tag:blogger.com,1999:blog-7905515.post229405596148908367..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Computer Trading is Good CompetitionEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-7905515.post-76110423821690394692009-09-25T00:46:12.811-05:002009-09-25T00:46:12.811-05:00I have news for you. Back in the day, if you had a...<i>I have news for you. Back in the day, if you had an issue about how a stock traded you could speak to a floor broker, speak to a specialist, and speak to management of the exchange.</i><br /><br />The average little-guy investor could speak to a specialist and management of the exchange? Really? Or just the big guys who were friends of those who ran the exchange (or had previously worked at the exchange, or people at the exchange had previously worked at their firm, etc.) could, and could take advantage of that?<br /><br />Your comment makes me think even more that people who ran the exchanges were colluding and taking advantage of the spread.John Thackerhttps://www.blogger.com/profile/15269867695937765049noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-33338403694799082502009-07-31T12:10:18.921-05:002009-07-31T12:10:18.921-05:00Your reference about 1987 and your friend who work...Your reference about 1987 and your friend who worked for a specialist are typical of many people who never worked on the floor. You are quick to chastise everyone about their ignorance of HFT , but you are just as ignorant . Did you ever work on the floor ? Did you ever interact with a specialist directly ? Maybe the specialists did not perform optimally during the crash, but how about NASDAQ the original computerized marketplace ? You chose a poor analogy and you give a very weak argument to support your case.<br />I have news for you. Back in the day, if you had an issue about how a stock traded you could speak to a floor broker, speak to a specialist, and speak to management of the exchange. Who do you talk to now when you get run over a thousand times each second by the "liquidity providers" ? The fact is that nobody is charged with an obligation to make markets and that is not a positive development for anyone.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-57024368420865390012009-07-30T23:14:01.151-05:002009-07-30T23:14:01.151-05:00With 50-70 % of the market tied up in HFT, when th...With 50-70 % of the market tied up in HFT, when the "boys" decide to pull up stakes, market liquidity will dry up fast. Specialists had some requirement to stay in the game, but in 1987, regulations were one thing and bank liquidity was another.<br />Decimalization has been a major issue regulating specialists to the sidelines. <br />Back in the good old days MFST and APPL were some of the bigger traders on NASDQ, And they traded at much higher spreads than sim<br />ilar NYSE high flyers. Dealers trading on the NASDQ had a good thing going!<br />Finally, there's been little to refute the $22B "trading fee/tax" extracted by the HFT:I suspect even Citi would agree that's a lot of fee income.spragushttps://www.blogger.com/profile/15584669055571792470noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-63153754451651004052009-07-30T17:32:47.862-05:002009-07-30T17:32:47.862-05:00Great post.
John, if similar HFT algos begin to l...Great post.<br /><br />John, if similar HFT algos begin to lose money and all pull back liquidity it could be a problem *if* it is related to some other market stress. But since most HFT algos are market neutral it wouldn't be related to a market crash (and wouldn't cause one as they withdrew). And other unaffected strategies would still be supplying liquidity.<br /><br />There was an example of this in August 2007 when mean-reversion quant algos (not high-frequency) all suffered dramatic losses and many did, in fact, pull liquidity from the market. There was very little effect on the broad market probably because they are mostly market neutral and because pulling liquidity need not have any effect on prices. And at the same time momentum-based quant algos were doing great and continued to supply liquidity as did HFT and scalpers and market making algos.<br /><br />Wilmott did not say there *would* be bad positive feedback effects but that there could be. My impression was that he was urging us to research and ensure that no dangerous relationships exist rather than assume that all is well.Stevenoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-69547563569005965322009-07-30T14:11:35.904-05:002009-07-30T14:11:35.904-05:00Ditto Anon 9:43
My only caveat is that a bucket s...Ditto Anon 9:43<br /><br />My only caveat is that a bucket shop and a stock pool are two different things--as I understand it a bucket shop didn't actually execute orders while a pool traded with itself on the exchange. (I don't know about modern-day bucket shops, but momentum trading seems to be a lot like a stock pool--even assuming the participants aren't talking to each other.)<br /><br />As you rightly point out, the sainted specialists didn't exactly save us in 1987. . . But I suppose it's easier to blame the computers than ourselves.But What do I Know?noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-52796402667926326552009-07-30T12:52:24.987-05:002009-07-30T12:52:24.987-05:00I agree that HFT is mostly good, but your comment ...I agree that HFT is mostly good, but your comment about flash orders is a bit disingenuous<br /><br />"Of all the financial skullduggery in the world today, Flash Trade front running worth a fraction of a penny is small beer."<br /><br />Front-running is illegal. We have laws in the books against this stuff. Its black and white. So no need to make this into something of a gray area. If fractions of a penny is really what's really at stake, then there wouldn't be so much uproar from monied groups looking to make even more money, now would there?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-33362394353423797612009-07-29T21:46:31.810-05:002009-07-29T21:46:31.810-05:00I thought this was a great post. Worrying about al...I thought this was a great post. Worrying about algo bots is really only a concern of the shortest of short-term traders.<br /><br />I would add one caveat, however. I don't think Wilmott makes this point very well, but as you question where the specialists were during the '87 crash, the same could be true for some algo strategies. For instance, if many of these strategies are roughly similar and begin to lose money, the ten to one hundred firms running them could easily begin to pull back liquidity. This is predicated on the idea that most of the algo bots are running similar strategies. If they are quite different, then there might be some not affected by the crisis and could make extra profits.<br /><br />I would say this is a smaller probability. If this game is so easy, then firms would want to allocate decent amounts of capital to it. Even though the infrastructure required serves as a barrier to entry, the larger firms with more diverse strategies may be able to increase their allocations to the strategy and compete for expected profits (if spreads narrow, or whatever) if other firms are losing money and spreads widen.Johnhttps://www.blogger.com/profile/01457388998903348000noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-6687801923541075352009-07-29T21:43:38.509-05:002009-07-29T21:43:38.509-05:00Agreed 100% (or 99% at least). This is another on...Agreed 100% (or 99% at least). This is another one of those topics with such vacuous lunacy on the opposite side of the argument that it makes me wonder how the human race ever escaped caves.Anonymousnoreply@blogger.com