idohft

Its a finance firm - i.e scam firm. "We have a fancy trading algorithm that statistically is never going to outperform just buying VOO and holding it, but the thing is if you get lucky, it could". Scammers are not tech people. And its pretty from their post.

It would be great if you included any sort of evidence or argument.

Reading on to the other comments, it looks like you're throwing out a lot of accusations and claims. I don't know what you think you know, but from the looks of it, you don't really know HRT's business. I don't really these days, but I knew it years ago, and it's not from taking client money or arbitrage or some weird scam. It's not magic but the world of algo trading isn't a ponzi scheme.

What exactly do you mean when you say this: > IIRC they can legally front-run your orders.

I doubt this is true, but there are definitions attached to front-running.

How far have you tried to tell, and do you buy/sell stocks?

There's someone on the other side of your trade when you want to trade something. You're more likely than not choosing to interact with an HFT player at your price. If you're getting a better price, that's money that you get to keep.

*I'm going to disagree on "free pass" also. HFT is pretty often criticized here.

This comment, and its posters' subsequent comments, are so filled with anger, much misguided, that it's hard to really respond.

Jane Street has some good people. Harvard has some good people.

Both have some bad people.

I don't know how "scam" is defined, because sometimes people use it for things they just don't like.

Hard to speak for HFT in general. Like in software, different firms have different levels of hygiene. About half of your bullet points were true of my previous employer, at my time of leaving.

Jump is very profitable.

I can see how you can come to this conclusion from this sentence, but it's a vague sentence with slightly-wrong premises, which leads you to this conclusion. If you're a programmer, I think you may appreciate this situation when others talk about your work.

I can address some parts of this.

"HFT works by reacting faster than another market participant"

- There are a bunch of different HFT strategies. In this case, we're usually talking about market making, which means you are placing limit orders at a price where you don't believe it will execute immediately. You can react to many things - price movements, events, anything. - In placing a resting order, where is there an assumption that another participant was willing to do the same trade? Sometimes (pretty often) all the orders on a price level are HFT participants, and if you look at the market feed it's pretty easy to tell. - In that case (which I claim is pretty common), the liquidity was not already there. - If we consider that average spread sizes have reduced significantly with electronification and HFT, then you also disprove this assumption that "the liquidity was already there". Liquidity is not just the willingness to buy or sell, it's also the willingness to buy and sell at a competitive price. Otherwise, I mean, I'm always willing to pick up TSLA at $.01, and I'm always willing to sell TSLA at $500k. Doesn't mean I'm providing liquidity.

"They won't do a trade if there's no one to instantly sell to"

- That's simply not true. If you've taken a look at the order book, the fact that an HFT order is resting on the book (and not executed) means that there was nobody to instantly sell to. - Are you suggesting that HFT firms all know that someone is going to come through and buy at a price level, and hop in? Flash Boys suggests this (and it's possible to infer some "whale" actions if they route their orders poorly), and that type of inference is possible sometimes, due in part to the way the US Equities ecosystem is set up. But I'll also ask you - have you thought about the order of operations in which someone might "know that there is someone to instantly sell to?" Consider the CME (futures exchange), where there's a ton of HFT, and for which there are no other markets. How is your sentence supposed to work? - Also, perhaps empirically, that was simply not true for my firm, which was (and still is) a pretty successful one.

I'm going to have to jump in here and say, no, HFT can and does not front-run your trade. There are reasons why your execution on RH is not as good as professionals, but it's not because of front-running.

Agreed with the rest, you should just look at job descriptions. Different firms use different technologies, but a devops person will probably be building tooling for monitoring live trading, or GUIs for themselves and traders. These tend to not be as performance-sensitive.

If you want to work on the trading systems, you should be good OS-level and network-level things. And you should probably know C/C++. I think some firms might still use Java.

Good firms have probably been around for a couple of years, so it's unlikely that they'll use the cool new languages of the day.

I have to disagree, I know that HFT != electronic trading.

HFT is also not equivalent to arbing over latency.

You were replied to, but I'm going to ask some questions of this moralizing.

Many HFT jump out when things get volatile, when liquidity is actually required.

This feels almost like a "no true Scotsman" situation. Why is liquidity not "actually required" when volatility is low? Is it a moral obligation for any trader to catch a falling knife? I see this condition of "when liquidity is actually required", but I never understood why there was such a strong feeling for it. Why do you believe this?

Ultimately HFT is doing nothing of societal value, the race down to zero is never-ending and we are wasting huge amounts of resources on a totally pointless march towards zero.

I don't know, I could probably take a similar view of so many jobs in tech. What does society really get from Snapchat, what do they get from HQ Trivia, what do they get from people making powerpoint presentations with arrows that point to synergies. What's the point of any job with some amount of abstraction?

Exchanges should introduce random delays to allow market participants who really want to hedge / buy / sell, then we can shift some of the resources to the real world.

Why?

The system is hugely inefficient

Do you know how efficient the system was before HFT started up? And, do you know how many people were working in trading before, and how many are, for a similar fraction of stock volume?

The law of diminishing returns.

OK.

++ this.

If they haven't tested this in actual trades and measured results, it's probably worthless. Even backtested strategies at actual firms observe decays (or don't work) when they get put live. And those are places where they invest in (and are incentivized to get right!) backtesting methodology.

