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Does High Frequency Trading Add To Market Liquidity? Vote Here

Tyler Durden's picture




 

At this point it is safe to say that the world has far greater issues than simple trade scalping and a broken market structure courtesy of the few robotic algorithms that still trade, even compared to three years ago. Back than it was far less obvious that the global ponzi was on the edge every day, and that only coordinated efforts such as today's one-two punch by Jamie Dimon and his subordinates at the FRBNY could mask the fact that the stress test was never actually needed, as any time banks suffer a 20% drop the Fed would simply proceed to the New QE (pass go, and give the $200 direct to the banks). And yet, years after the flash crash, pervasive central planning notwithstanding, the High Freaks are still around, subpennying, stub quoting, channel stuffing and otherwise making a total mockery of the retail investor (at least the one who is dumb enough to put in a limit order and not split up a big order into many tiny ones). Which is simply stunning - by now, even if reading just a fraction of the hundreds of posts on the topic on this site alone of which this one may be the most encompassing, one would think that everyone, and that even includes the SEC, would be well aware of the borderline criminal, and certainly liquidity destroying (although volume spiking via churn), product that is High Frequency Trading. Apparently not.

It turns out that The Economist is actually having a debate, together with an unscientific poll (if it was "scientific" every vote would have been frontrun by some deranged subpenny algo) on the question of whether "High Frequency Trading contributes to the overall liquidity of markets." There even are formal representatives defending either side. Anyway, we urge readers, not like it will make a difference, to go here and be heard on the matter. Comments and votes can be cast here.

Remember: if the robots are losing, they will simply flash crash this poll into oblivion and all shall be well. In other words, this is another genuinely democratic vote.

 

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Tue, 03/13/2012 - 18:43 | 2252139 Clockwork Orange
Clockwork Orange's picture

Do you agree that the Bernank is a treasonous criminal?

Select your vote below:

 

[  ]  Yes    [  ]  Yes

 

 

Tue, 03/13/2012 - 18:56 | 2252177 ACP
ACP's picture

More like...

After summary conviction, should Bernanke be:

[ ] Hanged

[ ] Drawn and quartered

[ ] All of the above

Tue, 03/13/2012 - 19:09 | 2252202 Xkwisetly Paneful
Xkwisetly Paneful's picture

Please reconcile the perpetual posts wishing for free markets-which given the current ineptitude of the SEC, the equity markets are as free as they have been in my memory,

and yet same folks advocating free markets have a problem with HFTs?

similar to the perpetual cries for an end to fractional reserve banking all the while bitching and moaning when the CME raises margins.

WTF? Want free markets or not? Want to be able to trade on margin or not?

Tue, 03/13/2012 - 19:12 | 2252209 AbruptlyKawaii
Tue, 03/13/2012 - 19:21 | 2252229 citta vritti
citta vritti's picture

Spoiler alert: The wording of the motion has nothing to do, literally, with liquidity but rather, seems sadly ambiguous when peered at too closely, as I suppose one might expect from the Brits:

"This house believes that high-frequency trading contributes to the overall quality of markets."

So, an anti-HFT voter could as easily vote "yes" as "no," since necessarily HFT does contribute to the overall quality of markets, for good or ill, depending on your view. "Quality" by itself says nothing about the voter's view of the effect of HFT. Stupid gits.

Or, this may just be another example of being separated by a common language. In which case, go ahead, junk me.

Tue, 03/13/2012 - 19:32 | 2252257 Xkwisetly Paneful
Xkwisetly Paneful's picture

BTW the question itself is ludicrous,

just look at how they decimated the emini-the supposed culprit of the original flash crash.

http://www.nanex.net/Research/EMini2/EMini2.html

anything short of 32,287 down arrows on the other question will be disappointing,

so sorry for pointing out the earth is round.SEC had to go to third party data providers to investigate the flash crash, pretty much says it all about how much regulating is currently taking place where the regulator doesn't even have the data itself to investigate.

