More Proof That the Stock Market is Rigged (1 Viewer)

[jonessed]

Short Corner has it right- HFTs compete against other traders for the most part, including HFTs. They are in and out of trades in seconds (sometimes a fraction of a second), and look to make pennies (sometimes a fraction of a penny) per trade. They really have no impact on longer term prices which concern the average investor (including mutual funds).

They shave profit off of any transaction they can. Mutual funds/ETFs will be in that class.

They don't shave profit off of every transaction. I hate defending them, but in terms of their impact on the average investor, there is no definitive answer- many people think it's been a net benefit.

On 60 minutes right now there is a story about exactly how the market is rigged ("Flash Boys") to transfer tens of billions to high frequency traders. Proven. Done.

They are doing exactly as I said - shaving profits off billions of transactions. Frontrunning the market.

Rigged in what sense? People were always looking for an edge. I don't think many knew the extent and how frontrunning was happening but people were certainly aware of the fiber optics networks and firms trying to be as close to exchanges. I never realized they were frontrunning people from one exchange to another but does that necessarily make it rigged? And as much crap as HFTs get. They do provide liquidity. So getting rid of them will drive up bid/ask spreads. I'm sure this will get people looking to alternatives and the exchange on 60 minutes looked somewhat promising if people are that interested/worried about this to check out.

Yes. That makes it rigged.

What part in particular? It is probably a fine line, sure, but how is it any different than event driven trading? Is it rigged that people use algo trading to trade on breaking news? Is it rigged that people pay to get this data milliseconds early? Where is the line drawn? I imagine it is different for everyone but even then, this isn't really going to affect retail investors at least directly. Retail investors aren't really being frontrun and they still won't be able to compete with computers on breaking news. And any restrictions or regulations have to take into account that liquidity premiums will go up which will most likely affect retail investors more. Sure, some retail money in institutional investors is affected but in a country where 50% of the population doesn't even own stocks, it seems a bit over dramatized.

I believe exploiting technical flaws in the system to divert money out is akin to rigging it.

 

[sporthenry]

Short Corner has it right- HFTs compete against other traders for the most part, including HFTs. They are in and out of trades in seconds (sometimes a fraction of a second), and look to make pennies (sometimes a fraction of a penny) per trade. They really have no impact on longer term prices which concern the average investor (including mutual funds).

They shave profit off of any transaction they can. Mutual funds/ETFs will be in that class.

They don't shave profit off of every transaction. I hate defending them, but in terms of their impact on the average investor, there is no definitive answer- many people think it's been a net benefit.

On 60 minutes right now there is a story about exactly how the market is rigged ("Flash Boys") to transfer tens of billions to high frequency traders. Proven. Done.

They are doing exactly as I said - shaving profits off billions of transactions. Frontrunning the market.

Rigged in what sense? People were always looking for an edge. I don't think many knew the extent and how frontrunning was happening but people were certainly aware of the fiber optics networks and firms trying to be as close to exchanges. I never realized they were frontrunning people from one exchange to another but does that necessarily make it rigged? And as much crap as HFTs get. They do provide liquidity. So getting rid of them will drive up bid/ask spreads. I'm sure this will get people looking to alternatives and the exchange on 60 minutes looked somewhat promising if people are that interested/worried about this to check out.

Yes. That makes it rigged.

What part in particular? It is probably a fine line, sure, but how is it any different than event driven trading? Is it rigged that people use algo trading to trade on breaking news? Is it rigged that people pay to get this data milliseconds early? Where is the line drawn? I imagine it is different for everyone but even then, this isn't really going to affect retail investors at least directly. Retail investors aren't really being frontrun and they still won't be able to compete with computers on breaking news. And any restrictions or regulations have to take into account that liquidity premiums will go up which will most likely affect retail investors more. Sure, some retail money in institutional investors is affected but in a country where 50% of the population doesn't even own stocks, it seems a bit over dramatized.

I believe exploiting technical flaws in the system to divert money out is akin to rigging it.

Except this pretty much explains what traders and HFT's have been doing for years and nobody seemed to care.

Traders have essentially been trading arbitrage opportunities on different exchanges for as long as they could.

 

[Sand]

What I find fascinating in all of this is that the people that are getting screwed by HFT's aren't the retail equity investors, they are the large institutional investors - the hedge funds, mutual funds, broker/dealers, etc. The retail investor never trades enough size (save perhaps the 1%) for any of this frontrunning to really affect them, and even if their trades were front run (in the form of perhaps a larger block trade by a retail brokerage firm), the cost was likely negligible compared to their trading fees.

True on the retail investors (exc: Chet). Too small to worry about. On the comment about mutual funds, though, that directly affects pretty much anyone with a retirement account or retirees. These traders have been taking money out of regular Joes for years and years.

An I won't believe this liquidity crunch and bid/ask spread issue until shown otherwise. There are plenty of traders in the markets to make them liquid without HFTs.

