High frequency trading on 60 minutes last night

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jlq39
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High frequency trading on 60 minutes last night

Post by jlq39 »

I watched 60 minutes last night, and they did a report on high frequency trading. The part that I found most interesting was the firm they were talking to, claimed that while they had lost money two or three days in a row, that they never had lost money over a week long period. Even one of the proponents of HFT said he had knowledge of a company that had not lost money in a single day over a 4 year period. Does anyone else not find this troubling? I realize the regulations put in place since the flash crash will help to alleviate some of this, but those breakers have been getting tripped more and more since the flash crash because of HFT. From my understanding, the deepest pockets can buy the fastest computers and thus have an unfair advantage, even if it's only milliseconds. It was summed up by the end of the report that while HFT does add liquidity to the market, they really add no value to the investors or companies other than skimming profits. Anyone else see it, or want to throw in there two cents?
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3CT_Paddler
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Re: High frequency trading on 60 minutes last night

Post by 3CT_Paddler »

jlq39 wrote:I watched 60 minutes last night, and they did a report on high frequency trading. The part that I found most interesting was the firm they were talking to, claimed that while they had lost money two or three days in a row, that they never had lost money over a week long period. Even one of the proponents of HFT said he had knowledge of a company that had not lost money in a single day over a 4 year period. Does anyone else not find this troubling? I realize the regulations put in place since the flash crash will help to alleviate some of this, but those breakers have been getting tripped more and more since the flash crash because of HFT. From my understanding, the deepest pockets can buy the fastest computers and thus have an unfair advantage, even if it's only milliseconds. It was summed up by the end of the report that while HFT does add liquidity to the market, they really add no value to the investors or companies other than skimming profits. Anyone else see it, or want to throw in there two cents?
It was definitely interesting piece by 60 minutes. I don't think there is anything inherently wrong (in the illegal or unjust sense) with HFT. If anything it makes stay the course and long term investing more fashionable not less. If you are trying to do your own short term trading on the side, you will probably get crushed by HFT.

Bogle and others have stated for years that most of the financial industry adds little to the actual economy... so HFT is just more of the same. It was actually kind of ironic IMO that the short term trader (at least I think it was) being interviewed was lamenting how these quants and their computers are adding no value... pot meet kettle!
xerty24
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Re: High frequency trading on 60 minutes last night

Post by xerty24 »

jlq39 wrote:one of the proponents of HFT said he had knowledge of a company that had not lost money in a single day over a 4 year period.
I don't know about that, but Goldman had very close to all positive trading days 1-2 quarters back.
Does anyone else not find this troubling?
So what? Does this violates some Boglehead belief that all active traders must lose money? If you put enough good traders together in the same place, you would expect down days to be rare. I'm reminded of a few relevant quotes from Ambrose Bierce:

Success is the one unpardonable sin against our fellows.
Calamities are of two kinds: misfortune to ourselves, and good fortune to others.

Why are you troubled again?
livesoft
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Post by livesoft »

Let me ask the following question: If you are a broker or market maker and charge a cut of when folks buy stock and take a cut when folks sell stock, would you ever lose money?

Your answer should be No. With modern computers, does a broker add value for the profits they make?
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HomerJ
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Re: High frequency trading on 60 minutes last night

Post by HomerJ »

jlq39 wrote:From my understanding, the deepest pockets can buy the fastest computers and thus have an unfair advantage, even if it's only milliseconds.
The barrier to entry to this is not that high... Anyone can join this game for a couple hundred thousand or so in physical costs and place their servers at the same co-locations that all the HFT firms use.

But you'll need top-notch programmers to write algorithms that react faster than the existing programs (or that are smarter and avoid more of the losing trades)
It was summed up by the end of the report that while HFT does add liquidity to the market, they really add no value to the investors or companies other than skimming profits.
What value do you add to a company when you buy a stock on the open-market and hold it for 10 years? When you sell it ten years later, are you just "skimming profits"? Companies only make money when they initially sell stock... ALL the trading that happens afterwards is just on the secondary market... You and me and Aunt Mary selling and buying from each other. No benefit to the company.