 

 

Tue, 03/13/2012 - 19:42 | 2252299 Id fight Gandhi
Id fight Gandhi's picture

Ambiguity is bullish

Wed, 03/14/2012 - 02:56 | 2253152 overbet
overbet's picture

I like this question better: How hard would it be for HFT to automate clearing his cache and voting over and over again? I doubt hard at all since I was able to vote many times pretty quickly by setting browser to always clear history and cahce on exit and then setting my hompage to the link. Then just open the browser, click your vote chocie, close and repeat. Thats 5 minutes effort from a non tech guy.

Wed, 03/14/2012 - 03:01 | 2253181 overbet
overbet's picture

Try to trade more than a few hundred shares of stock at once and talk to me about improved liquidity. You will move most stocks a few cents with more than 100 order displayed to the market. Its broken deliberately.

Tue, 03/13/2012 - 19:32 | 2252262 Jendrzejczyk
Jendrzejczyk's picture

Interesting point XP. Many have a "quaint" definition of free market. Everyone is free to do as they please including hiring math wizes to write programs that fuck everyone else in a truly free market.

In time, people (the market) will learn how to avoid getting screwed and the HFTs should lose their edge if the entire theory is correct.

Until then, play at your own risk.

Disclosure: Never bought a stock in my life and I'm a financial moron.

 

Tue, 03/13/2012 - 20:07 | 2252389 spiral_eyes
spiral_eyes's picture

free markets with no bailouts.

algos will all get wiped out in the long run; it is extremely fragile. most of the hft strategies are sophisticated forms of martingale.

Tue, 03/13/2012 - 22:41 | 2252823 ACP
ACP's picture

Really? Free markets don't include the arbitrary breaking of contracts and exchanges selling insider information to HFTs a fraction of a second before said information is made public. What about all those cancelled trades after the flash crash? Winnings are doled out to those with connections. How is that free?

After the crash of 87, the SOES was created to force MMs to honor their quotes when they didn't want to answer their phones any more. Back when there was still some sense of fairness in the govt. No so now. In fact, it has reversed course. All the new convoluted systems being introduced are to manipulate the markets or skim off other investors. Oh, but when the system breaks, they get back their money because they fucked up. How is that free?

A free market means the govt and exchanges don't have the ability to pick winners and losers.

Tue, 03/13/2012 - 22:30 | 2252806 lamont cranston
lamont cranston's picture

I'm Homer Simpson's proxy, and he sez that if HFT makes more delicious donuts, he's all in for it. 

Tue, 03/13/2012 - 18:43 | 2252141 Marina
Marina's picture

define liquidity

Tue, 03/13/2012 - 18:50 | 2252158 Piranhanoia
Piranhanoia's picture

How about appearance of liquidity?

Tue, 03/13/2012 - 18:58 | 2252179 AbruptlyKawaii
AbruptlyKawaii's picture

my liver says yes but only if it is colocated....

Tue, 03/13/2012 - 18:46 | 2252145 TraderTimm
TraderTimm's picture

HFT, the herpes of the free market.

Tue, 03/13/2012 - 19:46 | 2252310 Id fight Gandhi
Id fight Gandhi's picture

But herpes is forever. Dis ain't

Wed, 03/14/2012 - 03:36 | 2252363 bluebare
bluebare's picture

I thought everyone fractionalizes their purchases and sales to the ten-thousandths of a cent. I thought I was buying from a human. I was unprotected.  I'm so ashamed.

Tue, 03/13/2012 - 18:46 | 2252147 bugs_
bugs_'s picture

I think its good news that they are asking....late certainly.  Why now?

Tue, 03/13/2012 - 19:21 | 2252228 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Why now?

So they can front-run the connotation of the meme as the general public becomes aware?

  • War is Peace
  • Ignorance is Strength
  • High-Frequency-Battlebots are Good-for-the-Market
Tue, 03/13/2012 - 18:47 | 2252152 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

yes, define liquidity> I was deep underwater on todays move and (paradoxically) felt very illiquid.

