Barbarians At the Gateways 321
CowboyRobot writes "Former high-frequency trader Jacob Loveless gives an in-depth description of the math and technology involved in HFT. From the article: 'The first step in HFT is to place the systems where the exchanges are. Light passing through fiber takes 49 microseconds to travel 10,000 meters, and that's all the time available in many cases. In New York, there are at least six data centers you need to collocate in to be competitive in equities. In other assets (foreign exchange, for example), you need only one or two in New York, but you also need one in London and probably one in Chicago. The problem of collocation seems straightforward: 1. Contact data center. 2. Negotiate contract. 3. Profit. The details, however, are where the first systems problem arises. The real estate is extremely expensive, and the cost of power is an ever-crushing force on the bottom line. A 17.3-kilowatt cabinet will run $14,000 per month. Assuming a modest HFT draw of 750 watts per server, 17 kilowatts can be taken by 23 servers. It's also important to ensure you get the right collocation. In many markets, the length of the cable within the same building is a competitive advantage. Some facilities such as the Mahwah, New Jersey, NYSE (New York Stock Exchange) data center have rolls of fiber so that every cage has exactly the same length of fiber running to the exchange cages.'"
I may be in favor of fewer laws that restrict citi (Score:2, Funny)
But writing an article on a topic this boring and tricking me into reading it by sneaking in the word "barbarians" should be a crime.
Very informative, enjoyed it a lot.
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Liquidity (Score:5, Insightful)
Please, I just pray nobody justifies this obvious non-productive activity by explaining it lends necessary liquidity to the markets. The markets were liquid enough for me back when telegraphs were used to send messages to human traders.
Re:Liquidity (Score:4, Funny)
The signal was taking too long to cross your lawn. So we foreclosed your house. Bye.
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Re:Liquidity (Score:5, Insightful)
The only real problem I can think of is that we've replaced that useless lump who has no real skills with mathetmaticians and engineers who could be doing something more useful elsewhere. It's probably not a great use of those resources, but it's pretty small scale.
Re:Liquidity (Score:5, Interesting)
The deployed their test harness instead of their HFT bots for 44 min and lost half a billion in that time - now out of business. I made good money during that time using human judgement. You can often catch an accidental high bid or low ask from an HFT, when they screw up, which is fairly often, as well.
Re: Liquidity (Score:3)
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It really depends on what do you define as being "close to the action". If you define it in terms of "old telegraph days", basically *every* trader is too close to the action. And that is where the problem is. This days it is nothing more than a global casino that provides zero social value.
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So it ok so long as you can do it?
Is that a question or a statement? If I did it, it would still be wrong because whether I'm in the upper or lower class, class war from the upper to lower is wrong. So which class I'm in doesn't change the wrongness.
Anyone can trade these strategies. That includes you.
Yes, and anyone could become a cop and abuse races they don't like, so racism isn't bad. Gotta love the logic of the Church of Money.
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Actually, the opposite is what happens: sell prices are minimized while buy prices are maximized. That's the whole point, they make their money in the difference. Where in a non high speed system, someone looking to sell at 10 and someone looking to buy at 11 will end up with one or the other of them getting screwed out of money they could have captured, a HFT system will notice the spread, but from one at 11 and sell it to the other at 10 and capture the difference for themselves. Neither the buyer, no
Re:Liquidity (Score:5, Funny)
a HFT system will notice the spread, but from one at 11 and sell it to the other at 10 and capture the difference for themselves.
I would not recommend buying high and selling low as a long-term strategy.
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+1 Funny
Re:Liquidity (Score:4, Funny)
a HFT system will notice the spread, but from one at 11 and sell it to the other at 10 and capture the difference for themselves.
So I guess they make it up on volume?
What purpose does HFT serve? (Score:5, Insightful)
Please enlighten me, dear wizards of the wall street. Please teach me what purpose HFT serves to our economy.