Is it okay to buy a stock today and sell it tomorrow if it jumps 5%?

Is it okay to buy a stock today and sell it in one hour if it jumps 3%?

Is it okay to buy a stock today and sell it in 5 minutes if it jumps 1%?

Assume commision-free trades.

HFT make millions of trades every day, shooting for 0.001% profit on each trade... They are mostly trading with each other. For every winner there is a loser... That penny profit per trade isn't skimmed from the "market" or the "company". It's taken from the guy on the other side who guessed wrong, and who lost a penny.

Long term investors are unaffected I believe... I certainly wouldn't try to day-trade against a bunch of computers, but I have no problems leaving my money in the market for the long-term... With this much trading going on, I would think the market is becoming MORE efficient at setting the correct price.

Liquidity does help people... The spread between buy and ask is as small as it has ever been... Commissions are as small as they have ever been.

Remember when the spread was 1/8 of a DOLLAR (12.5 cents per share), and commisions were in the $50 range?
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wintermute
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Post by wintermute »

The problem is the exchanges and the SEC. I have a huge problem with the completely arbitrary trade cancellations which favor the HFT firms. That is what the SEC should be investigating. When HFT algos screw up and lose millions they get trades canceled. If you ever make a mistake, try calling up the exchange and see if they will undo your trades for you. :lol: The casino is rigging the game.

Also, those virtual quotes that are immediately canceled are actually illegal, fwir. Individuals have been prosecuted for doing the same thing.

The good news is it doesn't really affect us who are holding for the long-term.
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Adrian Nenu
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Post by Adrian Nenu »

In my opinion HFT increases volatility and trading cost. It's a negative for the vast majority of investors.

Adrian
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DRiP Guy
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Re: High frequency trading on 60 minutes last night

Post by DRiP Guy »

3CT_Paddler wrote: I don't think there is anything inherently wrong (in the illegal or unjust sense) with HFT.
Respectfully, I do.

As a layman, I may be missing some important information, distinctions, and subtleties, but I don't think so. To me, it looks very simple:

Those people are clearly and obviously being CATERED to (by the exchange building them special rooms, and letting them in line even closer to the feed, and other such special treats) and the clear and I think unassailable fact is that what they are buying is the ability to queue up AHEAD of me and every other guy in the public, in order to get information FIRST, and then take advantage using algorithms designed to take money out of my hands and put it into theirs.

By definition that is an unfair advantage, and ought to be illegal on it's face. The face it is "only milliseconds" and "only adds pennies to the average man on the street's trade" are arguments made by the HFT and the exchange to sugar-coat and minimize the ACTUAL truth contained in the statements:

*Q: Do HFT's get preferred information, faster? A: Yes. according to the report.

Q: Do HFT's profit from this, at the expense of 'normal' 401 or individual type traders? Yes, according to the report.

The only thing they claim to supposedly add is 'liquidity.' Do we need hyper-liquidity at the expense of a stable and transparent market? As a layman I say HELL NO. I was glad to see they were able to find at least one politician who agreed.

It scared the heck out of me the amount of soft-soaping and collusion evident by the 'players' in that piece.
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DRiP Guy
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Post by DRiP Guy »

wintermute wrote:The problem is the exchanges and the SEC. I have a huge problem with the completely arbitrary trade cancellations which favor the HFT firms. That is what the SEC should be investigating. When HFT algos screw up and lose millions they get trades canceled. If you ever make a mistake, try calling up the exchange and see if they will undo your trades for you. :lol: The casino is rigging the game.
Bingo.

I forgot to add that to my original post -- IMHO, the exchanges have a DUTY to legitimate buyers and sellers to make sure a canceled trade incurs a fee stiff enough to to completely take away the incentive to play these kinds of games at the expense of those actually buying a company based on it's prospects for capital appreciation and/or dividend returns.