Tue, 03/13/2012 - 18:54 | 2252161 Yen Cross
Yen Cross's picture

 Y-FUCKING-YES  ( HFT dilutes bid/ask prices!)

   Markets are human! Not Sky Net! Machines don't Eat, & are not quite " SENTIENTE" yet<>

Tue, 03/13/2012 - 18:51 | 2252162 Rainman
Rainman's picture

There's an HFT viper living under every rock and there are too many rocks to turn over. This is why cans get kicked....aside from valid structural excuses such as blatant point shaving and looting.

Tue, 03/13/2012 - 18:55 | 2252170 Yen Cross
Yen Cross's picture

Snattle rakes.>

Tue, 03/13/2012 - 18:52 | 2252163 HelluvaEngineer
HelluvaEngineer's picture

divide by zero, bitchez

Tue, 03/13/2012 - 18:56 | 2252172 radicall
radicall's picture

Looks like people like HFTs more on an UP day than down or flat day. Look at response distribution.

 

The motion may be unclear to some ... what a Yes vs No means

Tue, 03/13/2012 - 20:36 | 2252482 UP Forester
UP Forester's picture

Doesn't matter.

Diebold counts the votes.

Tue, 03/13/2012 - 18:58 | 2252178 Cadavre
Cadavre's picture

No shit - half of those exiting TARP, according to GAO,  paid off their TARP obligations with taxpayer dollars.

In fact, when dollar debasement is munged into the payment scheme, they actually paid less. That 20 Zillion dollar gold toilet those "ladies" were buying with pre bail dollars have appreciated to twice their initial dollar purchase price - meanwhile when getting the same stack of bills every payday that are worth less with every tick that passes!

In other news, CNN reports swallowing semen reduces breast cancer risk. No wonder Sen. Lindsey Graham is staying in the closet, males in his family must have a history of breast cancer.

If there is anyone, or their girlfriend or their wife, I can volunteer my ejaculations to reduce the risk cancer, please call (not too fat, not too many pimples and not to old, will ONLY be considered).

Tue, 03/13/2012 - 19:00 | 2252181 Id fight Gandhi
Id fight Gandhi's picture

Restate the question I think people are voting wrong.

Tue, 03/13/2012 - 19:08 | 2252200 digalert
digalert's picture

This sounds like a California ballot question where yes means no and no means yes? WTF? I clicked the economist link and no more clear. Does HFT add liquidity? Hell yes, lots of it. Is HFT good? Hell no, these banksters are criminals and everyone knows it.

Tue, 03/13/2012 - 19:29 | 2252250 Racer
Racer's picture

It is a recognised way to 'alter' the responses to questionnaires..

you can manipulate the result purely by the way you word the question!!!

Tue, 03/13/2012 - 19:43 | 2252303 Benjamin Glutton
Benjamin Glutton's picture

yes

no

Do liquidity adding HFT algos result in free market price discovery?

Tue, 03/13/2012 - 20:38 | 2252488 UP Forester
UP Forester's picture

<-- Shoot your left foot

<-- Shoot your right foot

 

Gee, sounds good to me!

Tue, 03/13/2012 - 22:20 | 2252774 Cadavre
Cadavre's picture

Let's see ...

No retail traders.

No volume.

Canceled HFT price discovery orders are liquidity.

The earth is flat and Moma Cass wasn't fat!

One HFT box is trading with itself - well not actually trading - but pretending to trade for the purpose of price discovery,

I guess, if we accept that no-trade offers that are canceled until "the sweet spot" price is discovered (glory be double halalulya), in order to facilitate the one, the only lone HFT box in the universe, between games of chess, of course, may or may not buy or sale shares from, or to, itself can be called market liquidity if that's what the HFT wants to call what it's doing, then, by all means, let it call it "liquidity".

I wonder if the HFT follows CNBC's tick by tick fast money plays of the day?

They can call a dog a cat - but that don't make it so.

Let them eat semantics!

