HFT's good or bad?

[manojv]

The other thing that has been misleading with the whole "HFT as market manipulator" line of thinking is that it is really expensive. HFT by and large are liquidity providers and if all that volume went to liquidity taking (which is required for really serious manipulation) all the profits would turn to losses.

That's conflating two strategies. Market making is market making. Liquidity taking is used for other purposes like momentum acceleration, news arbitrage, accumulate and dump, etc. The term HFT is misused sometimes to denote single strategy when it's really a group of different strategies -- market making being just one of them

 

[Yike Lu]

Obviously there is liquidity taking HFT and obviously it is possible to manipulate with it, but if you do the back of the envelope calculations, there is no way the manipulation takes place on the kind of scale most people imagine. It is just too expensive (spreads, exchange fees) and also inherently difficult on liquid stocks.

 

[Harkkam]

The type of manipulation that bothers me is the order entry and immediate cancellation. It creates a fake market depth, when orders are layered and then instantly removed when you try to hit the bid or take the offer, the next lowest bid might be 50 cents below when you though you had a bid right under you.

I look at that many cancellations as an intent to deceive and hence therefore manipulation, a entity has the right to cancel an order but not 400 times a ms.

A bid on ebay is binding contract between you and the seller, an advertisement for a car at 17,000 is a legal offer and if the car dealer refuses to sell it to you for 17,000 thats a breach.

But its okay for an HFT firm to post hundreds of offers and bids that they have no intent on having them executed, and because of their speed advantage they can manipulate the market.

A fee is being considered by SEC for too many offers and bids being cancelled, hopefully this will remove the profit from this type of manipulation.

 

[bigbadwolf]

The type of manipulation that bothers me is the order entry and immediate cancellation. It creates a fake market depth, when orders are layered and then instantly removed when you try to hit the bid or take the offer, the next lowest bid might be 50 cents below when you though you had a bid right under you.

You're looking at the wrong kind of business, bud. No-one here (that I know of) has moral qualms about the rigging of financial markets. This rigging, in all its manifold aspects, is the only thing propping up the US economy.

 

[diegosanaz]

I actually agree with Harkkam. Not with everything, but I do hope the SEC to aproves the fee for order cancellation. Paul Willmott actually is a great quant who also talks a lot of trash about HFT (at least he did at a convention).

 

[Yike Lu]

The type of manipulation that bothers me is the order entry and immediate cancellation. It creates a fake market depth, when orders are layered and then instantly removed when you try to hit the bid or take the offer, the next lowest bid might be 50 cents below when you though you had a bid right under you.

Solutions:
1. Don't use market orders (use limitable market).
2. Subscribe to depth
3. See #1.

It might be abusive but also really simple to get around. No broker uses simple market orders anymore. If your broker does, fire them, they obviously learned nothing from the Flash Crash.

 

[Harkkam]

Solutions:
1. Don't use market orders (use limitable market).
2. Subscribe to depth
3. See #1.

It might be abusive but also really simple to get around. No broker uses simple market orders anymore. If your broker does, fire them, they obviously learned nothing from the Flash Crash.

Or simply ban HFT and kick them out of the market, much simpler

 

[AndrewChang]

Or simply ban HFT and kick them out of the market, much simpler

"you are too simple, sometimes naive." do not misunderestimate yourself