High Frequency Trading (out of Market Action)

[gluu]

As someone who otherwise seems quite erudite, I’m baffled by the type of thinking you’re exhibiting in regards to HFT. This is empirically false, there are a host of academic papers that show the benefit of HFT.

Do Retail Investors Suffer from High Frequency Traders? by Katya Malinova, Andreas Park, Ryan Riordan :: SSRN

Vanguard's Gus Sauter Thanks High-Frequency Traders

Please stop posting dogmatic FUD.

Spreads are effing huge, much bigger than they were in the 1980s, so I'm not sure how they could get much wider. One fairly staid stock I've been watching has had bids of $75 and asks of $85 fairly frequently -- that's a spread in excess of 10%, which would *never* have happened in the old days.

 

[neroden]

Dear neroden,

If it is not deemed too much of a digression, I would much appreciate your view on the impact high frequency trading has on the stock market and its actors.

Thank you.

I am certain that it continuously skims a small amount off the market which would otherwise go to other investors. There are lots of other things which do this, of course. The HFT people claim that they're skimming less than the market makers used to skim; a debatable claim, and in any case, they're not providing the same service the market makers provided.

I have seen strong evidence that it increases volatility.

I think those are the main effects.

Bluntly I think it's an irrelevance to TSLA. The manipulations going on on TSLA are targeting much stupdier algorithmic trading. Headline-trading bots and momentum-following bots are being manipulated.

 

[neroden]

As someone who otherwise seems quite erudite, I’m baffled by the type of thinking you’re exhibiting in regards to HFT. This is empirically false, there are a host of academic papers that show the benefit of HFT.

Do Retail Investors Suffer from High Frequency Traders? by Katya Malinova, Andreas Park, Ryan Riordan :: SSRN

Vanguard's Gus Sauter Thanks High-Frequency Traders

Please stop posting dogmatic FUD.

Those studies don't say what you think they say.

The documented behavior is that the HFT appears to increase liquidity and reduce spreads (by skimming)... until the HFT traders' programs decide to bail out and the liquidity disappears when it's most needed. At that point the spreads balloon and liquidity crashes. Those two studies simply don't even look for that phenomenon. Unlike bona fide market makers, the HFT people are not required to stay in the market at all times, so they're not providing the backstop liquidity.