I don't know the details, but the inference was that the crash was actually caused by the (penalty-free?) many many canceled trades cavalcading through the system, leading to 'silicon-insta-panic', or 'computer-pseudo-panic', or whatever it is that you'd call it when the OTHER exquisitely tweaked algorithms from OTHER High Frequency traders are blown up by the originator's feint... an originator who might even sweep in after the crash and make a killing after their tripwire purposely scared out everyone else... talk about your cyber warfare! Sheesh!

It seems clear to me that the exchanges are trying to market a product to a new customer -- the HFT -- and while catering to them, are not watching out for the good of the market as a whole.
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Taylor Larimore
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High frequency trading ?

Post by Taylor Larimore »

Hi jlq:
Anyone else see it, or want to throw in there two cents?
I saw it. I don't understand it.
"Simplicity is the master key to financial success." -- Jack Bogle
the intruder
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Post by the intruder »

Adrian Nenu wrote:In my opinion HFT increases volatility and trading cost. It's a negative for the vast majority of investors.

Adrian
anenu@tampabay.rr.com
The vast majority of investors are HFT institutional investors. HFT accounts for as much as 70% of all trades.
nickbelane
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Re: High frequency trading on 60 minutes last night

Post by nickbelane »

DRiP Guy wrote:Those people are clearly and obviously being CATERED to (by the exchange building them special rooms, and letting them in line even closer to the feed, and other such special treats) and the clear and I think unassailable fact is that what they are buying is the ability to queue up AHEAD of me and every other guy in the public, in order to get information FIRST, and then take advantage using algorithms designed to take money out of my hands and put it into theirs.
Yeah, the special rooms... look at this happy picture, before those evil computers ruined the markets - full of your average Joes and Mom & Pop's trading their pension accounts with each other... :?

In all seriousness, 90% of HFT criticism is a criticism of the markets themselves, and has applied in every time period you care to pick, for as long as markets have existed. Exchanges have always catered to their biggest customers, it's not a revelation, it's how capitalism works.

If anything, HFT has significantly evened the playing field and broke down many of the Wall Street walls of the past. It is much much easier and cheaper now to get your computer placed at one of the colocation data centers these days then it would have been to become a NYSE specialist back in the day.

Why do you think there is so much anti-HFT press these days ? It's because HFT is a serious competitive threat to the old guards on Wall Street. If you think that the HFT hysteria is somehow about protecting the little guy in the market, you are being misled. It is basically the guys who used to be able to take $0.10 and more per every share you traded out of your hands and into theirs, convincing you that the real problem now is the new guy because he takes $0.001 out of every share you trade. Yes, it is a real problem, but not so much for you as it is for them.

By any measure, trading has either gotten cheaper or at worst not any more expensive than before HFT existed. The idea that HFT somehow takes new money out of the retail trader is not supported by any data. And HFT is true competition - only those who can survive with thinnest profit margins live. As a result, overall HFT profits have steadily declined each of the past 2 years, and are easily 1/2 of 2008 level this year.

HFT's are basically the new "wholesalers" in trading. As such, they have many advantages over infrequent traders, but so do any wholesalers in any business. HFT's take short term risk (provide immediate execution liquidity) and in exchange feed on the spreads paid by retail customers. They also insure price consistency between all the diverse trading venues around the world by closing down arbitrage opportunities. These roles are useful for efficient operation of the markets.

Gus Sauter even said that HFT's make the markets better for firms like Vanguard, and in extension for the average bogleheads - what would be his interest to say something like this if there wasn't some truth in it ?
DickBenson
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Dumb money

Post by DickBenson »

It sounded as if they were claiming that ALL the HFT were making huge sums of money.