Somehow, to me this just looks like it is the most blatant proof that the whole stock trade has become a self serving gambling place without any connection to reality and economy anymore. It used to serve the purpose of accumulating money for projects larger than what any single person or even government could finance. Today, it is just a self serving leech on our economy.
Re:What purpose does HFT serve? (Score:5, Informative)
This isn't even gambling. It's pseudo-precognition, taking advantage of price differentials between computers in different cities or buildings, before the other guy's system promulgates the updated price.
Re:What purpose does HFT serve? (Score:5, Interesting)
It's a technical form of arbitrage, which is not illegal and may improve market liquidity. I think the downside is that trades are made on the basis of inferred choices and this distorts the real market influence of "People who invest" versus "Machines that exploit market mechanics." The former requires contextual analysis and the ability to evaluate products, management teams, etc. The latter is a numbers game of pre-destined metric comparison, equivalent to banal tasks such as gold farming in an MMORPG.
Re:What purpose does HFT serve? (Score:4, Insightful)
Just because something is legal doesn't mean it's right. 400 years ago it was legal to burn women as witches. And just 50 years ago it was legal to kick a black guy out of a bus for sitting on the wrong seat.
And since laws are made by those that have the money, take a wild guess who laws benefit.
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"Arbitrage" is a real and beneficial thing when you have a pack animal and are shelping goods to the nearest village on the other side of a mountain. It is good because it allows goods to be distributed where there is demand more efficiently and over time it helps to make sure the people who produce goods get to sell closer to what customers are willing to pay. This happens because the demand of the traders over time will increase the price at point of production as they compete over sales at the point of
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Not to mention taking advantage of preferential treatment.
Re:What purpose does HFT serve? (Score:5, Insightful)
I'm obviously a rube with regards to how the magic happens beyond "Strike first, strike fast, strike often!" but it's pretty fucking clear to everyone that Average Joe doesn't benefit one bit from this unless he's bought stock in SuperHFT TradeCo.
Nobody benefits from this except 1/100th of 1%'ers trying to move into the 1/1000th of 1%'ers at the sake of making sure that you or I can't possibly play, because the playing field is so un-level it's a miracle we don't slide right off it... ...after leaving our wallets.
Re:What purpose does HFT serve? (Score:5, Interesting)
We slid off the playing field years ago. This video takes just six minutes. It's a factual demonstration of just how skewed the system really is. [youtube.com]
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We live in a democratic Republic. You vote. You vote for people who represent you. Those people create laws. That makes it a Democratic Republic. We don't vote on every piece of legislation, as that would be and is impractical.
Of, by and for the people is a phrase from the Constitution setting up the Representative Government we have, and the three branches of that governance. The phrase is there for a reminder of WHO the government is supposed to serve.
Now, as yourself this. Does government server "we the
Re:What purpose does HFT serve? (Score:5, Informative)
The Zeconomist has a debate about it
http://www.economist.com/debate/days/view/816 [economist.com]
Re:What purpose does HFT serve? (Score:4, Informative)
Interesting debate, I'll have to finish reading it at some point.
After reading the opening statements, it seems to me that the pro-HFT guy, Jim Overdahl, is confusing the use of computer automation to reduce transaction costs (which benefits the whole market) with HFT firms that act only as middle men (which benefits only the HFT firms). I didn't realize people could get caught up on such a simple point, but perhaps this is the only way someone could think that HFT is actually a Good Thing.
Of course computer automation lowers transaction costs, and of course that's a good thing. Adding a minimum hold time, or taxing very short term holds wouldn't eliminate that benefit, though. It would only eliminate the middle men.
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I did not get that from the article. The gold standard for measuring transaction cost is “Implementation shortfall” which factors in explicit costs and implicit costs.