 

Tue, 03/13/2012 - 20:20 | 2252432 bond trader
bond trader's picture

i totally agree. read all dont know how to vote. make it a yes or no on hft.

Tue, 03/13/2012 - 22:16 | 2252748 Schmuck Raker
Schmuck Raker's picture

WTF TYLER?!

You have badly misrepresented the statement being debated:

"High-frequency trading-

This house believes that high-frequency trading contributes to the overall quality of markets."

[Verbatim from The Economist website]

 

If you hate HFT vote NO.

If you're scum vote YES.

Tue, 03/13/2012 - 19:04 | 2252188 Gromit
Gromit's picture

Adds to liquidity when you don't need it, dries up when you do.

Just basically a tax on anyone reckless enough to trade stocks.

Tue, 03/13/2012 - 19:50 | 2252326 Waterfallsparkles
Waterfallsparkles's picture

When the Market sells off hard they beat everyone out the door by milliseconds.

Tue, 03/13/2012 - 19:04 | 2252189 batz
batz's picture

 

 

What is the alternative to HFT, humans on telephones? I mean really, why not just have them use the telegraph, or send transnational dispatches by zeppelin? Speaking of which, I like the cut of that Bass fellow's jib, and my phrenologist said he's got the cranium of a leader.

 

 

Tue, 03/13/2012 - 19:08 | 2252197 Scalaris
Scalaris's picture

HFT sans algo frontrunning, as an alternative, should suffice. 

Tue, 03/13/2012 - 19:25 | 2252239 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

forgot sub-pennying!

Tue, 03/13/2012 - 19:16 | 2252211 TraderTimm
TraderTimm's picture

If we end up with "Economy 2.0" like in "Accelerando" we can only blame ourselves. I use technology to further my purposes, but I detest and abhor technology employed to benefit the most narrow group possible. It would be like inventing light bulbs that only screwed into gold-plated fixtures with a proprietary screw design.

The hell with the other folks, we can see our well-prepared feast just fine, isn't that so Giles? Now bring me my foot-stool, I have a few cigars that need smoking.

 

Tue, 03/13/2012 - 21:57 | 2252703 T-Bond
T-Bond's picture

Batz you're an idiot!

Wed, 03/14/2012 - 14:30 | 2255208 batz
batz's picture

 

 

 

Maybe they would be more successful if they were smarter than an a few lines of code?

 

Tue, 03/13/2012 - 19:05 | 2252190 Scalaris
Scalaris's picture

I'd like to direct The Economist to Mr. Joe Saluzzi, if I may, for a more colourful critique on the current matter. 

Tue, 03/13/2012 - 19:11 | 2252205 Royal Fleming
Royal Fleming's picture

FUCK HFT's and FUCK the SEC and FUCK DARK POOLS AND FUCK . whatelse. OH YEA FUCK PELOSI,OBOOBA,BERNANK,KEITNER,and everyone on CNBS. Did I forget anyone?

Tue, 03/13/2012 - 20:39 | 2252494 UP Forester
UP Forester's picture

That guy that cut you off and took your parking spot at the grocery store?

Tue, 03/13/2012 - 19:16 | 2252213 toadold
toadold's picture

Why yes I believe in purchasing small quantities....of anything but stocks and bonds.  A little gold here, a little silver there, a box of 20 or 50 rounds at Wally World.  A firearm from an individual at a gun show.  Watch out for the ATF or State guy trying to sell you a non-compliant AK.  

Tue, 03/13/2012 - 19:18 | 2252217 TradingJoe
TradingJoe's picture

HFTs and Algos are the death sentence for this "market":)))!

Tue, 03/13/2012 - 23:16 | 2252915 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

In the long term the HFTs are just robbing every non-insider out there. Anti-liquidity since markets require participants with capital. A slow hiss out of the stock market balloon.

