I'm sure I'm not the only one who would like to see the whole HFT industry be deleted. What a waste of human intellect.
After all, these people could surely be creating something more valuable.
If you want to make an argument based on opportunity cost, it generally should have specific alternatives and a viable cost metric. Without that, it's not an argument, just an opinion.
— Daniel Yankelovich, "Corporate Priorities: A continuing study of the new demands on business" (1972).
Now sure you can argue that they were doing only what the society and themselves considered valuable. But one can only wonder if those smart people had been putting their best effort into other things, say developing agriculture or better industrial processes.
I myself did a little day-trading at one period in my life and while I made money, I thought it was the most useless thing I could spend my life in. I was just creating money out of thin air doing basically nothing. Maybe HFT is intellectually more interesting than day-trading but I don't believe it to be very gratifying at deeper level. Perhaps it requires a certain type of person to enjoy that kind of pursuit. I'm definitely not one of those.
Taking it from less skilled traders, actually.
Right. And through all that thinking about silly stuff, people eventually came to the idea that a LOT of this religion stuff is silly and not worth wasting time on, so smart people could skip worrying about it for the rest of human existence if they chose to. (Whereas beforehand, it was considered a super-important thing to think about).
You seem to imply all this effort was a waste but ultimately it led to the Reformation, various Renaissance periods and, most importantly, Douglas Adams.
I suspect that the same thing will happen with HFT. Either people will stop bothering with it eventually, or they will discover some fantastic new quantum effects that pay dividends for humanity forever more. :)
Brilliant!
What a loss he was, died too young.
Most systems are pretty inefficient and the problem is at the time we do not know which pursuits will yield the most valuable results.
Top-down, authoritarian direction of intellectual pursuit tends to yield worse outcomes than just letting people do as they wish. It's dangerous to suggest that any single perspective can accurately decide value.
And that lead to establishing a whole new field of social sciences that is philosophy. Yes, i am aware that middle-age debates and musings like that were not solely responsible for philosophy as a field of study, we gotta remember eastern philosophers and others too, but they were still monumental to making philosophy what it is today.
Regardless of how much their musings on god contributed to creating philosophy as we know it today in comparison to efforts of others working in that field (e.g., eastern philosophers in old China or middle eastern philosophers of about the same time period), their efforts accomplished a lot in terms of generating actual value for the society through philosophy as a field of study. Unless you are dismissing the entire field of philosophy as it stands today as "useless", then the value of those discussions is pretty obvious.
Not even mentioning second-order effects, like those debates making people question prior assumptions and embarking on important scientific endeavors, like trying to prove that Earth might be indeed revolving around the sun and not the other way around.
Just wanted to highlight that specific time period, since it was pointed out by the parent comment as a specific example of those efforts going nowhere.
HFT is automated day-trading in a way, so 1 meta level more intellectually interesting I suppose.
Agreed. Modern economics encourages waste, such as multi-level marketing, payday loans, advertising, etc.
Hell, I'm sure most people's jobs here, indeed, most jobs would fall under David Graeber's "Bullshit Jobs".
> You might not remember that in the Middle-Ages a large portion of intellectuals were spending most of their time debating religion such as is God really omnipotent and what a specific verse in Bible meant. > > Now sure you can argue that they were doing only what the society and themselves considered valuable. But one can only wonder if those smart people had been putting their best effort into other things, say developing agriculture or better industrial processes.
... I cannot agree. A few years ago I picked up Anthony Kenny's "A Brief History of Western Philosophy", and "A New History of Western Philosophy". What these "useless" debates about knowledge got us were considerable changes in morality, metaphysics, and helped us create things that were useful in the long run. Indeed, the only reason formal 'science' is around is because of those changes in thought and reasoning.
Bertrand Russell has another sort of argument in the same direction, that I quite like. You can find it here: https://books.google.no/books?id=CnlbMP_vBmgC&pg=PA16&dq=use...
> I myself did a little day-trading at one period in my life and while I made money, I thought it was the most useless thing I could spend my life in.