Explicit costs are commissions costs (which don’t factor in much) and the bid/ask spread. The spread has fallen from $.125 cents to under $.01. For people investing in mutual funds / ETFs the NAV / Price spread has collapsed. ec. My best guess is algorithmic trading have cut these costs by 50% to 80%
Implicate costs factors in
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Didn't got the memo? Life, love, having a future, those pesky humans that ask for their rights, health, etc have the lowest priority. What really matters is money, making it as fast as possible, is like checkmating the other king in chess, no matter how much pawns or higher pieces you must sacrify for that. HFT, as a refinement for reaching that ultimate goal, is great for that. Even if things screws up badly and big banks behind it gets hit, they will be bailed out, is a no risk bet. And while money keeps
Re:What purpose does HFT serve? (Score:4, Insightful)
I love that phrase, "making" money. When you think about it, this kind of activity doesn't "make" money at all. It does not create wealth. It shifts wealth that exists, to feed the bottomless avarice of the parasites who think they are entitled to something for nothing. The only thing that can CREATE wealth - i.e., feed people and house them - is actual useful work that produces products like food and housing.
Re:What purpose does HFT serve? (Score:5, Informative)
Please teach me what purpose HFT serves to our economy.
This question has been beaten to death every time a HFT related article is posted. But people still ask, so I will try to answer. High Frequency Traders (HFTs) are not investors, they are market makers. They find a willing buyer and a willing seller, arrange the transaction, and execute the trade. They make a profit on the spread between the buy price and the sell price. The problem is that once they locate the buyer and seller, they need to buy the stock from the seller first, then turn around and sell it to the buyer, but the buyer may have cancelled they transaction, or they may have already bought the stock from someone else, in which case the HFT is stuck with the stock and may have to sell it to someone else at a loss. If transactions are granulated to one second intervals, instead of say, millisecond intervals, then the risk of this happening is a thousand times higher , and the HFTs will insist on higher spreads, resulting in lower liquidity and higher transaction costs for both buyer and seller.
Since the introduction of high frequency trading, transaction costs have fallen considerably, saving plenty of people a lot of money. The only losers are the old market makers that used to have lucrative sweetheart deals with the exchanges. Many of those old market makers are now bankrupt. Good riddance.
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And in exchange for this liquidity, we get flash crashes and Goldman Sachs going "oops, that was a mistake. NYSE, please unroll the last thousand trades that resulted in us taking losses."
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And in exchange for this liquidity, we get flash crashes
The flash crash was not caused by HFT. In fact, the SEC investigation determined that most active HFTers were trading against the decline, thus making the crash less severe. One of the SEC recommendations was to find a way to keep more HFTers active during big swings because they help to keep the markets stable.
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The SEC is full of shit. Here's a cute summary why: http://www.zerohedge.com/news/2013-06-18/sec-uses-hft-firm-designed-tool-find-hft-doesnt-cause-flash-crashes [zerohedge.com].
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Humans must, by definition, use human psychology to make these decisions.
This is incorrect since you haven't explained why human mental processes will come to difference decisions than non-human mental processes.
Let's give an even more constrained example, the game of tic tac toe. After a bit of thought, most humans will come up with a strategy that is perfect, that is by which they can never lose and will win, should the opponent give them the opportunity. The problem is so constrained that human psychology doesn't have a chance to manifest except possibly as a preference fo
Re:What purpose does HFT serve? (Score:5, Informative)
Please teach me what purpose HFT serves to our economy.
... they are market makers. They find a willing buyer and a willing seller, arrange the transaction, and execute the trade.
Umm, bullshit. The exchange is supposed to match up buyers and sellers. That's what exchanges are FOR. If there is a buyer but no seller, then the market maker steps in and sells at a higher price. If there is no buyer, the market maker buys at a lower price. This is how price movements happen. HFT is a middleman. If there is no buyer or seller, then HFT wouldn't go in on the trade at all. If there is a buyer and a seller, HFT does not need to exist, since the exchange is supposed to match up the two parties already.
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Umm, bullshit. The exchange is supposed to match up buyers and sellers. That's what exchanges are FOR.
