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Hft Could Be As Much As As 50%of Vol In London

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http://www.telegraph.co.uk/finance/markets/8700226/Lord-Myners-calls-for-inquiry-on-black-box-trading.html

'High-frequency trading (HFT), which accounts for as much as 50pc of trading in London, has been blamed for exacerbating intra-day swings and putting ordinary investors at a disadvantage due to the speed with which such trades are placed in the market

But Lord Myners said that rather than shorting – which he said was not a contributing factor in falling bank shares – there was a "greater need to address" such trading methods.

"High-frequency trading appears so detached from the true function of capital markets, but is potentially fraught with hazard. It definitely deserves more attention than either the FSA or the Treasury has given it."

HFT is often used to trade pension fund rebalancing or other "legit" trades via a broker. This is used to get a better price for a large trade by not moving the market. It's not sufficient to say x% of trades are HFT so x% are bad

can somne one please explain to me how HFT can function in a market where there's stamp duty?

Ah - perhaps you think this is House Frequent Trading

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HFT is often used to trade pension fund rebalancing or other "legit" trades via a broker. This is used to get a better price for a large trade by not moving the market. It's not sufficient to say x% of trades are HFT so x% are bad

Ah - perhaps you think this is House Frequent Trading

OIC.... a person "decides" whether to use HFT or not.

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I'm surprised the volume is so low. I'd heard the average stock is held for under a second. If that's the case, there's no investment here - it's speculation and manipulation pure and simple.

Basically, the computer algorithms have taken over stock trading. And I wouldn't mind betting that all of the big players are using very similar if not the same algorithms and the same data. What could possibly go wrong?

PS. Skynet.

Edited by StainlessSteelCat

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I'm surprised the volume is so low. I'd heard the average stock is held for under a second. If that's the case, there's no investment here - it's speculation and manipulation pure and simple.

Basically, the computer algorithms have taken over stock trading. And I wouldn't mind betting that all of the big players are using very similar if not the same algorithms and the same data. What could possibly go wrong?

PS. Skynet.

This is totally wrong. Each bank's implementation is bespoke although there are some industry standard approaces eg Volume Weighted Average Profile.

Also I don't know where that "less than a second" thing comes from. I'm not sure it's correct.

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This is totally wrong. Each bank's implementation is bespoke although there are some industry standard approaces eg Volume Weighted Average Profile.

Also I don't know where that "less than a second" thing comes from. I'm not sure it's correct.

So the final implementation is not similar at all, then? And I was an order of magnitude out - 70% of stock trades are held for an average of 11 seconds.

http://georgewashington2.blogspot.com/2010/10/70-of-all-stock-market-trades-are-held.html

Others have put it closer to 30 seconds but reducing each year. For balance, others disagree with that figure:

http://www.ritholtz.com/blog/2010/10/average-stock-holding-period-11-seconds/

To me that still feels like an usually low time to 'invest' in a company.

Edited by StainlessSteelCat

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OIC.... a person "decides" whether to use HFT or not.

The person who manages your pension does, yes. If you don't like that then manage your own pension. In either case if you want to do a big trade you should use an algo that sells/buys your amount over a period of time. If you dump it all on the market at one time you get a bad price as you move the market.

Most of this type of HFT is simply the automation of what cash traders used to do. You get in 4 programmers, write something that trades stocks in a basic way (but "high frequency" ie low touch computer driven) then you pay the programmers less than 100K each and sack some traders earning much more. It's the commoditisation of equities as spreads / commissions become ever lower and squeezing the banks into being more efficient.

A lot of HFT is like the above. Some is pure arbitrage and this could be argued to be unhelpful. But there is, IMHO, a need to distinguish.

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Maybe these people read the accounts and got out quick. They'll be very quick readers.

It's another financial innovation that moves stockbrokers further away from the idea of people studying the market and investing in and there for encouraging well run companies.

What we have is a casino. A heavily manipulated one.

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The person who manages your pension does, yes. If you don't like that then manage your own pension. In either case if you want to do a big trade you should use an algo that sells/buys your amount over a period of time. If you dump it all on the market at one time you get a bad price as you move the market.

