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Comment by marincounty | Hacker News Reader

I think HIgh Frequency Trading will eventually be neutralized through competition. I noticed the their profits aren't as staggering as they were a few years ago. I would like to see a law that limits how close an company(individual) can set up shop next to an exchange though.

I think Insider Trading is more of a problem than the public knows?

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I read a couple of months ago that HTF has effectively already been neutralized (as in: profits have collapsed and lots of HFT shops have closed or merged), simply by the nature of the game:

There's a limited total profit potential everyone competes for, which limites the number of players and the expenses that can be justified.

And that profit potential is directly related to market volatility. Which peaked in 2008 and has since gone down drastically.

I think it's simpler than this: just delay every trade by a random amount between zero and ten seconds. For people who actually want to buy or sell instruments because of their value to them, that won't be a problem. For people who just want to play Street Fighter II with the market, it's game over.

Why have a limit on how close people can be to the exchange? For one thing, everyone would just colo at exactly the minimum distance, achieving nothing. For another, ability to colo is not really an issue. If you wanted to create an HFT startup, colo is not going to be a major cost compared to hiring developers.

A limit on distance is in effect a speed limit. It means anyone that is able to reach the limit has a shot at competing. Whether that is good or not, or makes a difference or not is another discussion, but you can certainly affect the competitive situation massively that way.

But they're not really competing on the absolute scale of how fast they can execute a trade, but rather on how much faster than everyone else they can execute. If everyone else is slowed by an equal amount, the game doesn't change at all.

Competition is already high, and colocating is not that expensive for anyone with the ability to compete.

A lot of the loudest criticism of HFT is that it's too competitive - a lot of people who used to make a comfortable living from the bid/ask spread are no longer able to due to computers driving down profit margin.

"Only a fool would trade stocks without inside information."

This is ridiculous. It's possible to make money in the stock market without inside information, but it requires alot of knowledge. Markets are very fluid, complicated, and behaviour patterns are constantly changing.

Unless you're prepared to devote alot of time to learning, it's best to stick to index funds, or lower risk investments (GICs).

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