The exchanges are made up of their members. The members are brokerages that execute trades on behalf of their clients. You, as an individual, cannot log into the NYSE computer and execute your trade anymore than you could have walked into the pit during the old paper-based days. So why can't you trade with a "member" instead of a HFTer? Because the members are the HFTers. For all practical purposes, the HFTers are the exchange.
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You make no sense. Sure, I have to go through a brokerage to make a trade on the NYSE. Where would that trade go if there were no HFTers? I bet it would go to another brokerage that was buying/selling, or to a market maker, which would move the price. What makes the HFTs necessary, other than their overwhelming presence in the trading volume by virtue of being there?
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Where would that trade go if there were no HFTers? I bet it would go to another brokerage that was buying/selling, or to a market maker, which would move the price. What makes the HFTs necessary, other than their overwhelming presence in the trading volume by virtue of being there?
If HFT was outlawed, old fashioned cigar smoking brokers would presumably come back, and they would charge fat fees, just like they used to. But the world would continue to turn. I am not saying that HFTers are necessary, just that they are beneficial.
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Except for the rest of the marks -- or "traders" as they were once known -- without whom HFT companies would have no-one to scrape all those pennies from.
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HFT is a middleman.
I think your two statements answer the whole thing. Marketmaker was the middleman. Nowadays HFTs are the middleman. HFTs act as marketmakers. There is no difference.
In earlier days there were fixed brokerage commissions. The market makers (humans) could make a living trading just a few stocks. After fixed fees were removed, the fees continuously dwindled. In early 2001, the SEC accused market makers of collusion and intr
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An excellent explanation. The only thing I'll add is that also, these traders aren't even working in a single exchange. A buyer might make an offer in New York, and end up getting the security from a seller in Chicago. Instead of having a millisecond granularity, they're bound by the speed of light to having a bigger window (and bigger risk). That's why they're so interested in low-latency connections.
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High Frequency Traders (HFTs) are not investors, they are market makers. They find a willing buyer and a willing seller, arrange the transaction, and execute the trade. They make a profit on the spread between the buy price and the sell price.
Except that a neutral third party (the exchange) could connect the willing buyer and willing seller who both are willing to perform the transaction at higher prices, and split the difference. i.e. the Seller is selling for $1.05 and the buyer is willing to pay $1.06. HFT makes money by buying from the seller, selling to the buyer, and pocketing the $0.01 (minus expenses and trading costs.)
But wouldn't the buyer and seller be better off if the exchange, who is taking a transaction fee to perform the servic
Re:What purpose does HFT serve? (Score:4, Insightful)
Your post is otherwise insightful, but the derision expressed by that statement counteracts the value you've brought to the discussion. As for your comment on bankers: holding your money is indeed half of the job of retail bankers (the other half being to lend to loan-worthy borrowers, which includes the oft-neglected part of actually determining who is loan-worthy). I'm pretty sure laymen have no issue distinguishing between retail and investment banking.
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I don’t think your statement applies. There are market makers in a centralized order book market.
As it stands today, quote driven markets have a higher certainty of completion of a trade then an order book market. That uncertainty is a risk for the market makers in a order book system, which drives up their costs, which drives up the spread and lowers liquidity.
There will always be a temporary imbalance between long term buyers and long term sellers which a middle man / market maker can exploit. Think
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oh this is an easy one...
HFT has only one purpose nowadays, to suck the $85bil USD in quantitative easing money (QE) that our federal government pumps into the market every month *out* of the market in light speed.
why do you think these guys are worrying about fucking cable lengths?
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oh this is an easy one...
HFT has only one purpose nowadays, to suck the $85bil USD in quantitative easing money (QE) that our federal government pumps into the market every month *out* of the market in light speed.
why do you think these guys are worrying about fucking cable lengths?
Except its the FED (a collection of private banks) pumping the money in, and HFT (at other private banks) coming along to suck it out...
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Seems a bit like how wars speed up development in technology and medicine...