Tue, 03/13/2012 - 19:25 | 2252236 ebworthen
ebworthen's picture

 

 

Does stuffing a dead horse with rotten ground beef, pork, chicken, turkey, and shredded fiat dollars make it a Unicorn that shits Skittles and fly over rainbows a meal?

Answer:  NO.

Tue, 03/13/2012 - 19:50 | 2252328 SillySalesmanQu...
SillySalesmanQuestion's picture

+ 1000

Tue, 03/13/2012 - 19:25 | 2252240 dcb
dcb's picture

I assume from the headline that this is a rhetorical question

Tue, 03/13/2012 - 19:38 | 2252281 dcb
dcb's picture

good post, good links, allowes others to see alternative material. This is one of the articles that makes ZH a premium entity. Good job tyler's on this one. !!!!

Tue, 03/13/2012 - 19:41 | 2252291 Waterfallsparkles
Waterfallsparkles's picture

Hft works great on a slow grind higher with no volume but when high volume selling occurs it is like a down elevator to firely Hell.

Tue, 03/13/2012 - 19:41 | 2252292 Browns Bottom
Browns Bottom's picture

Could someone explain this

"one who is dumb enough to put in a limit order"

I thought this would be sensible, you can buy on the dips and sell the spikes (up).

Tue, 03/13/2012 - 23:56 | 2252985 streetcrawler
streetcrawler's picture

“Let’s say that there is a buyer willing to buy 100,000 shares of BRCM with a limit price of $26.40. That is, the buyer will accept any price up to $26.40. But the market at this particular moment in time is at $26.10, or thirty cents lower.

“So the computers, having detected via their ‘flash orders’ (which ought to be illegal) that there is a desire for Broadcom shares, start to issue tiny (typically 100 share lots) ‘immediate or cancel’ orders - IOCs - to sell at $26.20. If that order is ‘eaten’ the computer then issues an order at $26.25, then $26.30, then $26.35, then $26.40. When it tries $26.45 it gets no bite and the order is immediately canceled.

“Now the flush of supply comes at, big coincidence, $26.39, and the claim is made that the market has become ‘more efficient.’

 

Source: http://seekingalpha.com/article/151173-hft-the-high-frequency-trading-scam

Tue, 03/13/2012 - 19:45 | 2252308 ekm
ekm's picture

HFT firmst DO NOT hold any stocks. They buy/sell instantly. 

Hence they need real traders to stick into.

- A lot of human trades, HFT increases liquidity

- Few human trades, HFT decreases liquidity.

Or better, they increase liquidity when it's raining and decrease liquidity when its dry.

Tue, 03/13/2012 - 19:46 | 2252311 Waterfallsparkles
Waterfallsparkles's picture

Now they are talking about getting rid of HFt.  Because if the Market goes down as fast as it went up thru HFT the bottom will be hard to find as HFT will front run every single sell order causing flash crash after flash crash.

 

Tue, 03/13/2012 - 19:59 | 2252356 Xkwisetly Paneful
Xkwisetly Paneful's picture

That is one of the many things I don't get.

During the flash crash the bots sold some securities for one cent off $40+ or something in moments-

How can the author of that algo possibly win in the end?

 

Tue, 03/13/2012 - 23:19 | 2252921 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

XP, it is simple as this. When an algo started to sell a rarely traded stock it kept rebidding the price down since no one would buy. It kept going down do to NO BID.

Tue, 03/13/2012 - 19:48 | 2252320 exartizo
exartizo's picture

HFT is only a symptom of a much larger problem.

GREED RUN AMOK.

As we all know, free markets no longer exist, if they ever did.

Tue, 03/13/2012 - 19:53 | 2252337 FearedDevil
FearedDevil's picture

Simple answer.... NO.  If it did, then it would not have the 10% mechanism to slow executions in freefall.

 

Want a fair system?  Make the handshake of placing and canceling a trade take 1 sec.  Placing a trade is instant and filling is instant.  Then you will see the intrinsict value these machines provide.

