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70% Of All Stock Market Trades Are Held For An Average Of 11 Seconds


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HOLA441
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HOLA443

see what I mean?

I am well known to be anti the notion of a 100% free market, but you've been totally unable to pick that up from what I am saying because you are focussing on the ideological positioning and ideological 'key words' that trigger autonomic responses in your brain rather than consider the meat of actual ideas and concepts being discussed, As a result, you've totally missed the warning shot I fired across ParticleMan's bows, and are unable to detect a devils advocate position.

What utter tosh. Yes, you made a point about the logical endpoint of PMs line of reasoning, so what? Register is often very difficult to discern from one liners.

This may be news to solipsitic you, but I don't spend my time reading all your HPC posts to get a deep understanidng of your personal position on the free market.

Anyhow, back onto topic. Games are most fun and best played with rules. Sometimes those rules are introduced to keep markets orderly and to prevent abuse, e.g. the SEC's 1938 uptick rule. Obviously there is a whole heap of grey between being clever and outright market abuse. In my opinion HFT flash orders are a form of insider trading. The technology and the millisecond connection to the exchange are only available to a few. (Betting exchanges, for instance, understand this sort of abuse and impose limits to prevent computer traders bringing their systems into disrepute. If a bunch of crooks like the bookies don't think it is reasonable for the smooth functioning of their market, why is it okay in the city?) So, are you okay with this or not, or do you just want to hide behind devil's advocay?

Edited by Tiger Woods?
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HOLA444
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HOLA446

So, are you okay with this or not

I'm uninterested in discussing my moral position or yours, All I am interested in discussing is where the world is moving generally as a result of tech, demographics, markets, sociopolitics etc, I can make my moral decisions without help from others, and so should you.

So lets keep the morality out of it and get back to the ******ing point shall we?

Like, why are securities held for 11 seconds now when 10 or 20 years ago the picture was very different, though no doubt people were as unethical then as they are now?

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HOLA447

I'm uninterested in discussing my moral position or yours, All I am interested in discussing is where the world is moving generally as a result of tech, demographics, markets, sociopolitics etc, I can make my moral decisions without help from others, and so should you.

So lets keep the morality out of it and get back to the ******ing point shall we?

Like, why are securities held for 11 seconds now when 10 or 20 years ago the picture was very different, though no doubt people were as unethical then as they are now?

Because the legal framework is even further away from enforcing responsibility for ones buying decisions than previously.

And the money is more unreal.

And tech has advanced a fair way.

Not for much longer though. Back to basics we go.

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HOLA4410

It's not so much that ultra-fast trading 'stuffs' the market, but it allows machines to get advantages over other buyers in some circumstances by moving market prices.

Some stock exchanges (not the NYSE) but some competitors offering the same shares for trade, may provide limited inside information to registered 'market makers' in order to allow them to make a market more efficiently - e.g. they get a warning, a few ms before the rest of the market, that there is a supply/demand imbalance, allowing them to use their own stock of shares to try and maintain a stable price. The problem is that this information is limited - it's supposed only to address supply/demand imbalance, and not reveal what customers' actual order instructions are.

HFT algorithms can discover what the customers' orders are. E.g. I want to buy 100,000 shares of Google. The price is $400, but I'm prepared to bid up to $410. What would normally happen, is the stock exchange would take my order, and match my bid with sellers, starting from the lowest price and once those sellers are out of stock, moving to higher and higher priced sellers up to my limit of $410. So maybe I buy 10,000 at $400, 10,000 at $401 - with an average of $405. With HFT, the market maker sees a big buy order coming in, and in the next 1 ms, can make lots of test trades in order to discover my limit price - and then sell directly to me, at my limit - before my order ever gets to the main market. The market maker has intercepted my order and sold to me at the highest price I was willing to pay - instead of allowing me to pay the price demanded by the market.

The result is that large trades can end up traded at 'non-optimal' prices - this isn't much. No more than 1%, or even less of a trade value - but if you can skim 0.5% every time a major fund buys or sells, then you can make huge sums of money, and nibble away at the returns made by the fund. (E.g. if a fund rebalances 5% of its holdings every 6 months - e.g. like an index tracker - this HFT frontrunning can look rather like an extra 0.1% per year 'fee').

Rather than getting into a discussion of this market maker 'pre-view' mechanism, wouldn't it be fair to say that if the buyer sets a particular set of parameters, then they are - by definition - happy with the price that they end up with? And, as they are aware of the practice of market maker interventions, then they have accepted the rules of that game.

I am still sort of struggling to see how algo trading is bad or harmful. Socially useless perhaps, in Adair Turner's phrase, but why are so many on this thread up in arms?

