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The End of High Speed Trading? - Probably Not

posted by janrinok on Wednesday April 02 2014, @02:07AM   Printer-friendly
from the there-is-money-to-be-made dept.

carguy writes:

Under the headline, "The Wolf Hunters of Wall Street", The New York Times Magazine is running this review of a new book. It tells a long story that ends in the creation of IEX (Investors Exchange), a new stock exchange with the intent of bypassing the unfair advantages that co-located high-speed traders currently have. After a few weeks of operation near the end of 2013, their volume was larger than AMEX(!!)

Here's a quote from near the end of the book review:

IEX had made its point: That to function properly, a financial market didn't need to be rigged in someone's favor. It didn't need payment for order flow and co-location and all sorts of unfair advantages possessed by a small handful of traders. All it needed was for investors to take responsibility for understanding it, and then to seize its controls.

"The backbone of the market," Brad Katsuyama (President & Chief Executive Officer, IEX) says, "is investors coming together to trade." While the article is long, I enjoyed the story. I have no connection to this company, but here's their website.

 
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  • (Score: 1) by khallow on Wednesday April 02 2014, @08:25PM

    by khallow (3766) Subscriber Badge on Wednesday April 02 2014, @08:25PM (#25140) Journal

    HFT distorts real value by interjecting yourself as a middle man by creating false scarcity.

    Ok, how is real value being distorted? In your example, you were willing to buy everything at 10.01, and everyone else was willing to sell at 9.99. Everyone got what they wanted including the HFT trader.
     
     

    Yes they do. Because you submit to 10 exchanges at once. I can watch all 10 and see when they go up and in a few ms make a decision to do the above. You do not even know it happened. Because you are too far away.

    Except that the whole story was about them noticing that it happened. And when they actually came up with a program that traded at the same time on all the exchanges rather than submitted at the same time, the HFT advantage went away. "ms" also refers to milliseconds not microseconds. Googling around, I gather "ums" would be acceptable as an abbreviation for microseconds.

    This whole HFT strategy works because a big trader is doing something predictable on the time scales that HFT works at. It's knowledge that gets used by the markets.

    And it's only a problem because you're only presenting it from the viewpoint of the other parties to the trade. Everything works just fine from the HFT trader's point of view.