Agreed.
Correct in one sense, but assumes we know in advance what will be waste and what won't be. Central planning has shown itself to be far less effective, both in overall quality of life and in meeting specific demands, than more wasteful competitive economies. So although its easy to point to retrospectively wasteful activities, life without them would be objectively worse.
Tangentially, when covid was in early days and people were beginning to develop vaccines, I saw someone comment asking who was going to coordinate the many disparate development efforts to make sure resources were being effectively used. I can't think of a more starkly absurd idea - it's only by allowing free activity, incentivized by some external, real forcing function, that we can expect to see consistent success. Any central definition and sanction of what should and shouldn't be done instantly distorts incentives towards pleading some central arbiter, and fails.
So all the scuzzy businesses and pursuits that the GP thinks are wasteful, are part of the rich tapestry that overall feeds us and keeps lifting us up. The only way we'd should be signaling they are not helpful is by not using them (and just for greater certainty I'm not talking about tolerating things that are exploitive, harmful, etc, just "wastful")
The effects of HFTs aren't limited to HFT vs traditional traders. Their artificial arbitrage affects people's retirement funds and the like. It wouldn't be so bad if they were just making money off other traders but instead they're making money off everyone with money in the markets.
Huh? It's narrowing bid-ask spreads, which is beneficial to other market actors. There's nothing "artificial" in it other than betting that the price fundamentals won't move against them, like any other market maker.
Not true. The HFTs are often market makers and are PAID to be in the market by the exchanges at all times so that others have something to trade.
I believe that arbitrage within the platform kept the prices and exchange rates consistent (i.e. it didn't matter whether you bought Bitcoin for EUR or first changed the EUR to USD then used that to buy Bitcoin), but of course you could make/lose some money by exchanging EUR <--> USD on the platform then exchanging it back outside (or simply exchanging it on the platform, waiting until arbitragers brought the exchange rate back to normal levels, then exchanging it back).
But in effect, the lack of efficient arbitrage between the platform and the "real world" that allowed EURUSD rates to drift so far meant that how much your coins were worth depended on what currency you bought/sold them for, making the whole thing highly annoying.
The cryptocurrency markets, which seem less mature/complicated/HFT-overrun than the "big" markets, are great for learning market principles.
What is the argument against Arbitrage having a lag of even, say, 90 seconds?
And like... who cares about the price delta on a time scale even less than an hour apart from day traders? FX stuff I guess?
If every trade settled at, say, the rolling average price of the last 60 seconds-- or 60 minutes-- it would dramatically quiet the "noise" in the market. There would still be enough demand from conventional investors, and the averaging policy could actually stabilize the riskiest scenarios (i. e. a temporary loss of market makers causing orders to settle at comically out-of-bound prices)
Any other method to force a uniform price, i.e. a price that cannot quickly change in response to information, creates arbitrage opportunities that are greatly unfavorable to retail investors.
My google ads are mostly saas software and tech gadgets, which I prefer over random ads.
If a lip gloss company wanted to advertise, is it not better that they can target people who like lip gloss instead of a random audience?
As a result, it attracts people who should be out there curing cancer, developing new technologies, researching fundamental sciences, and so forth. It’s something everyone around me has acknowledged at one point or another.
And yes, there is real benefit to providing liquidity. And yes (to another poster) exchanges love them some sweet, sweet algorithmic trader action.
IMHO this is a “bug” in capitalism that can’t be edited out by tweaking a line or two. I don’t know what the right answer is.
If we want more people in the sciences, we've got to create the jobs.
Made me choose the other thing I loved in high school which was math and computer science.
Haven't looked back.
You may end up with things that have infinite price, at which point I think we're begging the question.
There's also a question of how commodified the things we're talking about here can actually be - If you can sell it one day and it's impossible to 'buy back' tomorrow at any price, then it's a fundamentally different kind of trade that doesn't really fit the framework as neatly as first appears.
