Thanks

@sysparatem

And would you say pension plans refer to “long-term investors”?

And are you listening, Kid Dynamite?

Again, HFT is nothing more than a way to enter spoof orders, and take as many free shots as you need to trip stops. Other than that though, it’s entirely harmless.

Boiled down, HFT is just a fancy way to front run legit bids and offers, and enter spoof bids you can yank away in a blink (literally). It distorts market prices, which makes Kid’s claim that HFT “has no effect at all on… long and medium term investors” all the more hilarious. Maybe today was the day, I, the “long-term investor” decided finally to unload my shares I’ve been holding so long — well, thanks to some algo, I’ve sold back for less than I should’ve gotten. Or worse — maybe I’ve decided NOT to hold my long-term shares anymore because I’m alarmed at what a joke the whole flash-crash casino has become. So I sell just to get out — at a lower price maybe than I’d like — but hey, no harm done eh? Because the Kid says there’s none!

You know, seeing the way Kid stalks sites to jump in and pooh-pooh any possible “conspiracy” talk, I’m beginning to wonder if he himself is in reality a robo algo, too.

What the Nanex GIF graphically demonstrates beyond question is that “HAL” lives and is visiting havoc upon the marketplace.

So, upon reflection, we can perhaps all agree that the acronym HFT really has a different meaning. Doesn’t it practically stand for “HAL F_CKS TRADERS”?

There are some thoughts on how this could impact value investors here:

http://www.mindfulmoney.co.uk/13459/inve sting-strategy-/knight-capital-the-rise- and-fall-of-the-machines.html

Perhaps Bill Joy had a point – “We are being propelled into this new century with no plan, no control, no brakes. Have we already gone too far down the path to alter course? I don’t believe so, but we aren’t trying yet, and the last chance to assert control – the fail-safe point – is rapidly approaching.”

1. The HFT = tail risk argument. There’s this idea that the robots could all go on strike at once and the stock market would collapse. This could, and has, happened with human market makers as well. Such a collapse like the flash crash does not last long because it leaves mispricings available for profit. There’s this idea that the big mispricings wouldn’t be arbitraged because the robots have taken over…or something.

2. HFT exacts a tiny tax on regular investors. I find this argument more credible based on anecdotal evidence of how HFT works. My understanding is that the robots will place multiple orders to figure out where investors tend to have limits placed on limit orders. Then they will sell at the high limit and buy at the low limit. Some computers can also see order lists before other computers and adjust accordingly. I find a hard time justifying how HFT traders can make and cancel multiple orders just to see which ones are accepted, as well as borderline front-running flash trades and such.

But in general, the arguments about HFT causing impending doom are overblown. If their losses are limited to their own trading book, then I don’t see the issue. HFT, in and of itself, won’t change the long-term value of a stock.

As far as the more general argument that “no investor should care about executing orders in less than 24 hours,” there are a lot of economic fundamental reasons for intraday trading. In particular, to have stock prices adjust rapidly to new news. In theory at least, all the investors reacting to the latest quarterly reports and rumors makes sure that passive investors buying index funds do not overpay for the stock, or get too little when they sell.

Why would someone care about executing a trade any faster than in 24 hours ?

Stock holdings for legitimate and socially useful purposes – dividend distributions and voting rights – is measured in years, oftentimes decades. Anything else is gambling. So, stock markets should provide liquidity opportunities commensurate with this type of timescale, and nothing else.

And while it’s not a major risk for the economy, it’s all downside and no upside.

I’m happily in favor of shutting down HFT in favor of a more transparent system, but I don’t see it as a major risk to our economy.