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Of course it is not gambling -- it is a form of legalized front-running. This entire ecosystem of parasites could be trivially destroyed if regulators change the way market matches bids and asks -- for example by stipulating that trading needs to be done in round of 1 minute each -- first 50 seconds it accepts bids and asks, and last 10 -- matching them in fair manner (and splitting margins between participants). That is it -- in a blink of an eye all these smart men will be off doing smth actually producti
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That's actually a very interesting solution I hadn't previously considered. The SEC or related entity could implement an automated computer system to act as arbiter for all exchange transactions, thus eliminating all middle men. This would provide any and all benefits that HFT might provide (if any at all), while lowering transactions costs by eliminating the rake that currently goes to HFT firms. Why hasn't this happened yet?
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For the same reason you can't go to the IRS web site and fill out your taxes in a web form instead of paying $79 for TurboTax.
Lobbyists in congress said it was unfair that the government would do something that they could possibly make money on.
Re:What purpose does HFT serve? (Score:4, Informative)
It has been tried. Look up Order Book exchanges. The Paris Bourse was one. The NYSE was a hybrid. They both converted.
Empirically it produced (mostly) inferior results so everybody ditched it for a quote driven system.
The problem with a order book exchange is the decreased certainty of trade executions which increased the risk to market makers which causes higher spreads and lower liquidity.
Now Order Book markets still do survive where liquidity is low or cost is a driving factor. in Dark Pools like ICE. It survives because these trades are more concerned about anonymity and cost then certainty of execution.
Re:What purpose does HFT serve? (Score:4, Informative)
Please teach me what purpose HFT serves to our economy.
The best analogy I've heard is to transportation / shipping. Back when such transport was new, people scoffed at the idea of making money for moving things around. "You aren't producing anything, making anything, it's a complete waste." But today, we can see how moving goods around is actually of extreme importance.
Trading moves another kind of economic good--capital. That is, trading is to capital as transportation is to physical goods.
High-frequency trading is just trading... but faster. You'll notice how the summary mentioned New York and London. This is because the HFTs are arbitraging between those two major exchanges. If they were slower, you'd have more people getting "incorrect" prices, in the sense that there was a better price in NY but the information hadn't been priced into the London exchange yet. Hence, London traders would be getting screwed out of better deals that they technically could have known about.
However, HFT has also become associated with a bunch of "dirty tricks", like flash trading, etc. These kinds of things actually CAN hurt investors and other traders. This gives HFT as a whole a bad name, as it is viewed negatively by those who feel they are taken advantage of by these tricks.
In general, though, HFT has lowered market spreads, meaning it costs less to trade. Those lower costs show up in investors' bottom lines, which obviously include retirement accounts, so a lot of people are helped by HFT. However, I think a lot of people believe that without HFT, money would simply not be "leeched out", because they view traders as middlemen who are price gouging. The problem with this view is that all trading requires either paying middlemen, paying the spread, or taking on risk like traders do. So, take out the middlemen and you'll just pay higher spreads or incur larger risks, both of which are real costs, economically-speaking.
Another thing is that if you check the trading volumes, you'll see that HFT makes up a substantial (50+%) of trading volume. People I've talked to often think this equates to 50% of the "profit" leeched by HFT. This is not so at all... the reason they have such high volumes is they'll buy and sell multiple things simultaneously, then trade back to a fully-hedged position moments later or at least by the end of the trading day. As an HFTer you might buy 100,000 contracts and sell them a bit later and net just $5-10 for the whole thing. Of course, there might be thousands of such opportunities in a given trading day, if you're a large firm with a competitive HFT program. As such, this type of trading incurs a very high volume-to-profit ratio. On top of that, a substantial portion of their would-be profits are eaten up by trading fees. And then, as the summary mentions, you've got substantial electricity costs, top-end hardware costs, collocation costs (which can be obscenely expensive for the prime real estate locations), etc., so it's not at all like HFT is making money hand over fist.
HFT was a big thing a few years ago because it was a new thing, there wasn't much competition, and the profits were fierce. Now it's just the competition that is fierce.