Tue, 03/13/2012 - 21:30 | 2252358 SillySalesmanQu...
SillySalesmanQuestion's picture

HFT = Held-Up Frontrunning Trade. As far as liquidity, HFT = Hopium Fueled Trade, This neatly explains why the market is FUBAR until further notice. Buy gold, silver and light sweet crude bitchez...LULZ.

P.S. Hang the Banksters

       Eat the Rich

       Fuck the FED

Tue, 03/13/2012 - 19:58 | 2252361 Chappy
Chappy's picture

HFT's suck.  I've personally seen stocks trade down to my stop, bounce off go up a litgle then go down to my net stop and bounce off again.  I thought I was the unluckiest person alive until I figured out what was going on. It was a shit low volume ETF but that is besides the point.

HFT sucks for small guys.  Stops are supposed to be there for safety but they take advantage.

Tue, 03/13/2012 - 20:31 | 2252472 Clowns on Acid
Clowns on Acid's picture

Chappy - market makers bouncing the market off of reatil based stops is an age old schema. Algo based market makers (not to be confused with HFT trading) will do this all day electronically. Years previous they did it visually watching the "Order book".

 

Tue, 03/13/2012 - 20:42 | 2252501 Chappy
Chappy's picture

I guess I was naive.  I didn't realize the stops were open books for all to see :(

Tue, 03/13/2012 - 20:16 | 2252415 ziggy59
ziggy59's picture

HFT: 0 Liquidity ; ?: Dogshit

a) Bernie
b) Jamie
c) Con-grist
d) All of the Above
e) None of the Above

Tue, 03/13/2012 - 20:29 | 2252459 Clowns on Acid
Clowns on Acid's picture

The Economist is so feckin 90s. Always a month or two behind events then usually publishes some typical bullshiite stuff like this HFT / algo survey as a great example.

In the markets there are only 15 to 20, true HFT trading groups. They usually trade on Exchanges all over the world. Colocation bitchez...r/t trading takes about 80 to 100 milliseconds. Technology hardware/software refreshes can be quarterly and a multi million costs.

Most other market makers or algo / stat arb electronic trading groups (hundreds of them) are greater than 100 milliseconds. Technology hard / software refreshes are usually annual and 50% less than HFT on a per head basis.

The real issues are the vast (and exponentially increasing) amount of mkt data messages that are sent to Exchanges. Most of these messages are never acted upon and indeed are meant to bluff, feint, snooker other algo's behavior. Exchanges are beginning to charge $$ for a "message  to trade" ratio that is too high.

Of course Exchanges want the action, but they are realizing that their tech costs to handle the massive increases in mkt data is not providing the ROI.

Sooo..like all emerging technologies, if they are abused to a subset's benefit, the whole increases costs on their behavior and discourages continuation.

It's technology like the telephone was bitchez..... Oh yeh...true HFT trading firms are totatlly flat by the end of the day, so their actual impact on a directional move is suspect. Algo based trading startegies maybe different and carry spec positions overnight. 

 

Tue, 03/13/2012 - 20:31 | 2252470 Excursionist
Excursionist's picture

If the scope of the question is limited to only liquidity, then how can the answer be anything other than "yes, the presence of HFT market participants enhances liquidity" ?

I suppose an extreme end-state scenario could be HFT algos accounting for 90%+ of volume (vs. today's 50% - 60% in equity markets) without a new law / rule requiring them to always provide simultaneous bid and ask quotes.  But our esteemed regulators would never let that happen, right?

 

Tue, 03/13/2012 - 20:37 | 2252484 Cursive
Cursive's picture

HFT doesn't add to market liquidity, but it does keep markets afloat and that's the goal, right?

Tue, 03/13/2012 - 20:40 | 2252491 Downtoolong
Downtoolong's picture

HFT liquidity providers are limited in the amount of liquidity they can provide no matter how many of them exist or how much money you give them to play with. The reason is that they are all momentum chasers; they all tend to be trading in the same direction in a market at any given time. This herd mentality produces lots of volume and narrow spreads, but most often when no one needs them. This is not liquidity. At best, it is liquidity to enable HFT itself. True liquidity only comes when you have lots of participants in a market with different goals and objectives who are trading in different directions for different reasons. Sadly, these are precisely the end users and true investors that the HFT pirates and other so-called liquidity providers have now done a great job of driving away from the markets for fun and short term profit.  

