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Comment by crdoconnor | Hacker News Reader

There's a pretty strong chance that your retirement funds are not being cannibalized by Samsung or Apple.

Whereas, with HFT...

If you pay $100 extra once in your life for the gold iPhone, then Apple has probably cannibalized more of your retirement fund than HFT.

Ballpark esitmate: drop $20k/year into retirement (1 lot of SPY/year) x 1 penny/share being robbed from you x 50 year working career, you've lost $50 to the evil HFTs.

True, more than the money it's the problem that all these super talented people are trying to relive Superman 3 instead of curing cancer.

Have you found the cure for cancer and now you're wasting time while waiting for the FDA to approve it?

TABB group estimated HFT income to be $21 billion in 2009. That's about $65 for every man, woman and child in the US.

Ballpark figure, of course.

Not quite, that's a theoretical upper bound - it's spread x share volume. Compare that to Apple's actual profit last year of $39B.

https://finance.yahoo.com/q/is?s=AAPL+Income+Statement&annua...

Losses due to burglary, by contrast, are around $5 billion a year. For comparison.

Which is probably more relevant than AAPL's net profit.

HFT has DRAMATICALLY reduced trading costs which has improved the value of my retirement fund.

Electronic trading decreased them. HFT increased trading costs. This is why dark pools are now a thing.

Try trading in a market with low liquidity and no HFT. It's a nightmare.

Anyhow, HFT affects execution, 'electronic trading' affects how you put in orders, both make the process of buying/selling securities cheaper.

>Try trading in a market with low liquidity and no HFT. It's a nightmare.

Such markets are created specifically for the purpose of avoiding HFT: https://en.wikipedia.org/wiki/Dark_liquidity

HFT hasn't been around that long, either. Before 2005 it basically didn't exist.

Read your link. Dark pools are created so institutions can trade large blocks without moving the price, or to hide transactions.

Dark pools are beneficial to institutions in some circumstances, not to individuals.

And yes HFT hasn't always existed, once upon a time you'd have a pit of screaming traders and brokers, and for an individual to buy/sell stocks you'd have to call your broker on the phone, who'd charge you an obscene amount for the privilege.

Anyhow, HFT is more or less just a euphemism for high-speed arbitrage/market making.

I look at the execution I get on my trades today, I couldn't imagine not having that service available.

>Read your link. Dark pools are created so institutions can trade large blocks without moving the price, or to hide transactions

Yes, to hide them from HFT.

Read on a little.

Yes and the bit about 'predatory HFT' is backed up with an article which has no information about what constitutes 'predatory HFT', it merely repeats the words in a small annotion. The article is more about the regulatory concerns over dark pools.

I'll tell you why they use dark pools. On the open market, if you sell lots of shares, buyers will see that, and drop their bids. Likewise if you put in a large bid, sellers will raise their asks. In a dark pool, institutions can move large blocks at a given price without market forces interfering, and reduce trading costs.

If that were so, dark pools would have been around for as long as we've had public exchanges. Yet they only appeared on the scene after HFT did.

Private trades have existed forever. Dark pools as infrastructure in their current form, of course rely on computers.

It's like the difference between searching for a house on a public database, or a broker's private database...

I'm confused. Dark pools (ie, private exchanges) are devices used primarily by giant investment banks and hedge funds to try to load or unload large amounts of stock without moving the market.

What point are you trying to make about them? That if we didn't have HFT, we wouldn't need them? That's an argument for HFT, not against.

Dark pools exist largely to prevent HFT from parasitically extracting value from large trades. Spearing whales I believe it's called. Giant investment banks, hedge funds, insurance companies and pension funds use them.

>That if we didn't have HFT, we wouldn't need them? That's an argument for HFT, not against.

Dark pools are an evolved defense against parasitic market players that is not cheap. These costs are then passed on to you via your pension fund, index fund or if you buy insurance.

I don't see how that's an argument for them unless you or your friends were personally profiting from it.

Large trades should move the market!

You and I buy stocks in small amounts. Intuitively, after each of our trades, we understand that the market moves to take the impact of those trades into account. That's the point of markets!

So why on earth should it be that a hedge fund should be able to buy or sell huge amounts of stock without having the market move? You don't have that power. Why do they? The fact that a giant entity is trying to move huge amounts of stock is information. The point of the market is to capture that information and build it into prices. That's exactly what HFTs are doing in this scenario.

The expectation that hedge fund managers have that they should be able to capture the spot price of a security and then buy or sell arbitrary amounts at that price, taking their information advantage out of the hides of every other market participant, seems totally unfair. Again: you don't have that privilege on the market. Why do they?

So electronic trading is what? Slow computers? And HFT is faster ones?

>So electronic trading is what?

That great innovation where you no longer have to shout in a pit to get your trade executed because, you know, computers.

Virtually all trading these days is electronic.

>And HFT is

Algorithmic trading by computers that's "fast" (usually regarded as sub-second trading, although definitions vary a little).

The more you know...

You keep saying "shout in a pit" as if that was the primary benefit of electronic trading. But of course, that's not the primary benefit. The major benefit is that with humans out of the loop, it's harder to grift huge amounts of money from people trying to do simple trades.

For instance: Google [odd eighths scandal].

And that's a modern example of humans rigging the markets, exploiting lack of competition and automation. Things get much worse the further back you go in time.

The primary benefit was that it decreased transaction costs which is the reason spreads went down in the late 90s/early 00s when humans were still in the loop.

Humans are of course perfectly capable of rigging the market with or without computers, a fact so mind-blowingly obvious, I'm not sure why you'd accuse someone of believing that it's false.

This particular thread was not about market rigging, it was about whether HFT can really be credited with decreasing spreads in the early 00s.

The computers that replaced the shouting in ball pits make trades algorithmically and do it in under a second.

You have not described a difference between two things that you are trying to distinguish between.

Even if we all accept that HFTs are 'stealing' fractions of a penny per trade, just how often do you trade your retirement funds?

Much more often than you might think. Every time we make a deposit (likely monthly/bi/weekly) that money needs to be deployed (aka stock purchased). If we are part of a big fund that fund may need to buy stocks in huge chunks and when the HFT sniffs out what they are buying they will raise the price.

The price has to go up anyway, that's what happens when demand increases, it's nothing to do with HFT. Large block trades like this will often be arrange over the counter (OTC) or on dark pools, so the fund purchasing the shares will get a fixed price and it's up to the market maker to deal with the execution risk in the open market.

Edit: As Harryh said, large mutual fund managers believe that HFT allows them to get better prices for their customers: http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...

Vanguard (the manager of the world's biggest funds) has consistently stated that HFT market making has lowered their trading costs and increased returns for investors.

Usually it's done on your behalf by institutional investors. The costs will be passed on to you in the form of less money once you retire.

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