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The best analogy I've heard is to transportation / shipping. Back when such transport was new, people scoffed at the idea of making money for moving things around. "You aren't producing anything, making anything, it's a complete waste." But today, we can see how moving goods around is actually of extreme importance.
Ahh yes, I remember back 12,000 years ago when the transportation industry was new. To think, people once thought it was a useless pursuit...
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We don’t have to go back 12,000 years – I can think of an example of only 150 years ago.
A lot of the same mud being thrown at railroad companies. A common argument was that they did not do anything – that they just shipped the work of other people. Ignoring the fact that their cost was 1/20th of water transport. (East/West trade in the US.)
Re:What purpose does HFT serve? (Score:4, Insightful)
Erh... that was the original idea of stock companies. You can't afford to build $huge_project, I can't and there's nobody who can. Hell, even we together cannot. But if we can find a few hundred or a few thousand people who're willing to invest a few bucks, we can pull it off. And everyone owns (and controls) as much of the company as his shares say.
If this ingenious pinnacle of capitalist ideal, a joint ownership of an enterprise dependent on your invested capital, is now considered communism, the system sure as hell needs a lot of repairs!
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Erh... that was the original idea of stock companies. You can't afford to build $huge_project, I can't and there's nobody who can. Hell, even we together cannot. But if we can find a few hundred or a few thousand people who're willing to invest a few bucks, we can pull it off.
It doesn't have to be that huge. I invested in a corporation that only had 7 shareholders and we didn't need that much money to start it. Just more than any one of us could comfortably part with.
Also, some very large privately-held corporations have less than a dozen shareholders, not being publicly traded.
Easy solution for all their technical problems. (Score:5, Insightful)
Make all offers valid for at minimum one second and poof 99% of high frequency "trading" vanishes.
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Make all offers valid for at minimum one second and poof 99% of high frequency "trading" vanishes.
... and transactions costs go up for everyone. Do you understand that the buy-sell spread has fallen dramatically since HFT became feasible?
Re:Easy solution for all their technical problems. (Score:4, Insightful)
"the buy-sell spread has fallen dramatically "
Is this good, and for whom?
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"the buy-sell spread has fallen dramatically "
Is this good, and for whom?
It is bad for brokerages, that now have lower profits. It is good for everyone that invests in stocks, either directly or indirectly, which includes nearly everyone with a pension fund or even an insurance policy.
Re:Easy solution for all their technical problems. (Score:4, Interesting)
How much? As someone who invests for the long term, I really don't see large spreads affecting me. Right now, looking at google, I see a spread of 16 cents on a $1000/share stock. If I invest in that stock, I'd probably consider anything under 1% in gains a wash, so the spread would have to be over $10 to even factor into my decision making. I don't care if the spreads go up 10x, to $1.50 on that stock, it won't affect me, yes I'll lose that extra dollar or so, but I'm trading on double digit gains/losses, if I buy at $700 and sell at $1000 I don't care about that $1.50, it doesn't materially hurt me. All that HFT does it make the stocks react faster to the news, and the cost is that the HFT people get to suck money out of the market for nothing (though make it liquid I suppose), But is that something we really need? I don't need it that liquid for my investments, and the businesses don't either.
If it was up to me I'd change the stock exchanges to process one trade per account per stock per day, all at 4pm (meaning you got the whole day to enter your trades, speed won't have an effect at all).
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Right now, looking at google, I see a spread of 16 cents on a $1000/share stock. If I invest in that stock, I'd probably consider anything under 1% in gains a wash
Ok, a collective 1% gain on your investment each time you buy and later sell a stock. That's significant right there even if you call it a "wash".
Re: Easy solution for all their technical problems (Score:2)
And as is being asked above, how does this benefit buyers ?
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It benefits buyers as equally as sellers.
It used to be that market makers took $.125 on each stock traded. Now the middle man takes $.001 per stock. The buyer’s and seller’s cost drop by $.12 so each person’s cost drops by $.06
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I'm ok with paying a little for the service of buying a stock.
