They don't get unnecessary volatility unless they're paying attention to the order book all the time. Realized equity volatility is MUCH MUCH MUCH lower in the era of HFT.
Yes, "flash crashes" exist, and normally because of liquidity disappearing. Yes, algos are basically sheep that all bail at the same time. But overall, the net effect is massively beneficial to everyone except lazy traders (which include fund managers who miss the days of getting lots of steak dinners from their favorite brokers).
Your question is exactly correct. As long as they are real orders, with real risk of being executed, there should be nothing at all wrong with this behavior. If people are so stupid as to move their orders trivially based on others' actions, they deserve what they get.
The reason this gets prosecuted is that it's an easy target for the exchanges to make it look like they care. They are now publicly-traded companies interested in profits first and foremost--not market integrity (which maybe used to be the case--different discussion).
source: 25-year vet of futures markets, the last 10 in HFT; many many millions of orders and executions
A senior/experienced person offering potentially-qualitatively-better "stuff" in the realm of something like code isn't the point. I'm sure there are exceptions, but in general no one is saying, "Let things be bad." If something would be a lot better, it's not two cents, it's two dollars.
The point is that when the difference is opinion (or close to), such as matters of color, font, position, etc., there is no reason to tweak things. If you're not going to make a big difference, don't make one at all.
If we throw out, even if momentarily, that there's more to success in the markets than pure luck, then people who have succeeded have done so in a very pure way: you can only make money in trading by being right. When you're right as often and to the extent that someone like Soros is, you have insight that 99.9999% of people don't.
Soros is definitely weird at times, and he is almost always too-certain. But your negative characterization of "billionaire investor" is a disservice to you and him. Rather than learn about the world by selling products or climbing a political ladder, he formed opinions and made bets. Massive, massive respect.
But basically the hypergrowth of the '90s was borrowed from the future. All policy was good if GDP grew. Greenspan noodled on the problem--"irrational exuberance"--but unfortunately became convinced the existing pyramid scheme was working. He's since publicly expressed regret over a ton of those decisions.
If it's $862m, last I checked, it will take them about 30 hours to bring in the necessary revenue--if they want to pay out of profits (I'm totally guessing here, what are real net margins on their hardware? 15-20%?), it'll take a couple days.
I can't upvote this hard enough. OP is right in my mind, but....
I'm straight (and divorced), and we got married for many of the same reasons that LGBT folks want to--it makes sense. Visitation rights, inheritance, tax treatment, etc.
It's unlikely that marriage would be removed as something of concern to lawmakers--has that kind of thing ever happened anywhere, any time, any way?
I respect OP's opinion, but it's ivory tower and we're talking about real people right now.
possibly unnecessary edit: just want to reiterate that I think OP is _right_, it's just not practical, and I'll sacrifice rightness for a rather-large "quick and dirty win".
> I think the author would have been better suited without mentioning HFT, maybe algo trading model?, as its a lighting rod for controversy.
Don't be so quick... in a world where keeping score is simple and the odds are tilted for many, any publicity is good publicity.
> 4) Back testing, no HFT trade idea's go into production without backtesting, Every HFT firm is different but I think they'd all adhere to this rule.
I'm sure the majority do. But I really didn't. The problem with backtesting low latency (by which I mean switch-to-switch roundtrips of < ~ 50us) is there are so many sources of jitter the data is basically "mean of x, st dev of 6x^3". Too much noise to signal to make it worth it.
So I would run something "in sim" for a while on live market data but simulated execution. I never looked for profitability--I looked for predictability. If you know the knobs on your system, you can make it work in any market. If you don't know the knobs, you have no business trading it. After a run of a week or so with no major problems I'd go into production. BUT:
> before you write anything else, you write hte risk system.
Oh Dear Lord yes. Not counting life-supporting, military, etc. tech, these are some of the sharpest tools you can imagine. Knight lost $440mm in less than an hour. And they were decidedly not of average expertise. That failure was a much bigger deal than most realize. Luckily smart people noticed and a lot of risk stuff changed after that (imo that was when people finally started to say "fast enough, I need to generate smarter orders").
> 2) The system has no rate limiter, what do you do when the quotes come in too fast for you to deal with?
I've been out of the guts for ~2 years, but by universal unforgiving law, the volume of quotes has got to be ridiculous now. People talk about "low latency" when they're talking about serving static HTML at 1000/s. So few people have actually seen the nuts and bolts of feed handlers--it's not their fault, this isn't widely available stuff--but the traffic spikes are mind-boggling. Good adapters combined with a tuned network stack will translate signal into "book" data, meaning usable basically, in ~ 5us. Meaning they do that 200 times per MILLIsecond. And it's not enough sometimes. And you and your rival firms are spending a lot trying to make that number 4us. Blah blah blah, I kinda miss it.
It is so, so infrequently that I get to say this about something HFT-related on the internet: fucking awesome, dude. There is actual information here that is of use and doesn't mislead. It's amazing.
The latter is somewhat true, and probably unavoidable at this point. "The cat is out of the bag", so to speak--markets can't just go back. The problem is that the incentives are so wildly disproportionate. If a really smart guy works for the SEC or some surveillance body, he might $200k a year. That same really smart guy might make $200 MILLION trading. It has to be awfully damned unlikely to not choose the latter. And in reality, you're probably pulling $100k somehow or another while you wait.
With respect to the idea that this guy is the culprit, that's literally laugh-out-loud funny. It's possible he was spoofing, etc., even with decent size. But the clearing firm (Hi, MF!) controls the throttles on those pipes. But there is what is called "sponsored direct access" in these markets, and that basically means the clearer wants your business enough you can just hook up directly so you can go really fast, and they (the clearer) will just pretend that they're looking at your stuff.
I'm in the "professional automated trading" space. This is by far the most common vendor mistake. "We make trading simple!" is pretty much a surefire way to mediocrity at best.
"We make tax law simple!"
"We make heart surgery simple!"
^^ similar silly things, only you don't ever see them
The thing is, no one actually DOES make anything simpler. They just restrict the toolset with which you can solve problems to things that work for the 80% cases.