Comment by pdonis | Hacker News Reader

Comment by pdonis | Hacker News Reader

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Wouldn't a more relevant statistic be trading volume? Stats for that (at least for the US market) are here:

http://www.sifma.org/research/statistics.aspx

It looks like the US bond market daily trading volume is about 25 times higher than the US stock market daily trading volume. However, that statistic is highly skewed by trading in US treasury bonds, which arguably should be a separate category. The same would presumably apply to the stats on market cap.

Also, it's not the relative size of the equities markets that's the problem; it's the amount of effort and talent that goes into what is essentially a zero-sum activity. Bonds and futures (and, to be fair, new stock issues) are positive sum. HFT is not.

(More precisely, HFT is only positive sum to the extent that it improves price discovery and therefore market efficiency; but I have a really hard time seeing how shaving a few more microseconds off trade times changes that significantly. It does, however, significantly change who is able to benefit from asymmetric information by inducing others to take the wrong end of zero-sum trades, which is what HFT is designed to do.)

Full disclosure, I do work for an HFT firm.

To the last part of your argument:

significantly change who is able to benefit from asymmetric information by inducing others to take the wrong end of zero-sum trades, which is what HFT is designed to do

This is simply untrue, nobody is being induced to do anything. Tactics like submitting orders you don't intend to let trade, to make other participants believe there is interest when there is not is illegal and enforcement is more aggressive than you might think.

To the remaining part, if you believe that HFT improves market efficiency to the extent that it exists, but don't think that the increasing competition provides additional value - OK. I'll work with that, but then if we can come around to a view that HFT is at worst neutral, why should it be curtailed? Simply because some think the people who practice it should spend their time elsewhere? I think that is a dangerous standard to enforce anywhere.

nobody is being induced to do anything

"Induce" may not have been the best word; I didn't mean to imply that manipulation of the sort you describe was going on.

What I meant was that the whole point of HFT is to get information about the market state, and act on it, a little bit faster than others; which means that when you make a bona fide offer based on your HFT algorithm's understanding of the market state, that understanding is based on information that the other party to the trade does not have, which means that the other party might accept a trade that, if they had the same information as you do, they would not accept. That is asymmetric information. There doesn't have to be any skulduggery going on; it's a natural consequence of what HFT algorithms are designed to do.

why should it be curtailed?

I'm not saying it should be curtailed; I'm saying that it's a shame that so much talent and effort goes into a zero-sum activity, and that that fact is a big part of why ordinary people distrust the financial system. In other words, HFT is giving other more beneficial financial activities a bad name. The right way to change that is for the financial system to police itself.

I think that is a dangerous standard to enforce anywhere.

I agree, and that's why I think the financial system needs to police itself, before it gets policed by others who don't agree with you and me that such a standard is dangerous to enforce.

HFT is on Treasuries - primarily arbing venues (brokertec/espeed/Tradeweb vs CME)

Also on FX

If there is an API normally there is programmatic trading.

Hm, interesting. So I really should have said that bond markets are vulnerable to the disease I described as well.

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