That's how it was for a really long time, and was good enough to finance industrial revolutions and colonizing most the world.
What can't you do if you don't have quarter-cent microsecond trades?
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I'm ok with paying a little for the service of buying a stock.
You can! There are plenty of brokers out there that would be happy to charge you extra. Or you could just flush your surplus money down the toilet for the same end effect.
What can't you do if you don't have quarter-cent microsecond trades?
Let's turn the question around: What do you hope to gain by passing yet more laws that prohibit consenting adults from engaging in transactions that you think should be banned because you don't understand them?
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"because you don't understand them"
Typical internet comment fallacy: I probably know it better than most around here, by virtue of having researched it extensively when I almost accepted a job at an HFT firm.
"passing yet more laws that prohibit consenting adults from engaging in transactions"
Did I state I want to pass any laws? Quarter-cent referred to the spread, since the topic was about reducing the spread for everyone.
Don't read what you want to read, read what I wrote.
The point, sir, is that in the ini
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"What do you hope to gain by passing yet more laws that prohibit consenting adults from engaging in transactions that you think should be banned"
Accounting of external costs, which is recognized as a proper role of regulation in a free market, since the effects of the transaction are provably not limited to just those who are "consenting" to it.
Why do you hate Adam Smith?
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Make all offers valid for at minimum one second and poof 99% of high frequency "trading" vanishes.
... and transactions costs go up for everyone.
You mean, 'everyone who participates.'
A group of people who, at this point, does not include the vast majority of citizens.
I'll go dig out my 5 nanometer violin and play the saddest song ever written for those privileged few.
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So? The only people that would significantly impact negatively is... the people doing high frequency trading. The people who buy a bit of stock a few times a year, or even a few times a week and hold on to it for a few months or years (aka the people who are actually investing in a company) will see a tiny fraction of their investment going to transaction costs. The people who buy and sell based on millisecond to millisecond changes that reflect absolutely nothing about the company whose stock is being t
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You keep repeating this, but the statement is directly at odds with the reality of a growing and profitable HFT industry. If transaction costs are going down, then how are HFT companies making so much money?
The actual reality is:
a) Millisecond HFTs have no effect on transaction costs vs 1 sec transaction speeds, and
b) HFTs make money by reducing value for the slower buyers and sellers at the stock exchange. Buyers pay more, and sellers get less for the same sto
Gross receipts tax (Score:5, Interesting)
Forget "income" - change toa gross receipts tax. It only requires a couple percent (well, maybe up to 4) to have a sustainable tax base. You pay your real estate agent 6% to sell your house, you pay most brokers 2-4%, you should probably kick in a couple percent for the government defending that investment with nuclear weapons.
No deductions, no exclusions. Whatever you receive, you pay 3% to the feds. My town happens to have a GRT for business and it's quite difficult to dodge. It makes HFT and short term, high volume trades a losing proposition. It effectively punishes any entity - person or corporation - which does not add value to a transaction. And that, imho, would be a good thing.
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I'm not sure the math on that will work out.
From the perspective of personal income, we need an average taxation rate of around 27% to balance the federal budget.
And what happens when you transfer money from one account to another? You "receive" the money, so does that mean you get taxed?
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Pretty sure you replied to the wrong post.
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as meaningful as the deb between a husband and wife. It doesn't need to be repaid.
You're not married, are you? Try borrowing $20 from your wife to cover the tab at a restaurant and you'll start using a different example . . .
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It doesn't need to be repaid.
You and I might agree on that but I doubt the FED ownership feels that way.
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Second, it's not government's job to care if there are valueless transactions out there or not. As another poster noted, why aren't they banning American Idol?
seems unreasonable (Score:3)
If a general contractor takes in 100K to build a house, but the vast majority of that is actually in materials cost, why should the town get a percentage of the cost of the supplies? And how do you prevent double-dipping, where they get a cut of the cost of the supplies from the general contractor, and the building company, and the lumber yard, and the wholesaler...
fascinating tech (Score:3)
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I have a friend who is a HFT programmer for a hedge fund in NYC. As he said, he got a six figure bonus for optimizing an algorithm by 4 milliseconds. That's on top of the nearly $250,000 he makes on salary. As he said, yeah, making the extra $100k was nice, but probably made the fund $100M.