<b>If so, then who is losing that money?</b>

Are the losses limited to just the low frequency traders? If not, how would this impact the returns of a stock investment for an individual investor?
minimogul
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high frequency trading impact on mutual fund buying public

Post by minimogul »

My only concern about high frequency trading and its impact on long-term investing is that if these computers cause more crashes, the general long-term mutual fund buying public who contribute to long-term growth will get scared and leave the market completely.
infecto
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Post by infecto »

Sure HFT skim pennies here and there as often as possible. 10-20 years ago did no one see the larger spreads on stocks? Did they not realize that those spreads were going into someones pocket? Now, most liquid stocks have tight penny spreads and the less liquid might be 5-10cents.

Honestly for me personally I dont see the problem. They are not pushing markets in long term directions and if I am buying an individual stock, I dont care about a couple pennies. Of course I care about best execution but I am not buying a stock to make a couple pennies. Since the beginning of the markets there have always been some form of middleman capturing spreads. To me it does not matter.

Its the same deal for traditional hedge funds/wall street. They can complain all they want that HFT are hurting them but in reality they are using it as a scape goat for their own poor performance. If they have a price for stock X at $60 and its currently trading at $40, even with best execution someone is going to pop in and take a few bucks from their larger orders sizes. This happened 20 years ago when HFT were not around and still happens today. Its an market, there is always going to be someone trying to capture spreads.
FredPeterson
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Post by FredPeterson »

HFT trading is fine.

Just prevent the computers from trading with each other and everyones complaints will go away.

Of course, then the HFT and banks will complain about not being able to churn billions of shares for profit.

Who will win THAT battle....
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Post by JimHalpert »

Yet another reason to avoid ETFs.
infecto
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Post by infecto »

JimHalpert wrote:Yet another reason to avoid ETFs.
Why?
maj
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Post by maj »

DRiP Guy

I agree with your observations.

But we cannot change the fact that the rich never have to wait in line.

But most of our rich had to do at least something to obtain their wealth, a step up from the divine right of kings.

I cannot adequately express my gratitude for the Vanguard experiment in finance, which is the closest thing to taking care of the little guy that I know. It is not perfect but it is a huge leap from Merrill Lynch, Pierce, Fenner and Beane (Smith)!

peace

maj
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Post by FredPeterson »

infecto wrote:
JimHalpert wrote:Yet another reason to avoid ETFs.
Why?
Because ETFs can trade at anytime, and price, and a bad trade could happen. Not so with a mutual fund that has one NAV figured at close.

Not that I agree ETFs should be avoided because of that, just that thats the reason.
JimHalpert
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Post by JimHalpert »

FredPeterson wrote:
infecto wrote:
JimHalpert wrote:Yet another reason to avoid ETFs.
Why?
Because ETFs can trade at anytime, and price, and a bad trade could happen. Not so with a mutual fund that has one NAV figured at close.

Not that I agree ETFs should be avoided because of that, just that thats the reason.
Exactly.

The news piece stated that since the flash crash there have been several instances where the HFT algorithms failed and stock prices were -- once again -- severely mispriced for a period of time.
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Post by InvestingMom »

Okay, I didn't read all of the posts so perhaps this is redundant..but

I agree with others in that I hardly understand it and it hardly impacts me, however, that still doesn't make it right.

1) No one should be able to get information before the other.
2) We need to ensure our stock markets operate in an orderly fashion and "somewhat" reflect the fair value of the stocks being traded (clearly the drop of 600 points or whatever it was, was a "mistake" in that NO ONE intended for that to happen and prices were not reflective of FMV)

Anyway, the show reminded me of why I am a Boglehead and stick primarily with Index Funds.
lethean46
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HFT - Longleaf to the SEC

Post by lethean46 »

Longleaf Partners Funds is a long term value oriented Fund company, Southeastern Asset Management, Inc. They responded to the SEC inquiry abou HFTs. They think that HFTs are doing damage to the financial system.

Here's their letter to the SEC. It begins on page 9:

http://www.sec.gov/comments/s7-02-10/s70210-228.pdf

ML
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HomerJ
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Post by HomerJ »

InvestingMom wrote:1) No one should be able to get information before the other.
(1) This is always been the case, long before computers. You think Joe Public traded on even footing with Merill Lynch?
(2) How would this even be possible?