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HOLA4412

I'm uninterested in discussing my moral position or yours, All I am interested in discussing is where the world is moving generally as a result of tech, demographics, markets, sociopolitics etc, I can make my moral decisions without help from others, and so should you.

So lets keep the morality out of it and get back to the ******ing point shall we?

Like, why are securities held for 11 seconds now when 10 or 20 years ago the picture was very different, though no doubt people were as unethical then as they are now?

Securities are held for 11 seconds now because technology allows that to be the case and that if price movements are self similar, as they appear to be tom some extent, you are going to squeeze more profit out of your trading by working on smaller time frames, in the same way an ant has to walk further to walk around the coastline than I do. Nothing much more to be said, other than my belief is that markets dominated by computer algorithms are likely to be unstable. Another poster has provided graphs a few pages ago that illustrated this point nicely.

So why are you are only interested in discussing what can be done, rather than what should be done? The fact that what can be done may have serious effects on people means that we ought to consider what ought to be done. Computers allow you to perform the calcualtions that allow you to bundle piles of sh!t mortgages into packages and sell tranches of them onto pension funds, but the market would be better if people weren't allowed to do it.

In the HFT case, we have to accept that computers are attached to the market and the world has moved on from 1928, 1973, 1987 etc., but that doesn't mean we should throw our hands up in the air and allow front running by those with the means to get their servers into the exchange. If my broker front runs me, he goes to jail. If a Goldman Sachs HF trader does it, he gets a bonus. You cannot avoid morality in this, unless you throw out all the regulations. You say that you are not an "anything goes" freemarketeer, but regulations exist to make the market orderly and fairer (or at least limit the extremes of abuse), and are hence a moral question. Regulations are invariably about an ought e.g. a broker ought not front run his client leads to the rule that a broker shall face penalties if he front runs a client.

If we happen to decide that some HFT is front running and we do not think front running is fair, then we have to think about rule changes and their implications. e.g. make all bids and offers valid for a minimum of 1 or 2 seconds (I'm not necessarily defending this one, as technology allows market changing information to be delivered quicker than this, so the issues aren't simple.)

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HOLA4413

Rather than getting into a discussion of this market maker 'pre-view' mechanism, wouldn't it be fair to say that if the buyer sets a particular set of parameters, then they are - by definition - happy with the price that they end up with? And, as they are aware of the practice of market maker interventions, then they have accepted the rules of that game.

I am still sort of struggling to see how algo trading is bad or harmful. Socially useless perhaps, in Adair Turner's phrase, but why are so many on this thread up in arms?

Something to do with their livelihoods, their families livelihoods, their pension, investment in the area they live being done by disinterested people with zero responsibility for any of the outcomes in a highly automated fashion that resembles a very rigged casino, I assume. oh and they can't leave because the government is herding them in their in a wide variety of subtle and not so subtle ways all the time.

At least old style ruiners and ******er uppers of society actually took an interest.

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HOLA4414

Something to do with their livelihoods, their families livelihoods, their pension, investment in the area they live being done by disinterested people with zero responsibility for any of the outcomes in a highly automated fashion that resembles a very rigged casino, I assume. oh and they can't leave because the government is herding them in their in a wide variety of subtle and not so subtle ways all the time.

At least old style ruiners and ******er uppers of society actually took an interest.

That about sums up why the "ought" cannot be separated from the "is." HFT is profitable, hence someone is losing. The question is whether we think it is fair or not that the particular loser loses. cf. my example concerning front running by an old style broker.

Edited by Tiger Woods?
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HOLA4417

I agree HFT is just day traders playing games to try to hoover up any remaining residual profit in the market.

The result of this competition is that markets get more efficient, and takes info account more information into the market.

I will give an example of a HFT strategy:

The HFT firm compares the price of BP and Shell. If the price of Shell goes up and the price of BP stays the same, then they will pay the offer for BP and Sell the bid in Shell in the hope that a few seconds later BP will rise or shell will fall again. This takes into the information that Shell has gone up, and the new price of BP should be higher. The firm that is able to do this trade does it through massive investment in infrastructure to gain speed. How is this strategy benefitting or screwing the mom and pop types?

So, given that these guys are making billions, where does the money come from? HFT must, by definition, be zero sum, so the only answer must be that long term investors are paying slightly more than they otherwise would for the same stocks. Unless you can point to somewhere else it is coming from..

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HOLA4418

So, given that these guys are making billions, where does the money come from? HFT must, by definition, be zero sum, so the only answer must be that long term investors are paying slightly more than they otherwise would for the same stocks. Unless you can point to somewhere else it is coming from..