However we also risk a self-fulfilling prophecy if we commodify those externalities and reduce them to lines on a balance sheet. I know that this is not quite what’s being argued for, but I am equally certain that is how it would land in practice.
I’m not convinced re-framing/codifying our social, environmental, and human capitals as financial instruments is any kind of progress towards salvation, rather it’s a doomed attempt to take everything that never fit inside the tidy box of capitalism and cram it inside of the box anyway. A try at making the world comprehensible to a mind accustomed to that manner of framing.
This problem needs novel thinking, more novel than finding a direct way to account for it within the existing framework. I regrettably don’t have a better idea.
The other issue is that intelligent people tend to feel entitled to success, particularly if they succeed on traditional measures which rank them according to others. This makes them less likely to enter very difficult and uncertain fields when there are other options. Science is often inhumane in a sense, you can waste your life on the wrong idea, certainly many people have. You can also be right, but only proven so after you die.
Science also has developed a large swarm capacity, which reduces the ability of an individual to succeed and make an impact. The best example is deep learning... the explosion in deep learning research output is frankly astonishing. In real terms, a lot of researchers outside the field managed to drop whatever they were doing at the time and switch to deep learning research. Along with the excellent tooling, accessible hardware and data and low barrier to publication, there is literally a flood of papers. It is now very difficult to get noticed, and much harder to make any progress. This has happened in the space of one PhD duration. It is reasonable to assume this will keep happening as new fields open up. I presume it is because there are large numbers of people waiting for the next big thing, underemployed or underutilised in their own current work. In this scheme, research success comes to either those that found a field (even more difficult and unlikely) or have the best resources (often corporate research these days). Your talent, intelligence etc all become secondary. You can say that this is just 'rapid progress' and good for humanity. Maybe. There is also a lot of low quality work. But in the end one is an individual, not humanity, and you need to act on that basis.
All these factors conspire to send smart people away from science, and it is hard to blame them.
I’m no scientist, but the above really resonated with me.
Have I missed something?
Iterative optimization resulted in smaller and smaller (and more frequent) corrections.
Put it another way, if the number of HFT trades were suddenly cut in half, what 1st order impacts would be felt by people outside those markets? The heart of the "but we're providing liquidity" argument is that this is a service provided that has real value outside the market. If that's not true the particular argument falls apart, doesn't it?
it probably is because of distortions in the flow of money
> Put it another way, if the number of HFT trades were suddenly cut in half, what 1st order impacts would be felt by people outside those markets?
it would probably result in capital markets taking longer to account for changes in the market/world such as shortages. Then the capital markets that weren't subject to the restriction would be more competitive as a whole. Depending on the specifics, it might open the door to people with relevant information (who weren't hf traders) to begin to make some of those trades.
> The heart of the "but we're providing liquidity" argument is that this is a service provided that has real value outside the market. If that's not true the particular argument falls apart, doesn't it?
I don't use the liquidity form of the argument because I think it focuses on the wrong things. Capital markets affect the rest of the markets by optimizing the creation and maintenance of capital. All consumer goods rely on capital. So policies that make the capital markets less efficient would have broad downstream effect in commodities markets, essentially there would be in aggregate fewer goods.
I'm in HFT, and I'm confident in speaking not only for myself when I say that if HFT didn't exist I'd be doing something else fun and profitable (e.g. investment banking, non-high-frequency trading), not something boring and/or poorly compensated like medical research. People on this site have no right to tell other people how to live their lives, especially when they themselves probably work on something like ad-tech which is arguably actively very harmful to democracy and society.
The only time there is a speed race in these symbols to _place_ an order is when they are filling in a missing level. That is providing quotes at better prices. Why would you want to make that more expensive?
What about the advertising industry, making up slogans and jingles that you can't get out of your head?
I think you might misunderstand the mechanisms behind the stock market and thus the value provided by the HFT industry.
I think you are assuming that anyone who criticizes HFT must be clueless about how finance works because you can't imagine any other reason they would criticize it. Look around, that's not true.