How can I make sure the guy in Hawaii gets the same price quotes at the same time as the guy in NJ?

What about people with different network bandwidth?

Is is fair that the guy in Colorado with high speed Internet can get the quote milli-seconds before his next door neighbor with a slower plan?
Cyclone
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Post by Cyclone »

Providing liquidity is one thing, but churning is quite another.

Notice that for the past year or so, Citigroup has been the leader in trading volume nearly every day. I understand it is a low-priced stock, but I wonder if that is just a bunch of computers buying and selling Citigroup stock back and forth all day. Otherwise, is Citi really all that important to the economy?

If I want to invest in the stock and put in my tiny order for four dollars, and an HFT computer steps in and buys it for $3.99 a moment later and sells it to me for $4.00, doesn't that hurt me? To me it's "only" one cent times the number of shares I'm buying, but if they do that thousands of times a day, it can really add up.
xerty24
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Post by xerty24 »

Adrian Nenu wrote:In my opinion HFT increases volatility and trading cost. It's a negative for the vast majority of investors.

Adrian
So that's your opinion. Where are your facts that show it is likely or proven that HFT has increased volatility, spreads, or market impact of order execution?
infecto
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Post by infecto »

Cyclone wrote:Providing liquidity is one thing, but churning is quite another.

Notice that for the past year or so, Citigroup has been the leader in trading volume nearly every day. I understand it is a low-priced stock, but I wonder if that is just a bunch of computers buying and selling Citigroup stock back and forth all day. Otherwise, is Citi really all that important to the economy?

If I want to invest in the stock and put in my tiny order for four dollars, and an HFT computer steps in and buys it for $3.99 a moment later and sells it to me for $4.00, doesn't that hurt me? To me it's "only" one cent times the number of shares I'm buying, but if they do that thousands of times a day, it can really add up.
Yes, the majority of trading in C is all algo. C for the most part is a proving ground.

There are no sneak peaks on NYSE. So to begin with you should not be placing market orders but a computer is not going to step in and buy it at 3.99 and sell it to you at 4. Not a great example because its so liquid but if you were to pick another NYSE illiquid stock its going to work the same. If you had a stock trading at .20x.25 and placed a market order to buy at .25 you are for all intents purposes going to get filled at .25. Its not like NYSE is selling sneak peaks so that a computer can see larger orders coming in and jacking the prices up. Lets be clear though, if you are buying large order quantities, of course prices are going to change.
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Post by FredPeterson »

infecto wrote:Yes, the majority of trading in C is all algo. C for the most part is a proving ground.
Probably, but its a self-fulfilling prophecy I think.

C gets all this volume, so it gets lots of traders involved. The algos provide liquidity to all these traders so it sustains itself and it 'proves' its a good thing.

Is it though? Something tells me that even if 75% of C's volume disappeared, the b/a would remain the same - perhaps not the lot sizes and people would have to suffer through a 1 or 2 second difference in a huge lot but so what IMO.
Indices
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Post by Indices »

the intruder wrote:
Adrian Nenu wrote:In my opinion HFT increases volatility and trading cost. It's a negative for the vast majority of investors.

Adrian
anenu@tampabay.rr.com
The vast majority of investors are HFT institutional investors. HFT accounts for as much as 70% of all trades.
Aren't most institutional investors simply pension plans and others using retail money to invest? That would directly affect the majority of investors.
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Post by Cyclone »

All the activity is Citigroup really has me wondering. According to WSJ Online, today it traded over 431 million shares, compared to 101 million for the next most active stock (BAC). And yet the price change was only down one cent for the day? That doesn't make sense to me. It would be easy to conclude that much of the market activity over the past year or two is just a relatively small group trying to make it look like something is happening, just to get the rest of us excited. Of course, that would imply a conspiracy of some sort.
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Post by FredPeterson »

