hft; what are the facts?, page-7

strike101 thanks for the reply,

> Hi filmackay, re "The only advantage they have over you
> is - processing capacity to respond faster." I am not
> sure that is true. Their charges for trading are also
> much lower than mine.

Yes that is true. Unfortunately (for you) everyone one else has lower execution costs than you as well. Everyone has lower execution costs than retail traders :)

I guess I was referring to the market data/technology advantages - not all advantages.

> The two artifical advantages of time and cost allow
> them great and unfair advantages.

What to do about the cost advantage - legislate a fixed brokerage fee for all traders? Can't see the large (institutional) traders being happy about that, is it fair for a super fund to pay the same bro as a retail investor?

> re "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"
>
> I also believe this is not true. Just as shorters target
> vunerable stocks via a debt convenant HFT do also. They
> may do it technically but that is what they do and the
> effect they have.

You need to be careful to not put everyone doing something you don't like or dodgy in the HFT bucket. You don't need to be a HFT to target a debt covenant trigger. A human can do that just as well, and is at no disadvantage. It would be a waste of HFT resources to target this kind of "opportunity".

HFT are very focused firms, and have extremely tight risk limits (tighter than anyone else in the market). Targeting a trigger is not something HFT have an advantage in, and would be way beyond the kind of risk they would be willing to cary.

> All traders be they human or computer are going to use
> the stockmarket to gamble but allowing circumstances
> that foster and reward that is, in the long run,
> destructive of the market.

Totally agree. One of the reasons I've proposed TimeMatch to take the market back to the needs of the genuine liquidity providers..

> One of the reasons for the
> emergence of 'dark pools' was to negate having to deal
> with the added volatility caused and used by HFT.

Yes, though I think the cure can the worse than the disease. I am hoping to reform the lit market so no-one wants to leave and trade in the dark. It is possible, just takes some creative thinking.

Dark pools are less regulated, and suffer from liquidity fragmentation - I'm trying to not have to pay that price!

Check out TimeMatch on my blog, I'd be interested in your thoughts!