High-Frequency Traders Fall on Hard Times

[Krugminator2]

https://www.wsj.com/articles/high-fr...mes-1490092200








It turns out the hysterics were wrong again. The boogeymen HFTs who have brought costs down considerably from the old days of floor traders are experiencing the same challenges every hyper-competitive business has. It turns out technology has made market making a commoditized business and all the "excess" profits have been competed away, just like it happens in every competitive business. All of the cries that high frequency trading makes markets more unstable and a few well connected fat cats are making too much money and should be taxed more were all wrong. Flash Boys, Bernie Sanders, Zerohedge all wrong as they always are.

[Dforkus]

And nothing of value was lost...

Buy good companies, and hold them.. Or just buy indexes...

[LibForestPaul]

Wonder if this is due to all HF trading algos now being on par with each other?

[Krugminator2]

And nothing of value was lost...

Buy good companies, and hold them.. Or just buy indexes...

Actually a lot would be lost.

The return on those "good companies" would be much lower without market making. Public companies have higher valuations than private companies because they are liquid. Market makers and other short term traders create a ready market for those securities which means more liquidity, higher values, and thus more access to capital and greater long term capital appreciation.

And how do you define what a good company is? There is a lot of turnover in the S&P 500 from companies losing market share. And what happens if you buy a good company at a bad price? Yahoo is a good company. It is 60% off of it's all time highs and is trading at the same levels it did in 1998. Does buying and holding work for rapidly growing companies or just for mature companies?

[oyarde]

I am surprised any of them are making any money at all .

[Dforkus]

Actually a lot would be lost.

The return on those "good companies" would be much lower without market making. Public companies have higher valuations than private companies because they are liquid.

Liquidity is not inherently dependent on high frequency trading.. Does it add some liquidity/volatility, sure? But it's not like I'm not going to be able to sell my Apple stock because some idiot doesn't want to buy it, and then sell it literally milliseconds later..

Market makers and other short term traders create a ready market for those securities which means more liquidity, higher values, and thus more access to capital and greater long term capital appreciation.

There is some general validity to this, but ultimately the value of the market is derived from the value of the company, not stock trading mechanics.

And how do you define what a good company is?

It's not easy, the unfriendly reality is most smaller investors lack the time, skill, and the emotional discipline and are better off just buying indexes..

There is a lot of turnover in the S&P 500 from companies losing market share. And what happens if you buy a good company at a bad price? Yahoo is a good company. It is 60% off of it's all time highs and is trading at the same levels it did in 1998.

What hapens? You probably lose money, or at least don't make as much money, welcome to reality...
And, btw in that same time frame Apple is 1000s of percentage points higher.. There's always winners and losers... Again, I'm really not sure of your point... Understanding equity values is hard, picking when to buy and when to sell a particular equity is hard??? Yes, yes it is, alert the Nobel committee..

[Zippyjuan]

I am surprised any of them are making any money at all .

With the volume they deal in, even half a cent can make a big difference. As long as the gains exceed the costs of the trade (and its tax implications) the trades can make sense. Ironically, lots of high frequency trading can flatten the market and make it less volatile if the overall market is relatively stable. They pounce on the slightest variation and their trade knocks that variation back down to the market value quickly. In an unstable market though their high volume can magnify oscillations.

[enhanced_deficit]

And nothing of value was lost...

This.
From what I heard in below vid, they produce nothing and essentially engage in insider trading based on information they obtain before others.


https://www.youtube.com/watch?v=RcpmHyPD_PY


https://www.youtube.com/watch?v=0eqqCwhPlyU

Turns out there might be some good guys on WS:

https://www.benzinga.com/fintech/17/...trading-advant

[Krugminator2]

This.
From what I heard in below vid, they produce nothing and essentially engage in insider trading based on information they obtain before others.

For an individual investor high frequency trading is a huge win. It has brought down costs dramatically. The people in the videos you posted would even agree with that. Nobody actually disagrees with that so they do produce something. The only debate is whether large investors are being front run by SOME HFTs. Most HFTs do vanilla market making and most HFTs fail because the business is hypercompetitive. And even if that is that is the case that some HFTs front run because of being collocated at the exchange and getting data sold to them by brokers, costs are still probably lower on the whole.

Here is the opinion of a large (and successful) money manager who is supposedly someone "hurt" by what they do.
https://www.bloomberg.com/view/artic...-speed-trading

And a youtube.

[LibForestPaul]

With the volume they deal in, even half a cent can make a big difference. As long as the gains exceed the costs of the trade (and its tax implications) the trades can make sense. Ironically, lots of high frequency trading can flatten the market and make it less volatile if the overall market is relatively stable. They pounce on the slightest variation and their trade knocks that variation back down to the market value quickly. In an unstable market though their high volume can magnify oscillations.

Thanks Zippy, at least your honest that the state monopoly and its crony regulators have to be involved somehow.