Cyclone wrote:All the activity is Citigroup really has me wondering. According to WSJ Online, today it traded over 431 million shares, compared to 101 million for the next most active stock (BAC). And yet the price change was only down one cent for the day? That doesn't make sense to me. It would be easy to conclude that much of the market activity over the past year or two is just a relatively small group trying to make it look like something is happening, just to get the rest of us excited. Of course, that would imply a conspiracy of some sort.
If you have access to something that can show you minute by minute last prices its funny to look at. That level of saw toothing isn't normal. If its not obvious beyond all hell that there is HFT penny and sub-penny -anteing going on, I don't know what else can show you.
JimHalpert
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Post by JimHalpert »

Cyclone wrote: According to WSJ Online, today it traded over 431 million shares, compared to 101 million for the next most active stock (BAC).
Thats sounds reasonable; C traded 4X the number of shares than BAC which is reasonable since the share price of BAC is 3X the price of C. (Roughly)
InvestingMom
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Post by InvestingMom »

rrosenkoetter wrote:
InvestingMom wrote:1) No one should be able to get information before the other.
(1) This is always been the case, long before computers. You think Joe Public traded on even footing with Merill Lynch?
(2) How would this even be possible?

How can I make sure the guy in Hawaii gets the same price quotes at the same time as the guy in NJ?

What about people with different network bandwidth?

Is is fair that the guy in Colorado with high speed Internet can get the quote milli-seconds before his next door neighbor with a slower plan?
Perhaps my 1st point was stated a bit too simply. Everyone should have the same chance to access the information at the same time. Of course I don't mean that someone with slow speed internet should get it as fast as the high speed internet guy. Please lets not get into semantics. The guys accessing whatever computer system the NYSE uses, for example, should see the same info as the other guy accessing the same computer system.


As an aside, I don't have a problem with some folks analyzing the information faster.

As for the second point what do you mean? Of course we should endeavor to create an orderly market that gives us access to stocks at their FMV? That is common sense. why would anyone trade on a market if they didn't think they were getting a fair shake, within reason?

My points are not that far fetched given that 60 minutes made the same points and that the Chairman of the SEC brought up the same concerns.
infecto
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Post by infecto »

InvestingMom wrote:
rrosenkoetter wrote:
InvestingMom wrote:1) No one should be able to get information before the other.
(1) This is always been the case, long before computers. You think Joe Public traded on even footing with Merill Lynch?
(2) How would this even be possible?

How can I make sure the guy in Hawaii gets the same price quotes at the same time as the guy in NJ?

What about people with different network bandwidth?

Is is fair that the guy in Colorado with high speed Internet can get the quote milli-seconds before his next door neighbor with a slower plan?
Perhaps my 1st point was stated a bit too simply. Everyone should have the same chance to access the information at the same time. Of course I don't mean that someone with slow speed internet should get it as fast as the high speed internet guy. Please lets not get into semantics. The guys accessing whatever computer system the NYSE uses, for example, should see the same info as the other guy accessing the same computer system.


As an aside, I don't have a problem with some folks analyzing the information faster.

As for the second point what do you mean? Of course we should endeavor to create an orderly market that gives us access to stocks at their FMV? That is common sense. why would anyone trade on a market if they didn't think they were getting a fair shake, within reason?

My points are not that far fetched given that 60 minutes made the same points and that the Chairman of the SEC brought up the same concerns.
Actually what he said was sensible. The real advantage of colocation with NYSE servers is that your server is right next to the point of source and as such you are getting your information much quicker than someone who is no colocated. While it costs money to do this, it is not as if someone is paying NYSE money so that he gets data real time and everyone else gets data delayed 20seconds.
infecto
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Post by infecto »

FredPeterson wrote:
Cyclone wrote:All the activity is Citigroup really has me wondering. According to WSJ Online, today it traded over 431 million shares, compared to 101 million for the next most active stock (BAC). And yet the price change was only down one cent for the day? That doesn't make sense to me. It would be easy to conclude that much of the market activity over the past year or two is just a relatively small group trying to make it look like something is happening, just to get the rest of us excited. Of course, that would imply a conspiracy of some sort.
If you have access to something that can show you minute by minute last prices its funny to look at. That level of saw toothing isn't normal. If its not obvious beyond all hell that there is HFT penny and sub-penny -anteing going on, I don't know what else can show you.

