hft; what are the facts?, page-4

Hi strike101,

> Hi filmackay. good idea. The one thing I would comment on
> is your position is that HFT basically enjoys two
> advantages over other investors ie time and cost.

Time, as in it has "more of it" - it can do things faster than you can. Cost, as in ...?

> Some
> advantages occur naturally but not two. Remove these
> advantages and lets all trade on a more equal basis.
> Those who use HFT claim removal of their two advantages
> are the imposition of taxes and contraints that will
> affect liquidity, but removal only brings us all to a
> more equal basis as traders.

Adding a tax is one course of action, but I was pretty happy to see the abolition of stamp duty - I don't want it to return!

If you were to re-introduce, there will be a liquidity effect (both good and bad) - and we can argue over what might be the larger one there. But, we'd be left paying a tax! To me it's unnecessary, there are other far cheaper options. It's a case of the medicine being worse than the disease..

> What may happen, and what the US is heading towards I
> believe, is a moving of the balance ie some time
> contraints and some costs but removal of unfair
> advantages.

The history of HFT in the US has been a case of changes ("advantages being removed") only to find HFT adapt and use the changes back against the population to make more profit. Too many instances of this to list: eg. inter-market re-routing rules, Hide and Slide orders.

> Non HFT and HFT traders are all selling and buying the
> same product. I am not saying every HFT trade is evil
> just as not every short trade is evil but they do in
> practice do a lot of damage by targeting 'vunerable'
> stocks.

HFT works on very short time intervals (milli and micro), and can do a lot of 'damage' in the blink of an eye. Whilst HFT can use the advantage it has in the short time period to wield some control over the larger time periods in some circumstances (see: Facebook float "tractor beam") it really needs the right conditions to do so. It is a bit more of a stretch to suggest that stocks can be damaged long term by HFT. Algorithmic trading - possibly, but not HFT.

HFT targets vulnerable investors, not vulnerable stocks. HFT will move to one stock to the other without concern, but they will only ever target vulnerable investors' orders.

> The contrary arguement is that 'ramping' has the same
> effect but in practice that is not done by exploiting
> artifically sanctioned advantages.

The only advantage they have over you is - processing capacity to respond faster. The disadvantage you face is because you are no match for their computers (in the short term). The advantage of market data feeds and co-location? No, that's to compete with other HFT's, they already had you from the start!

The solution does not lie in removing their advantages (and the resulting moral hazards), but looking at the market rules (ie. matching rules) to see if they meet the needs of the market. I would argue at technology has moved enough now that the answer is no. See my TimeMatch proposal in the blog.