Author Topic: HFT skimming the market  (Read 14855 times)

thezfunk

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HFT skimming the market
« on: March 31, 2014, 11:57:20 PM »
http://www.businessinsider.com/michael-lewis-the-stock-market-is-rigged-2014-3

I have long felt that playing in the stock market was no different than gambling in the casino.  Information like this only reinforces that belief.  I am not surprised by what Michael Lewis is saying, just disgusted.  I have a growing desire for a tax on transactions. 

http://www.reuters.com/article/2014/03/31/us-markets-hft-flashboys-idUSBREA2U03D20140331
« Last Edit: April 01, 2014, 12:04:25 AM by thezfunk »

bobeubanks

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Re: HFT skimming the market
« Reply #1 on: April 01, 2014, 12:40:40 AM »
Day traders at least add liquidity to the market. These guys don't even do that.

Fred93

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Re: HFT skimming the market
« Reply #2 on: April 01, 2014, 12:43:30 AM »
Tax on transactions is the wrong answer.  That would simply add friction to our markets.  The harm done by HFT is that it increases the cost of investing, in other words adds friction.  You wanna just do more, in the name of government? 

The HFT boys do a lot of damage without transactions!  They enter and then withdraw massive numbers of orders, for example, which never become transactions, and therefore would not be taxed.

What is required is to slow them down.

thezfunk

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Re: HFT skimming the market
« Reply #3 on: April 03, 2014, 11:36:49 AM »
Here is the full 60 mins interview.

Total confirmation of what I already suspected.

http://youtu.be/8RFLIj4a2kw

Simply, wow.

Fred93

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Rob L

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Re: HFT skimming the market
« Reply #5 on: April 03, 2014, 05:54:06 PM »
The book is worth reading. 

Flash Boys by Michael Lewis
http://www.amazon.com/gp/product/0393244660/ref=as_li_qf_sp_asin_il_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0393244660&linkCode=as2&tag=nothankyou

Have read several of his books, starting with "Liar's Poker", but not yet this one. He's always a good read.

james

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Re: HFT skimming the market
« Reply #6 on: April 04, 2014, 02:48:17 AM »
A small tax or delay might help.  A free market is one where everyone has free, meaning equal. access.  That is clearly not the case. 

The role of money in markets is expanding so that one persons dollar is not the same as another persons dollar.  I am not a "qualified investor", I do not have access to HFT, etc.  The role of money in poly ticks is also swinging in that direction.  I'm not sure if the system can be fixed from the inside but there is increasing push back from many of us. 

 

Be first, be smarter, or cheat. 2 of 3 ain't bad.

Fred

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Re: HFT skimming the market
« Reply #7 on: April 04, 2014, 03:19:55 AM »
This  front-running -- by the HFT intermediaries -- applies only for market orders.  It should not really be an issue if people put their orders as limit orders : http://www.sec.gov/answers/limit.htm.

Fred93

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Re: HFT skimming the market
« Reply #8 on: April 04, 2014, 03:23:28 AM »
Its a bit more complex, as there are multiple schemes, and some of them do affect limit orders.

When you see an ask at 30.00 and you put in a bid at 30.00, and you see that instead of an instant transaction, the ask moves away from you, that can be the effect of a HFT guy screwing with you.  In fact, this scenario is the one that the Flash Boys book begins with.

GS

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Re: HFT skimming the market
« Reply #9 on: April 04, 2014, 10:01:37 PM »
While I agree with the initial post that HFT is basically skimming, front running, and market manipulation, I have to disagree with the original poster when he says the stock market is like a casino.  Long term, the course of the market is set by investors, not day traders and HFTs.  Sure, they can manipulate the market a bit day to day, and even apparently cause a "flash crash", but if you are in the market long term, and an actual investor, as the stock market was intended to be used, the HTFs will have little affect on your returns.  If you buy and sell once or twice a quarter, like I do, they may get me for a couple cents a year, but they are not having any real affect on my investment returns.  I'm paying way more in ETF fees that HFTs are getting from me.

