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High-speed trading firms rob traditional investors

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Sergei82
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High-speed trading firms rob traditional investors

Postby Sergei82 » Thu, 06 Dec 2012 11:28 pm

Study: Speed kills traditional investors High-frequency traders rake in profits.

http://www.garp.org/risk-news-and-resou ... wsid=55834

Looks like they found a candidate to be a scapegoat for the recession! :???:

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Postby JR8 » Fri, 07 Dec 2012 1:06 am

Don't understand the point being made to be honest (sorry, my thickness perhaps!). But aren't traders and investors completely different things?

i.e. I used to be a trader for a living, but now I am an investor in retirement.

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Postby Sergei82 » Fri, 07 Dec 2012 7:41 am

I also don't understand, since I am myself in low-latency exchange connectivity. Many people here may also be in a related field. Never heard about this is causing damage to people and speeding up recessions.

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Postby Strong Eagle » Fri, 07 Dec 2012 8:48 am

What value add does high speed trading contribute to an exchange, investors in general, or the overall economy? None, except for those who engage in it.

High speed trading relies on nothing more than the imperfect synchronization of data between markets. It ought to be banned.

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Postby nakatago » Fri, 07 Dec 2012 9:04 am

It's such an in thing now that I see a lot of job postings for C, C++ programmers just for high-speed trading. They've now resorted to languages that execute much faster. Next thing you know, they want people who do assembly language.

People are so greedy, they're willing to exploit fractions-of-a-second differences in code execution.

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Postby refugees » Fri, 07 Dec 2012 9:56 am

The most amazing about high frequency trading are unfair advantage been given to them by the exchanges, such as co-location rental of server at exchanges. By renting server space at exchanges (co-location) at ransom price, with proper algorithm & coding, these high frequency guys able to gain unfair advantage from data feeding into exchanges and extract arbitrage profits from it. It can also bypass a large orders before it hits the exchange, n all these things happened in nano seconds speed.

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Postby nakatago » Fri, 07 Dec 2012 10:07 am

It'll be more fun then if these exchanges employ some sort of synchronization mechanism where trading will only happen at certain fixed-intervals. If you come in too early, you'll have to wait for the next window.

I remember the Amazing Race where everyone would be in a hurry to get somewhere only to wait for opening hours. The earliest team's advantage gone just like that.

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Postby refugees » Fri, 07 Dec 2012 10:24 am

But if exchange do so, they are cutting off one of the most lucrative income from co-location rental.
Thats estimated 200 members on co-location at NYSE, with co-location rental between 100k-500k per month, this translate to about USD50mm rental income per month, or 600mm per year. This is too much income to forgo.

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Postby Sergei82 » Fri, 07 Dec 2012 10:49 am

nakatago wrote:It'll be more fun then if these exchanges employ some sort of synchronization mechanism where trading will only happen at certain fixed-intervals.

There are some exchanges like that or at least many of them have trading sessions that do exactly that (pre-open, for example).

On the other hand, at least our department, although we are in low frequency trading, we don't trade ourselves, we give this opportunity to others (internal or external clients), so they have "unfair" advantage over others (for appropriate commission).

Others argue that HFT is good - eliminates arbitrage, brings more fairness and efficiency to the exchange (exchange is also a form of a "middleman", nobody blames it anyway).

I'm not saying that what we are doing is blessing from god, but isn't it true HFT profit from arbitrage only? Isn't it true that existense of arbitrage is something that makes markets inefficient?
And how come absence of arbitrage deprives investors of money? If they earn on arbitrage alone, they are not investors, they are arbitrageurs, isn't it?

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Postby Sergei82 » Fri, 07 Dec 2012 11:02 am

Btw, those companies that do business on day trading alone - those are just amoebas, yes. But banks are operating with money of millions of people, maybe it is justifiable for them to try to multiply it? So here we go - justification of hyperexpensive colo boxes and ultra low latency trading - the strongest survives, that strongest represents A LOT of investors.
On the other hands, even though those banks has advantage of having expensive colos and some talented (?) people, the inefficiency of their HUGE beureaucratic "machinery" is often beaten by smaller, leaner and more agile companies - competition is still there.
Before joining a bank, I couldn't even imagine how much money it is possible to waste and dump in the name of stupidity, wrap it up in a "candy" of ULLDMA and still regularly lose in efficiency to some smaller and cheaper companies who don't have all these hardware and financial advantages.

A I missing something about not adding value to overall economy? (if we have a debate on that, then finance industry doesn't do anything at all since it "produces" only services)

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Postby Strong Eagle » Fri, 07 Dec 2012 11:49 am

Sergei82 wrote:And how come absence of arbitrage deprives investors of money? If they earn on arbitrage alone, they are not investors, they are arbitrageurs, isn't it?


Sounds good... except... if someone has made money, someone else had to lose money. The original seller would have made additional money, had not the HFT people bought low and sold high and stole the difference for themselves. It is quite possible that the original seller would have hooked up with the higher price, had not the HFT vultures swooped in.

Just one more example of the morally/ethically bankrupt, if not criminal, bullshit behavior that goes on in the markets under the guise of "efficiency" and "free markets".

Ban this crap, then take a serious look at the CDS markets, along with rampant insider trading. You don't "earn" a hundred million dollars in a year, you steal it.

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Postby Sergei82 » Fri, 07 Dec 2012 12:08 pm

Strong Eagle wrote:...HFT people bought low and sold high and stole the difference for themselves...

You are looking only at one side - winners. There are losers in HFT as well - as many as winners. In any case, nobody could beat the market itself by now. There are only 3 ways to get money out of this:
1) huge amount of luck (don't bother),
2) fraud (insider trading, mkt manipulation etc) - illegal,
3) don't do it yourself, just facilitate it for those who want it, and earn commission.

As I see banks now doing much more or 3rd option and try to stay involved much less.

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Postby Sergei82 » Fri, 07 Dec 2012 12:10 pm

Strong Eagle wrote:You don't "earn" a hundred million dollars in a year, you steal it.

How about Bill Gates, Donals Trump etc?

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Postby zzm9980 » Fri, 07 Dec 2012 2:10 pm

Sergei82 wrote:
Strong Eagle wrote:You don't "earn" a hundred million dollars in a year, you steal it.

How about Bill Gates, Donals Trump etc?


Exactly, I don't think SE could have picked two better examples if he tried.

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Postby v4jr4 » Fri, 07 Dec 2012 2:28 pm

Strong Eagle wrote:Sounds good... except... if someone has made money, someone else had to lose money.


Sergei82 wrote:How about Bill Gates, Donals Trump etc?


Both of them are selling, and we act as the buyers. They get the money, we lost it. Maybe "steal" is too strong for this. But jargon's jargon. They "manage their services" in a better way. But, personally speaking, I see "trading" as legalized "gambling". High risk, high return. The rules can be overwritten by "the admin" :P
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