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0 pointsGalanwe5mo ago0 comments

> Can you explain why we need nanosecond trading for this?

Can you explain why you wouldn't want nanosecond for this?

I am quite happy to buy shares where it's the most convenient for me, knowing that someone, somewhere, is constantly arbitraging stock prices on all markets so that all prices are the same regardless.

What upside is there for me, as an investor, that this happens every minute instead of every nanosecond? None, it's objectively worse.

> Why can't we use trading speeds such that everybody can participate, not just a few "gatekeepers"?

But that makes no sense... HFTs are not _competing_ with regular market participants, on the contrary they are providing a service to them. The only competitor to HFTs are other HFTs, because, well, they are providing the same service.

If you want to "participate" in something and you feel hindered by HFTs, that basically means you are not a typical investor, but rather a market maker / arbitrager, so then... competition is fair game, have fun.

Your argument is akin to "we should limit the speed of UPS trucks because I want to compete but I cannot afford to buy fancy trucks". UPS does not prevent the normal operation of package delivery, nor are they competing with people receiving packages. They are only competing with other delivery companies.

> The average internet connection should be fast enough for trading, by now.

Well even if we were to put latency aside, no, your internet connection won't cut it anyway, at least not for any kind of direct market access.

First, not anybody can "do DMA". There are a vast quantity of regulations, licenses, tests, audits, and fees to be an exchange participant. Regulators don't let just anyone participate on public exchanges, even on emerging markets.

1) Be a regulated entity, pass individual certifications, have a risk, legal and compliance team, yearly assessments, etc.

2) Pay a lot of money for access to the exchange market data live ($10k-$100k/month/exchange).

3) Have all your algos certified, risk assessed, and staged on the scenarios the exchange will provide you with.

4) There is no multicast on internet, and anyway unless you have a Solarflare/Mellanox NIC at home, and a crazy good ISP, you won't ingest 10Gb linerate that simply.

5) You need all the things around the ecosystem... symbology, security master, etc...

6) Even cash equities need to be settled, you will need a custodian and a back office, stocks are not tokens that magically change hands. Someone need to post cash, update company records, custody collateral, handle corporate actions, etc

There is no world in which a _regular_ investor will touch the markets directly anyway, everybody goes through a broker or deals with HFTs for order flow, and it's not "just because they are faster", there is a world of complexity/regulation/etc that goes with it.

Even most of the top hedge funds in the world are not direct market participants, but rather use brokers.

The very reason multistrat funds even exist and are so attractive, is that you can net your trades internally at mid and avoid even having to use lit orderbooks, reducing your market impact.

So, no, I don't think anyone sees HFTs as a hindrance, nor are willing to be market participants. This sounds sounds a bit like a naive simplification of the state of things (I don't mean it derisively, it's not a trivial subject).

0 comments

amelius5mo ago

> They are only competing with other delivery companies.

I don't think this is true. They are trading on the same market as everybody else. People used to make money buying in market A and selling in market B. Now HFT has mostly taken over that role, for instance.

Anyway, finance has created a shitload of abstraction, and at this point it isn't clear if "normal" people benefit from this or that it's just the incumbents.

To make another analogy, yes, feudal lords provided some benefits to the peasants, such as safety and shelter. But you really have to step away from the entire construct to see if they are really better off. This is what is missing in your argumentation, imho.

GalanweOP5mo ago

> People used to make money buying in market A and selling in market B. Now HFT has mostly taken over that role, for instance

Who is "People"?

Well now, I cannot claim to know what everyone did at any point in time, but allow me to be very doubtful that anyone other than a dedicated arbitrager/market maker would do that.

Or at least, I cannot conceivably see how one would do that and turn a profit without being also a market maker.

The economics of arbitraging are just too tight.

You need to spot and act on a cross exchange spread that is wider that:

- The exchange fees, for which market makers have rebates. So even at equal technological footing, MM will have an advantage over "People".

- The cost of funding, for which you will need to post IM, and thus already be a professional investor with a good amount of capital.

- If that was "before HFTs", then it was before odd lots as well. Now I don't know what the average price of a US share is, but let's say a couple hundreds of dollars, times 100 lot size. These "People" better be filthy rich in cash.

- Arbitraging at a couple of price levels (which is already a lot), minus costs, would yield you a couple bips per trade. To make any kind of real money doing that, you better do it a trillion times per day, and thus lock a huge amount of money.

- The market risk over the arbitraging period

I don't think I have seen anyone turn a profit arbitraging naively in the last 15 years that were not some kind of market maker already, or some ad-hoc strategy on very ad-hoc EM markets.

OneDeuxTriSeiGo5mo ago

> I don't think this is true. They are trading on the same market as everybody else. People used to make money buying in market A and selling in market B. Now HFT has mostly taken over that role, for instance.

They aren't though that's kind of the thing. HFT Market Makers (i.e. the big HFT firms) aren't just trading in the same market. They are the market. They coordinate the trades and effectively instantly sink every buy and sell into themselves and handle the matching of those spreads.

The market makers are competing against each other to offer access to the market to you.

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