>No but we do get it from market makers. HFT has led to a dramatic decrease in the price of market making. Unless your claim is that market making is not something that should be allowed?
No, my claim is that market making was made significantly cheaper by electronic trading in the 90s-00s but HFT had very little effect on that.
HFTs do a lot of market making, make almost no profit from it and mainly use it as cover for their more nefarious activities.
>My point about risk management was about the aggregate benefits of the markets, not about HFT providing someone risk management
Great. So even you agree that if we banned HFT we'd be no worse off.
You are ignoring the context of the article in order to push an ideological point.
Levine is explaining how you can get a 95+% cancellation rate simply by running the most brain-dead simple possible market maker strategy: because you're required to post orders at multiple exchanges, and because every price change involves order cancellations (potentially lots of order cancellations, even on a single exchange, because of pairs trading and price ladders), and because adjusting prices on exchanges in near-real-time is the basic job of a market maker, virtually anyone running an electronic market maker is going to have a huge cancellation rate.
Levine brings this up to illustrate the silliness of proposals to regulate HFT by targeting entities with huge cancellation rates.
Comes now 'cdroconnor. You're playing a semantic game. You're defining "HFT" as "bad HFT", and everything else as simple "electronic trading". FINE. Nobody disagrees with you, except on the very boring point of what labels to attach to things.
But your argument here doesn't make any sense for the thread, because the good simple electronic trading you're condoning is also targeted by the cancellation regulation Clinton proposed. Which is the whole point of the article.
The discussion went off course way before I dived in.
>Comes now 'cdroconnor. You're playing a semantic game. You're defining "HFT" as "bad HFT", and everything else as simple "electronic trading". FINE. Nobody disagrees with you, except on the very boring point of what labels to attach to things.
There is a very substantial non-semantic difference between robot-executed sub-millisecond trades (HFT) and trades which are are just executed electronically.
In every discussion about HFT the probability of someone falsely attributing the decreased transaction costs of "not shouting in a pit" to algorithms that execute sub-millisecond transactions approaches 1.
>But your argument here doesn't make any sense for the thread, because the good simple electronic trading you're condoning is also targeted by the cancellation regulation Clinton proposed
I'm no particular fan of that either. I'd prefer Italian style micro-transaction tax. That wipes out nearly all of the sub-millisecond trading and leaves the rest intact, including market making.
You've made it very clear how important it is to you that we call benign electronic trading --- and, I infer, electronic market making --- something other than "HFT".
What you haven't made clear is why you believe you're actually arguing with anyone here. I am 100% certain, because I've had the conversation with him multiple times, that 'kasey_junk agrees with you that there is such a thing as malignant electronic trading.
Exactly what is the controversy here? The people who are talking about HFT reducing spreads are talking about benign electronic trading, and none of them appear to be denying that there are other kinds of electronic trading.
>What you haven't made clear is why you believe you're actually arguing with anyone here. I am 100% certain, because I've had the conversation with him multiple times, that 'kasey_junk agrees with you that there is such a thing as malignant electronic trading.
I was arguing that sub-second algorithmic trading cannot be credited with substantially reducing spreads in the early 00s.
kasey_junk linked to an article that claimed that.
It's a defense of HFT that's rolled out so often that it's practically become a cliche.
None of which we get from HFT.
HFT cannibalizes the research done by value investors (oh, but it's not legally front running if they're not your customer!), rendering that a market for lemons, so there goes price discovery.
HFT floods the market with more liquidity than it needs during normal periods (there is no benefit to you being able to trade at split second intervals. nada. none) and then extracts it all during periods of market distress when liquidity would acually be useful.
And risk management? Please. They're only managing their own risks.