Most of this type of HFT is simply the automation of what cash traders used to do. You get in 4 programmers, write something that trades stocks in a basic way (but "high frequency" ie low touch computer driven) then you pay the programmers less than 100K each and sack some traders earning much more. It's the commoditisation of equities as spreads / commissions become ever lower and squeezing the banks into being more efficient.

A lot of HFT is like the above. Some is pure arbitrage and this could be argued to be unhelpful. But there is, IMHO, a need to distinguish.

I like your theory, but there are a few websites that show quote stuffing by algos....they create a false impression that there are sellers or buyers in the market.

this means that a buyer will never get the best price, and it also means that HFT brokers can front run the trades...this is illegal.

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The person who manages your pension does, yes. If you don't like that then manage your own pension. In either case if you want to do a big trade you should use an algo that sells/buys your amount over a period of time. If you dump it all on the market at one time you get a bad price as you move the market.

Might just do that thanks. Its funny none of these little innovations benefit the end customer, purely enriching a small inner City, circle.

Small wonder people buy houses instead. Automate that!

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So the final implementation is not similar at all, then? And I was an order of magnitude out - 70% of stock trades are held for an average of 11 seconds.

http://georgewashington2.blogspot.com/2010/10/70-of-all-stock-market-trades-are-held.html

Others have put it closer to 30 seconds but reducing each year. For balance, others disagree with that figure:

http://www.ritholtz.com/blog/2010/10/average-stock-holding-period-11-seconds/

To me that still feels like an usually low time to 'invest' in a company.

As I said in another post

Some is pure arbitrage and this could be argued to be unhelpful

I would say the implementation of basic stuff that simply buys or sells but does not arbitrage is similar. Stuff that does arbitrage - you think banks are going to share that? Not long ago an ex Goldman programmer got a heavy sentence for taking some of their code. They are not sharing this stuff.

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I would say the implementation of basic stuff that simply buys or sells but does not arbitrage is similar. Stuff that does arbitrage - you think banks are going to share that? Not long ago an ex Goldman programmer got a heavy sentence for taking some of their code. They are not sharing this stuff.

Sorry I am feeling vaguely argumentative this morning.

History is littered with people who have the same idea around the same time (Darwin and Wallace, for example).

Even if code isn't being shared - is it likely that programmers working for different banks might stumble across the same algorithms (or similar ones producing the same effects) given the common purpose and sufficient incentive?

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Sorry I am feeling vaguely argumentative this morning.

History is littered with people who have the same idea around the same time (Darwin and Wallace, for example).

Even if code isn't being shared - is it likely that programmers working for different banks might stumble across the same algorithms (or similar ones producing the same effects) given the common purpose and sufficient incentive?

Yep - I'm sure some of that is correct. I don't think this will manifest itself in such a way as to produce some kind of scenario where they move lock-step to bring about the end of the financial system.

HFT attracts attention because people think computers are magic. I can tell you these systems are as far from intelligent as one can imagine. As I said in another post most of it is a reaction to the commoditisation of cash trading. Banks are automatinc simplistic trading and sacking traders, which gives investors a better deal.

I think the accounting irregularities are a far greater barrier to investing. If you invest through a broker you might get half a percent from the price you wanted due to some market fluctuations. But the long-term investment decision is clouded by off-balance sheet stuff. You think you care if you were 0.05% worse off when you invested in Lehman's now? Or Enron? Or any number of companies trading at a good price right now that are fundamentally unsound?

For me HFT is not what keeps me from investing in individual stocks.

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Yep - I'm sure some of that is correct. I don't think this will manifest itself in such a way as to produce some kind of scenario where they move lock-step to bring about the end of the financial system.

HFT attracts attention because people think computers are magic. I can tell you these systems are as far from intelligent as one can imagine. As I said in another post most of it is a reaction to the commoditisation of cash trading. Banks are automatinc simplistic trading and sacking traders, which gives investors a better deal.

I think the accounting irregularities are a far greater barrier to investing. If you invest through a broker you might get half a percent from the price you wanted due to some market fluctuations. But the long-term investment decision is clouded by off-balance sheet stuff. You think you care if you were 0.05% worse off when you invested in Lehman's now? Or Enron? Or any number of companies trading at a good price right now that are fundamentally unsound?

For me HFT is not what keeps me from investing in individual stocks.

Thanks very much, bmf.