He was surprised when I was asking him where they were in the datacenter and a few questions like that as I've read up on that kind of thing back when I worked around what was dubbed a decade ago HPC. (I guess it's "th
Uh (Score:2, Interesting)
Isn't HFT just insider trading?
Insider trading = making stock trades using information that has not yet been disseminated to the open market.
HFT trading = using mathematical algorithms to detect the reaction of the open market to information, and to get ahead of it to make advantageous trades before the entire market can react.
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Insider Trading == using material non-public information to your advantage when buying / selling securities.
If the information inputs to the HFT algorithms are puplic (not sure if they are or not), wouldn't that make whatever was done with them NOT Insider Trading?
Comment removed (Score:5, Insightful)
Because it can be harmful (Score:2)
HFT is innocuous when it works. When it goes haywire, it can have very real consequences. Have you already forgotten the "flash crash"?
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HFT is innocuous when it works. When it goes haywire, it can have very real consequences. Have you already forgotten the "flash crash"?
The "flash crash" was NOT caused by HFT. It was caused by "programmed trading" which existed long before HFT, and, in fact, existed long before computers.
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Have you already forgotten the "flash crash"?
So what were the "real consequences" of the "flash crash"? More hand wringing on the internet?
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Just because *you* don't see a useful purpose does not exist.
Then demonstrate that a useful purpose exists with actual data. Yeah yeah, "market liquidity". Why do markets need to be liquid on the microsecond scale? Prove that there is a benefit to this.
And, just because a useful purpose may not exist, does not mean it should be outlawed.
It should be outlawed because it steals money from people who are investing in companies that do serve a useful purpose. Any money that ends up in the hands of arbitrag
Fiber length? (Score:2)
Some facilities such as the Mahwah, New Jersey, NYSE (New York Stock Exchange) data center have rolls of fiber so that every cage has exactly the same length of fiber running to the exchange cages.
That just seems silly. They should be charging higher rents for the shorter cables.
That's a pretty reasonable price for a rack (Score:2)
I price out data center space (among other things) for a living, and punching in a rack consuming that amount of power in our considerably more remote data center, and using our default profit margins, it didn't come out that much cheaper.
Disgusting: insider trading in milliseconds (Score:2)
Beat speed of light - 2 locations, same algorithm (Score:2)
br>The nearer algorithm likewise will know to expect that responses from the further algorithm will be made prior to them being
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Your first trade once per second is free.
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Every sale is a receipt transaction. Every receipt transaction pays a 3% tax.
Your capital gains in your retirement/savings account and your regular income get taxed at 3% instead of 10-15-20% or a marginal income rate. If you work for a living and invest as a long term play you pay very little taxes. You game the system and try and make money on the margins and through high volume and you face huge taxes.
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these are purely middle men that do nothing more than raise the prices of the commodity they're working with
Actually, they are middle men that lower the price of the commodity. You should look at the history of transaction costs before and after the adoption of HFT. The have fallen dramatically. If they didn't offer better prices, why would anyone trade with them?
the system could, and should, do without them. They server no benefit to the actual users who are using the system as it was intended and globally designed
You have a weird mental model of how stock markets work. They have always relied on middle men to execute the trades. The only difference today, is that the HFTers are far more efficient.
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That's the entire financial sector in a nutshell. A bunch of people moving numbers on a balance sheet and imagining they are more important to progress than the people who actually invent new things and the many many more people who actually build them. It's rent seeking at it's worst.
Put 5 bankers in a room with a broken toilet and you'll have to piss on the floor. Add one plumber to the mix and all is well. So who is the important person there?(assuming you don't enjoy slipping and falling in piss)