“HFT is liquidity for the chosen few. Always there when you don’t need it, and never when you do.”

Wed, 03/14/2012 - 07:29 | 2252503 Mercury
Mercury's picture

Sometimes.

It's more like HFT tends to dominate the easiest to access area of the marketplace and when HFTs decide to vanish things tend to get real thin real fast. 

It shouldn't be so easy (and maybe not even legal) to manipulate the mechanics of the market itself but right now I'd say that market fragmentation is probably more detrimental to US equity markets than HFT per se.

 

Tue, 03/13/2012 - 20:47 | 2252506 Rynak
Rynak's picture

On a first glance, i would probably agree that HFT is liquidity "hogging" (on top of a lot of way more serious issues, IMO).... because after all, if existing NOMINAL capital (read FIAT) is trapped in more repeated trades that achieve barely anything than price manipulation.... then obviously that leaves less capital (FIAT/Liquidity) for everything else....

...but then i remember, that bots are not mainstream yet (and for REAL wealth reasons, probably won't be for a while... you just lose too much playing in the casino, without being on the side of those rigging the casino)... and that instead most bots are controlled by marketmakers.... who intentionally use their (fake) capital for that, and wouldn't use it in any more productive ways without HFT (they'd just look for another exploit of what is called the "market" (major dealer videogame)).

So, contrary to intuitive sentiment, i have to disagree: No, HFT is not significantly reducing liquidity (though, it damn certainly is NOT "adding" to it).... because those currently using HFT, would just find another useless exploit without HFT... they're not planning to invest in any remotely fair and reasonable way anyways.

P.S.: This does NOT mean, that those marketmakers are not sucking liquidity from the economy.... they totally do - but their current agenda is to do this anyways... they have no interest in normal reasonable investment, HFT or not.

Tue, 03/13/2012 - 20:50 | 2252517 Cabreado
Cabreado's picture

With regard to the impact of an input into a system in chaos, voting seems strange...

It feels like something to do after a collective resignation to the fact that the Corruption has won.
That's not where we want to be.

Tue, 03/13/2012 - 21:30 | 2252635 Hopeless for Change
Hopeless for Change's picture

They "add to market liquidity" by hijacking all the volume until the shit hits the fan, then they all disappear when we need them.  

Tue, 03/13/2012 - 21:38 | 2252651 T-Bond
T-Bond's picture

HFT is structured theft. I started out in the S&P pit in the early 1980's and trade from a computer now. This notion that HFT is offering the liquidity that the pit did is BS. Why are their servers next to the exchange servers? Not even close to a level playing field. Put a fee on every order entered and they will be gone tomorrow.

Tue, 03/13/2012 - 23:12 | 2252904 geekgrrl
geekgrrl's picture

T-Bond, you are much more knowledgeable about trading than I am, but I'm very curious: why is it necessary for trades to happen on the smallest timeslice that can be processed by the (I assume) central computer that reconciles the trades? Where did the idea that trading should be continuous, rather than discrete, originate?

What I'm getting at here is that I don't see any reason why trades should be happening (virtually) continuously. Where are we at now? Milliseconds, microseconds, nanoseconds between trades? Instead, it seems to make much more sense to me to have trading boundaries or intervals, say every second, or better yet, every 10 seconds, where trades are actually consummated. Then the algo-driven frontrunning operations described by Clowns on Acid simply wouldn't work, because the timeslice has been deliberately adjusted to level the playing field between humans and machines. HFT would fail simply due to the fact that the frequency of the trades has been limited, like a low-pass filter eliminating high frequency noise.