Begins the subpenny arguments again...lol. I do not think this will ever stop.
SP-diceman
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Post by SP-diceman »

InvestingMom wrote: 1) No one should be able to get information before the other.
They dont.
You have every right to do what they do.
They're just taking advantage of whats there.

Lets say I make the effort to get a metal detector and
walk up and down the beach.
I find something valuable, should I not be allowed to keep
it because you didnt make the effort?

Thanks
SP-diceman
SP-diceman
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Re: High frequency trading on 60 minutes last night

Post by SP-diceman »

DRiP Guy wrote: Those people are clearly and obviously being CATERED to (by the exchange building them special rooms, and letting them in line even closer to the feed, and other such special treats)
So do you think colleges and professional sports should be illegal?

Colleges cater to top athletes so they can bring prestige to their schools.
They serve them phony academic programs so the can play for their team.
They make up for costs in tuition increases.

Sports teams cater to top athletes,
paying them millions of dollars to play a game.
They make up for the cost by charging the poor slob in the stands
$150 for tickets, beers, hotdog's, and peanuts.



Thanks
SP-diceman
SP-diceman
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Re: Dumb money

Post by SP-diceman »

DickBenson wrote: <b>If so, then who is losing that money?</b>
Its not a zero sum game.

I can buy something at $30, sell it later at $35.
They could have profited on the price movements between 30 and 35.
It doesnt matter to me, I still made money.

They also said there were days when they lost money.
Who do you think they lost it to? Me? You?


Thanks
SP-diceman
FredPeterson
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Post by FredPeterson »

infecto wrote:Begins the subpenny arguments again...lol. I do not think this will ever stop.
I'm not making an argument that its good or bad. But its plain as day that its happening.

At 3:25pm it opened at 4.165 and closed at 4.161
At 3:26pm it opened at 4.1695 and closed the same.


If that isn't sub penny, I'm not sure what else is.
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DRiP Guy
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Re: High frequency trading on 60 minutes last night

Post by DRiP Guy »

SP-diceman wrote:
DRiP Guy wrote: Those people are clearly and obviously being CATERED to (by the exchange building them special rooms, and letting them in line even closer to the feed, and other such special treats)
So do you think colleges and professional sports should be illegal?

Colleges cater to top athletes so they can bring prestige to their schools.
They serve them phony academic programs so the can play for their team.
They make up for costs in tuition increases.

Sports teams cater to top athletes,
paying them millions of dollars to play a game.
They make up for the cost by charging the poor slob in the stands
$150 for tickets, beers, hotdog's, and peanuts.



Thanks
SP-diceman
I don't want to get into all kinds of nuanced, sophisticated, clever little arguments, because I am admittedly completely naive about how HFT actually works... just like I was unaware of precisely how CDOs worked or how Madoff did his mechanics.

All I want to say is that when I go to the market, I expect a 'square house.' Transparency, simplicity, directness, tend to increase my confidence that I am indeed being dealt with on the level. HFT smells, feels, and acts all wrong. I don't like it, I don't understand it, I don't want it, and if the 60 minutes report was anything like accurate, the traders admit they are intermediate croupiers, adding nothing of value except (arguably) liquidity at the cost of increased share prices for others, AND a yet-to-be-quantified increased risk of catastrophic failure modes.

Thanks, but no thanks. Send the money changers from the temple.
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RJB
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Post by RJB »

I only saw part of the program and am wondering:

How much do they pay per trade?

How much do they pay in short term capital gains taxes?