And another long term investor selling at that moment will be receiving slightly more than they would have for the same stocks. And you are assuming they only act on the long side whereas they will also act on the short side meaning a long term investor buying will get a slightly cheaper price and vice versa for the long term investor selling.

Really people bitch about investors having to pay extra for a stock when they are on the up and then they completely change the argument to the the inverse of this argument and bitch about shorters and receiving less when the stock is on its way down rather than highlighting an artificially (whatever that means) held down price gives the long term investor an opportunity to get in cheaper which is the argument they are using here.

At the end of the day it’s the stock market, its always held advantage for insiders of some sort or another, there have always been pools and cornering, dodgy Market makers, dodgy Brokers, Dodgy bucket shops and media manipulation, if you don’t like it, refuse to participate

Edited by Tamara De Lempicka
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HOLA4419

And another long term investor selling at that moment will be receiving slightly more than they would have for the same stocks. And you are assuming they only act on the long side whereas they will also act on the short side meaning a long term investor buying will get a slightly cheaper price and vice versa for the long term investor selling.

Really people bitch about investors having to pay extra for a stock when they are on the up and then they completely change the argument to the the inverse of this argument and bitch about shorters and receiving less when the stock is on its way down rather than highlighting an artificially (whatever that means) held down price gives the long term investor an opportunity to get in cheaper which is the argument they are using here.

At the end of the day it’s the stock market, its always held advantage for insiders of some sort or another, there have always been pools and cornering, dodgy Market makers, dodgy Brokers, Dodgy bucket shops and media manipulation, if you don’t like it, refuse to participate

As I said, it cannot be zero-sum as you suggest, because people are making money out of it.

That money has to come from somewhere, trading stocks cannot be a positive sum game.

And I would like to have the option of not participating, but unfortunately that would involve living on a desert island. My taxes implicitly backstop the system; my pension pretty much has to be invested in it.

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HOLA4420

Forgive me if I talk rubbish, but I am not too familiar with how this all works in reality and/or the terminology.

But a couple of questions:

If theproblem here is that HF trading software can instantly "feel out" the price an investor is really willing to go to by putting in lots of small bids in order to try and discover the top of the spread the investor will pay - isn't this by definition the *real* market price (otherwise you wouldn't be willing to pay it and therefore wouldn't).

If so, then what these systems are doing is finding the price *better* than was previously possible, and the extra money they are making is effectively a "commision" as acting as a middle man in the transaction?

I have a mental image of it working like a modern fighter plane, the design is actually inherently unstable but the computer makes thousands of corrections a second to keep it flying. The pilot is unaware this is happening but still controls the direction of the plane when he moves the stick. It just moves quicker.

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HOLA4421
With HFT, the market maker sees a big buy order coming in, and in the next 1 ms, can make lots of test trades in order to discover my limit price - and then sell directly to me, at my limit - before my order ever gets to the main market.

This is nonsense.

All trades in the main market are reported to the main market as the trade occurs (in fact it's part of the matching system to do so, you don't get your order acknowledgement until the trade tick has been fired into the market).

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HOLA4422
What do you think of a market maker who quickly and progressively drops the price 30% with an open buy volume of 600,000 and an offer to sell only 5000 for a few minutes before returning the price to "normal."

This is nonsense.

Prices from a market maker must be within a band around the last trade to get near the market.

(if you want to move price, you must make a trade at some size)

In the US, trades must further occur at national best bid - unless ISO's are involved.

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HOLA4423
You are purposefully cryptic. It is not that what you are saying isn't clear, but it requires parsing and a certain amount of knowledge to do so.

On occasion I'm purposefully cryptic (as are we all), but when I choose to do so (as with yourself) I tend to simplify rather than extend my vocabulary.

Effective propaganda requires it.

To the point, if you're going to talk about a specific domain (in this case - intraday trading) you better bone up on the terms in use.

Otherwise you'll continue to appear ridiculous.

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HOLA4424
The simplest idea would be to split the large trades into smaller chunks and over a varied timeframe so the algorithms don't spot them.

Which is precisely why this form of systematic gaming (which, I might add, benefits the add side rather more than the take side) is an urban legend.

If it were this easy, those doing it would've bought everything in a few milliseconds decates ago and be laughing at you from their private island already.

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HOLA4425
If we happen to decide that some HFT is front running and we do not think front running is fair, then we have to think about rule changes and their implications

That's the only sensible thing I've seen you add to this thread.

But there's plenty of other people looking at it, also - it's scarcely a novel issue (in fact at various points of history intraday and intraweek trading were each considered scandalous).

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