As for slowing them down, I heard someone propose a rule that you have to hold any stock you purchase for some set amount of time, like an hour, or a day.  It's not a radical idea.  The IRS actually has a "free ride" rule, where if I sell, then buy a different stock the same day, with the same cash, then I have to hold that stock past the settlement period ... about 3 days ... before I can sell it again.  That rule does not apply to margin accounts, so HFTs avoid that rule by setting their accounts up as margin accounts (even if they don't use margin).  So, make the "free ride" rule apply to margin accounts, problem solved....

Fred

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Re: HFT skimming the market
« Reply #10 on: April 04, 2014, 10:20:26 PM »
Its a bit more complex, as there are multiple schemes, and some of them do affect limit orders.

When you see an ask at 30.00 and you put in a bid at 30.00, and you see that instead of an instant transaction, the ask moves away from you, that can be the effect of a HFT guy screwing with you.  In fact, this scenario is the one that the Flash Boys book begins with.

I have not read the book yet, but I know that with limit orders you are not guaranteed the execution (instant or otherwise).  You are, however, guaranteed the price.

thezfunk

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Re: HFT skimming the market
« Reply #11 on: April 04, 2014, 10:21:16 PM »
While I agree with the initial post that HFT is basically skimming, front running, and market manipulation, I have to disagree with the original poster when he says the stock market is like a casino.  Long term, the course of the market is set by investors, not day traders and HFTs.  Sure, they can manipulate the market a bit day to day, and even apparently cause a "flash crash", but if you are in the market long term, and an actual investor, as the stock market was intended to be used, the HTFs will have little affect on your returns.  If you buy and sell once or twice a quarter, like I do, they may get me for a couple cents a year, but they are not having any real affect on my investment returns.  I'm paying way more in ETF fees that HFTs are getting from me.

HFT is not the only reason I feel the stock market is not any better than a Casino.  You are just a small boat in the ocean of the market.  You can get lucky and be on the right wave but you have no control and eventually you get sunk.  Between the speculators and manipulation of many kinds, I feel like I have more control at a craps table than in the market.

Fred93

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Re: HFT skimming the market
« Reply #12 on: April 04, 2014, 11:16:12 PM »
As for slowing them down, I heard someone propose a rule that you have to hold any stock you purchase for some set amount of time, like an hour, or a day.  It's not a radical idea.

Not good enough.  The HFT crowd does some of their damage before the trade occurs.  They stuff huge numbers of orders into the system and withdraw them as others trade (on the order of 100 microsecond granularity).  This has the effect of making the market appear to be one place (price) when it is actually another.  Perhaps a rule that says if you put in an order, you can't withdraw it during the next 10 seconds might help.  I think orders are more important than purchases or sales.  Perhaps the rules should be on the orders rather than the transactions.


thezfunk

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Re: HFT skimming the market
« Reply #13 on: April 05, 2014, 12:41:08 AM »
Here is BATS CEO O'Brien attacking Brad Katsuyama and O'Brien putting his foot in his mouth.

http://www.zerohedge.com/news/2014-04-01/bats-ceo-shame-you-letting-everyone-it


And here is BATS having to publicly acknowledge O'Brien was wrong.

http://www.zerohedge.com/news/2014-04-03/bats-admits-ceo-lied-about-hft-cnbc

O'Brien either doesn't understand what Katsuyama is saying or he is willfully arguing a different point to shift focus from the actual point that Katsuyama is trying to make.

Fred93

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Re: HFT skimming the market
« Reply #14 on: April 05, 2014, 01:47:05 AM »
Here is BATS CEO O'Brien attacking Brad Katsuyama and O'Brien putting his foot in his mouth.

O'Brien made quite an ass of himself.


Quote
O'Brien either doesn't understand what Katsuyama is saying or he is willfully arguing a different point to shift focus from the actual point that Katsuyama is trying to make.

Another possibility is that the CEO doesn't actually know how the exchange works.