Also if they can see our orders before they get placed, that is an unfair advantage.
FredPeterson
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Location: Madison, WI

Post by FredPeterson »

RJB wrote:Also if they can see our orders before they get placed, that is an unfair advantage.
They can't, but because they are co-located at one of the exchanges, they can see the data microseconds after it "leaves" for the NBBO.
VennData
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Post by VennData »

The SEC report but the blame on the May 6 volatility on a human. If JP Morgan or Rockefeller had sold their portfolios like those clowns at Waddell Reed did, there would also have been a "crash."

HFT has taken out the old guard, the floor traders and simply replaced them. There was always somebody trading faster than you.
Fallible
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Re: High frequency trading on 60 minutes last night

Post by Fallible »

To sum it all up, it seems nobody knows for certain whether or how seriously HF trading affects long-term investors, or whether another May 6-type flash-crash will occur and disrupt the market again (despite steps taken by the SEC that have so far apparently prevented another big one). But since HF trading is now, according to "60 Minutes," estimated to account for up to 70 percent of stock trades in the U.S., it's high time the SEC gets on top of it and properly regulates it.
manuvns
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Post by manuvns »

FredPeterson wrote:
infecto wrote:
JimHalpert wrote:Yet another reason to avoid ETFs.
Why?
Because ETFs can trade at anytime, and price, and a bad trade could happen. Not so with a mutual fund that has one NAV figured at close.

Not that I agree ETFs should be avoided because of that, just that thats the reason.
bad trade can happen if you place market order not limit order . potential benefit of ETF to me is ability to buy at day's low and not end of day pricing .
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3CT_Paddler
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Re: High frequency trading on 60 minutes last night

Post by 3CT_Paddler »

Fallible wrote:To sum it all up, it seems nobody knows for certain whether or how seriously HF trading affects long-term investors, or whether another May 6-type flash-crash will occur and disrupt the market again (despite steps taken by the SEC that have so far apparently prevented another big one). But since HF trading is now, according to "60 Minutes," estimated to account for up to 70 percent of stock trades in the U.S., it's high time the SEC gets on top of it and properly regulates it.
The same SEC that let Madoff operate under its nose for years?

If stocks suddenly drop in price, not because of fundamentals or fear or greed, but because of a bad algorithm from a HFT what is the result? Some people pick up bargains, and others (likely HFTers) lose their shirts. In the case of the earlier flash crash, prices recovered quickly... which is exactly what should/will happen when prices drop for no reason.

The stock exchange has already put into place some safeguards to prevent another steep drop due to HFT, so I don't think involving the SEC will do much of anything.
Fallible
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Re: High frequency trading on 60 minutes last night

Post by Fallible »

3CT_Paddler wrote:
Fallible wrote:To sum it all up, it seems nobody knows for certain whether or how seriously HF trading affects long-term investors, or whether another May 6-type flash-crash will occur and disrupt the market again (despite steps taken by the SEC that have so far apparently prevented another big one). But since HF trading is now, according to "60 Minutes," estimated to account for up to 70 percent of stock trades in the U.S., it's high time the SEC gets on top of it and properly regulates it.
The same SEC that let Madoff operate under its nose for years?

If stocks suddenly drop in price, not because of fundamentals or fear or greed, but because of a bad algorithm from a HFT what is the result? Some people pick up bargains, and others (likely HFTers) lose their shirts. In the case of the earlier flash crash, prices recovered quickly... which is exactly what should/will happen when prices drop for no reason.

The stock exchange has already put into place some safeguards to prevent another steep drop due to HFT, so I don't think involving the SEC will do much of anything.
Well, not THAT SEC, anyway since much of THAT staff is gone and a new chairman is in place. The NEW SEC had proposed new rules regarding HFT before the May crash and is now considering more measures, according to the "60 Minutes" report. Also, the SEC approved the circuit-breaker proposals after the crash. It's very much involved so let's hope it really is the NEW SEC.
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