(1) -- ok, sure

(2). That is not what I said. To sell at P+dP, you need to buy up all the shares at P+dP as well. That's because of price-time priority, which almost all the major markets have (with some exceptions, most notably NYSE -- and even then, their book is mostly price-time priority). This is the idea that a person who placed their order first, has priority over those who placed their orders after. A strategy that makes the trade that you are proposing must then also take out all of P+dP and sell against the incoming order. In a usual case, you pay commission when trading into that position, and (maybe) earn commission when you sell it back (as the liquidity provider). In no market is the commission earned greater than the commission paid. The shares you buy-and-sell at P+dP are straight up loss, and that's before figuring out if X (the incoming shares that you are supposedly front-running) is greater than the #shares at P+dP anyway.

"The risk he takes only depends on the size of N" -- that is true -- that is always true, if you are making an unhedged trade.

This doesn't sound right. Some points:

- A trader looking to buy futures is almost certainly not going to send their order to several exchanges. The main exchanges list distinct contracts (with, I believe, some cross-exchange listings that are just cross-continent). A person sending an order is not going to get it routed to several different exchanges.

- Your example itself would result in a losing trade for whomever was doing this trading. Let's call this HFT guy, "HFT", and pretend like you were talking about equities(which does have the multiple exchange property). In order to accomplish what your trader was doing, HFT has to:

  1 - buy up all existing shares at P
  2 - probably buy up all the shares at P+dP as well (because all US markets have price-time priority)
  3 - place sell orders at P+dP that would fill this guy's X contracts
  4 - According to your story, they (or someone else) then try selling at price P again.

  1 - Took a large long position
  2 - Took an even larger long position at a worse price, paying commission for this
  3 - Managed to sell some of their position at the same price as (2)
  4 - Are now trying to sell back their position at P.

I'm in HFT (as per my handle). Exchanges like NYSE, NASDAQ, etc. sell stock data to firms but not before they get processed. The only way you get front run is if the broker that you submit through (ETrade, Schwab, etc.) notes your order, knows that it's big enough to move the market, and then prioritizes their own action over yours (which I'm reasonably sure they do not). Buying data center space (colocation) means they can react to activity quickly, but only after said activity has happened.

I think it's pretty clear that HFT has a big role in this. If you look at the order books of US equities, most of the most aggressive orders on the book are ones that look like they come from high frequency strategies. Furthermore, if you believe that around 50% of trading volume is from HFT, and most of them are market making, then yeah, it lends one to conclude that the high frequency players are the ones who place more aggressive orders (which means, ones which reduce the spread) which gets them executions.

In response to situation (2), I want to first tighten the language - as it stands, I'm not sure if it's even possible. By computers, I think you mean exchanges (for example, Nasdaq, BATS, etc.) So somebody wants to trade 50 shares there. Let's say they want to buy at $10.00, and there's no sell orders on NASDAQ but 50 shares on the offer at BATS.

1) If you were doing this through a broker, and that was the state of the book, then they would just route your order to BATS (if I'm not mistaken that's a legal requirement for brokers). 2) If you instead placed the order to be on Nasdaq-only, that would lock (have buy and sell orders at the same price) the national book, something which is not allowed due to Reg NMS. So Nasdaq could not display that you want to buy at $10.00 anyway, and (I'm not sure how they implement their stuff) either hide your order or display it at another price.

So I'm not sure how exactly you're framing this situation. If the HFT's computer can see that your order exists, it's because it posted. If it posted, it could not have had the limit price that would've locked the book.

I may be misunderstanding what you mean when you say at the end that the "two computers reconciled their orders" - because nothing like that does happen. If they are computers at the same exchange, then no, that's simply not how matching engines work. If at different exchanges, then there is no reconciling, your order would not have posted at the right price, or your broker would have not tried to get you best execution on your order(which they are bound to doing).

The industry doesn't really make that much money. Estimates for this past year were in the $1-2 billion range. That's not big for the finance sector, or any industry. That being said, it doesn't take that many people to run a shop, so individuals may be paid a lot.

Vanguard, the world's biggest mutual fund, notes that their costs have gone down since HFT has come into play.

http://www.cnbc.com/id/101615521

I can't reply to that thread (maybe it's because it was too long ago), but you draw a difference between someone moving a large block (as described in yummyfajitas' post), and someone trading a small size (50 shares). So let's say that someone does want to trade 50 shares, in your example, and breaks up their order into 2 25-share orders. At the point at which a 25-share order is executed on the market, the sheer size of the trade is not very much. It's not likely to signify a market move. At that time, nobody has knowledge that there is a second 25-share order heading to the second market. It is possible that an HFT player sees the first execution and takes out the shares at the second market, but with such a small execution, they are pretty much guaranteed to lose money.

Where does this assertion come from? If you take a look at the market book, then you might see that yes, most market-makers (liquidity) in the equity markets are high-frequency orders.

Maybe he's not a sinister person, but he tells narratives in which his side is unambiguously good. What happened in this book was lazy research and poor journalism. There have been plenty of factual critiques, which should set off flags around a book that purports to be an expose. But he spends more of the book moralizing and appealing to pathos than actually explaining how things are. As an immigrant, I thought it was cheap how often race was brought up in the book (examples: at some point one of the protagonists had a "this is how we do it in America" moment, whereas several HFT programmers were noted to be Russian, and as I recall Lewis saying, Russia helped them because in addition to forcing them to write clever, efficient code, they had learned to take advantage of the corrupt system. I mean, come on. The one guy from the SEC who spoke up? An indian quant. I don't know how Michael Lewis surmised that he was a quant, rather than just someone else working for the SEC. But there you have it).