I definitely agree with you on the point about accounting irregularities preventing investment in stocks. The incentive is there, the risk of getting caught and punished relatively low and there is plenty of recent history which suggests it may be widespread.

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Yep - I'm sure some of that is correct. I don't think this will manifest itself in such a way as to produce some kind of scenario where they move lock-step to bring about the end of the financial system.

HFT attracts attention because people think computers are magic. I can tell you these systems are as far from intelligent as one can imagine. As I said in another post most of it is a reaction to the commoditisation of cash trading. Banks are automatinc simplistic trading and sacking traders, which gives investors a better deal.

I think the accounting irregularities are a far greater barrier to investing. If you invest through a broker you might get half a percent from the price you wanted due to some market fluctuations. But the long-term investment decision is clouded by off-balance sheet stuff. You think you care if you were 0.05% worse off when you invested in Lehman's now? Or Enron? Or any number of companies trading at a good price right now that are fundamentally unsound?

For me HFT is not what keeps me from investing in individual stocks.

The irony of all this is that HFT evolved as a response to regulatory change. Both in US and EU regulators mandated more electronic trading and alternative market venues called Multilateral or Organised Trading Facilities to increase price transparency and narrow bid offer spreads for retail investors. This created multiple listings for the same stock across timezones in often different currencies, easily tradeable at the touch of a button.

It is this fragmentation that creates arbitrage opportunities which speculative funds seek to take advantage of. An algorithm can exploit this a lot faster and more efficiently than any human. The same thing is now going to happen in OTC derivatives, HFT is expected to grow to a significant portion of this market in 3 - 5 years.

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If you don't like that then manage your own pension. ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,. If you dump it all on the market at one time you get a bad price as you move the market.

If my pension was big enough to move the market I'd be ecstatic.

Edit: spelling

Edited by bajista

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can somne one please explain to me how HFT can function in a market where there's stamp duty?

Broker-dealers don't pay stamp duty, only people on the buy side do. For UK equities, hedge funds trade using CFDs, which don't attract stamp-duty.

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Isn't stamp duty just for the little people?

Nope. Open a CFD account with someone and you too can avoid paying stamp duty on your equity equivalent holdings. Mind you, you do then expose yourself to the credit risk of whichever broker you choose.

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HFT is now so fast that the latency in the infrastrucure is a big issue- it matters how close you are to the source of the sigal, which is why certain buildings in New York are being gutted and turned into HFT facilities- by lucky chance their physical location gives them a tiny speed advantage in the HFT game.

A nanosecond is 1 billionth of a second. One company, Fixnetix, recently announced that its "microchip for ultra-low latency trading is now the world's fastest trading appliance for the financial markets. Customers are now seeing latencies as low as 740 nanoseconds through the stack (wire-to-wire)."

http://adtmag.com/articles/2011/07/29/why-hft-programmers-earn-top-salaries.aspx

It's safe to say that these nanosecond based trades are not based on carefull anayisis of the fundamentals :lol::lol::lol:

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The difference between an investor and a speculator is that a speculator is making money.

(an investor is "in it for the long term")

What's "high frequency" anyway? The NYSE used to close on Wednesdays to catch up with the paper backlog.

And why on earth are high prices such a good thing?

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Does anyone know who gets to do the HFT? That answer might be more illuminating. ;)

Anyone who can persuade the exchange to allow them to connect. Mostly this is banks and hedge funds. I'm sure it varies eg LSE might be more picky than some new MTF trying to get market share. If you trade over the internet you get high latency so you can't join in with HFT as arbitrage. You would also be going via a broker so you could be a second behind the action or more. Investment banks co-locate in in the same datacenter as the exchange, so they are getting sub-millisecond.

So if you trade using a PC at home over the internet using a broker that would be like Federer playing someone in a coma at tennis ;-)

That last example is of course if you are playing clever games with the wrong kit. If you get burnt trying to make money on latency on exchanges then that is your fault as you played with the big kids.

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Of course, but HFT is only one way to make money, there are still other forms to make money and depending on volumes its possible to make more money than a HFT system on its own could make.

C++ whilst its preferable as its seen as a "base" language is still slower than say assembler and other hardware. ;)

Yes - you could also become a brain surgeon which is also well paid and nothing to do with HFT, but this is a thread on HFT, hence the focus on that.

Yes hardware is where it's at.

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  • 338 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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