Wed, 03/14/2012 - 01:47 | 2253120 magne13
magne13's picture

T-Bond, I agree 100% HFT is nothing more than implied bids and implied offers, they do not offer liquidity at all in fact they are at the opposite extreme and they are the root cause of no liquidity.  Back even 6 years ago I could buy and sell 300 bonds at a crack and not even move the bonds a tick, simply hit the bid that was there and it probably stayed bid.  Today, you can barely buy a 30 lot and get filled, because the CME allows orders to be structured in a way that fictitiously shows a certain amount but actually you can only get a portion of that amount, so for instance I can run orders and show a 100 lot offered and if I get even 1 lot the rest of my order gets automaticaly cancelled, now how is that liquidity? if the pension funds, insurance cos that use these markets knew how much they were getting fleeced by the lack of volume or "real" players they wouldn't even bother using futures markets, in fact they probably just use Interest Rate Swaps directly dealing with GS or JP no need for futures markets. So I agree the only solution to get rid of these false market makers is to institute a tax on every order and or limit the order entered to 1 full second without being able to pull it, then and only then will we have real markets, right now its whoever has the most money wins.  its a video game.

Wed, 03/14/2012 - 10:03 | 2253839 Hopeless for Change
Hopeless for Change's picture

magne13 you are right on the money.  A big part of the problem lies in the way orders get filled by CME servers (and probably other exchanges).  If robot A is bidding 1,000 contracts and person B tries to sell all 1,000 at one time, instead of filling the chunk all at once, the fill server 'sprays' robot A's bid with little pieces so that it can cancel the balance when it gets a partial fill.  And, of course, the biggest orders get fill priority when that price trades so the robots enter huge orders and cancel the balance when they get small totals.  Yes, wonderful liquidity indeed.  Just look at the size of those bids and offers.  

Tue, 03/13/2012 - 22:08 | 2252732 847328_3527
847328_3527's picture

"What would you like it to be?"

Wed, 03/14/2012 - 00:06 | 2252993 Pairadimes
Pairadimes's picture

This is a bit like asking if bank robbers improve the velocity of money.

Wed, 03/14/2012 - 07:35 | 2253331 Archduke
Archduke's picture

this is the wrong way to look at it.  like any expansion of markets in terms of

number of participants or volumes of transaction HFT indeed adds liquidity,

but its goal is the opposite of what you would assume would be the outcome.

we think of increased market liquidity as something that reduces volatility

and brings better price stability, ie accuracy and fairness of price.  you're much

more likely to get a fair quote prospecting in a huge bazaar than from a single

dealer. but that assumes all participants have access to the same information

at the same time, and thus prices get propagated evenly across all the stalls.

 

HFT is a trick of timing, it makes some trades faster opaque and obscure, but

only for some programatic insiders.  the information is not evenly propagated:

while it seems on the surface to increase liquidity, it also increases volatility

and price arbitrage - meaning price instability. if the classic theory to liquidity

is that it's hardder to make ripples in a large lake than a bucket of water, HFT

is the weapon of increased wind and weather, the ability to make giant waves.

 

Now you'd expect that under normal markets, gravity, ie fees, would even out

and produce fair prices in the long run. only quicker.  that would be true if this

was a closed system.  it's not.

 

The thing about it is that most algo trading piggy backs on customer trades.

There has to be an initial position that the the algo will pre-empt and exploit.

really, apart from trading potshots with rival robotrading, HFT is actually just

a way for market makers to fleece their clients.  It's another hidden fee, a tax.

 

what HFT basically does is create great moments and waves in the fabric,

and then ride the wave pass on the the fees to the initiating customer trades,

it's a faster more sophisticated form of front-running.  period.

 

Wed, 03/14/2012 - 09:13 | 2253608 GMadScientist
GMadScientist's picture

Does it provide liquidity? Yes.

Are the downsides of front-running. flashcrashes, and unregulatability(tm) worth it? Hell no.

 

A transaction tax, waived for orders standing for more than a minute, might save their positive qualities and tone down the negatives.

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