 

[sporthenry]

What I find fascinating in all of this is that the people that are getting screwed by HFT's aren't the retail equity investors, they are the large institutional investors - the hedge funds, mutual funds, broker/dealers, etc. The retail investor never trades enough size (save perhaps the 1%) for any of this frontrunning to really affect them, and even if their trades were front run (in the form of perhaps a larger block trade by a retail brokerage firm), the cost was likely negligible compared to their trading fees.

True on the retail investors (exc: Chet). Too small to worry about. On the comment about mutual funds, though, that directly affects pretty much anyone with a retirement account or retirees. These traders have been taking money out of regular Joes for years and years.

An I won't believe this liquidity crunch and bid/ask spread issue until shown otherwise. There are plenty of traders in the markets to make them liquid without HFTs.

50-70% of the market is traded by HFT. No way can the rest of the market pick up that liquidity. And you are also going to run into the same problem the Volcker rule is in trying to define what exactly is HFT.

 

[humpback]

True on the retail investors (exc: Chet). Too small to worry about. On the comment about mutual funds, though, that directly affects pretty much anyone with a retirement account or retirees. These traders have been taking money out of regular Joes for years and years.

An I won't believe this liquidity crunch and bid/ask spread issue until shown otherwise. There are plenty of traders in the markets to make them liquid without HFTs.

Sorry dude, but this is pretty silly. Spreads and trading costs have come down exponentially in the last several years as the HFTs have accounted for the majority of the trading volume. Again, I can't stand HFTs, but as with pretty much everything, they have pros and cons.

 

[jonessed]

Short Corner has it right- HFTs compete against other traders for the most part, including HFTs. They are in and out of trades in seconds (sometimes a fraction of a second), and look to make pennies (sometimes a fraction of a penny) per trade. They really have no impact on longer term prices which concern the average investor (including mutual funds).

They shave profit off of any transaction they can. Mutual funds/ETFs will be in that class.

They don't shave profit off of every transaction. I hate defending them, but in terms of their impact on the average investor, there is no definitive answer- many people think it's been a net benefit.

On 60 minutes right now there is a story about exactly how the market is rigged ("Flash Boys") to transfer tens of billions to high frequency traders. Proven. Done.

They are doing exactly as I said - shaving profits off billions of transactions. Frontrunning the market.

Rigged in what sense? People were always looking for an edge. I don't think many knew the extent and how frontrunning was happening but people were certainly aware of the fiber optics networks and firms trying to be as close to exchanges. I never realized they were frontrunning people from one exchange to another but does that necessarily make it rigged? And as much crap as HFTs get. They do provide liquidity. So getting rid of them will drive up bid/ask spreads. I'm sure this will get people looking to alternatives and the exchange on 60 minutes looked somewhat promising if people are that interested/worried about this to check out.

Yes. That makes it rigged.

What part in particular? It is probably a fine line, sure, but how is it any different than event driven trading? Is it rigged that people use algo trading to trade on breaking news? Is it rigged that people pay to get this data milliseconds early? Where is the line drawn? I imagine it is different for everyone but even then, this isn't really going to affect retail investors at least directly. Retail investors aren't really being frontrun and they still won't be able to compete with computers on breaking news. And any restrictions or regulations have to take into account that liquidity premiums will go up which will most likely affect retail investors more. Sure, some retail money in institutional investors is affected but in a country where 50% of the population doesn't even own stocks, it seems a bit over dramatized.

I believe exploiting technical flaws in the system to divert money out is akin to rigging it.

Except this pretty much explains what traders and HFT's have been doing for years and nobody seemed to care. Traders have essentially been trading arbitrage opportunities on different exchanges for as long as they could.

I can only speak for myself. I wasn't aware of the skimming until recently. If I knew it was going on sooner I imagine I would have cared sooner.

 

[Slapdash]

Most investment houses own HFT desks anyways....

 

[The Z Machine]

Is the decrease in liquidity worth it versus the reduction in market appreciation for those NOT engaged in HFT?

 

[sporthenry]

Short Corner has it right- HFTs compete against other traders for the most part, including HFTs. They are in and out of trades in seconds (sometimes a fraction of a second), and look to make pennies (sometimes a fraction of a penny) per trade. They really have no impact on longer term prices which concern the average investor (including mutual funds).

They shave profit off of any transaction they can. Mutual funds/ETFs will be in that class.

They don't shave profit off of every transaction. I hate defending them, but in terms of their impact on the average investor, there is no definitive answer- many people think it's been a net benefit.

On 60 minutes right now there is a story about exactly how the market is rigged ("Flash Boys") to transfer tens of billions to high frequency traders. Proven. Done.

They are doing exactly as I said - shaving profits off billions of transactions. Frontrunning the market.

Rigged in what sense? People were always looking for an edge. I don't think many knew the extent and how frontrunning was happening but people were certainly aware of the fiber optics networks and firms trying to be as close to exchanges. I never realized they were frontrunning people from one exchange to another but does that necessarily make it rigged? And as much crap as HFTs get. They do provide liquidity. So getting rid of them will drive up bid/ask spreads. I'm sure this will get people looking to alternatives and the exchange on 60 minutes looked somewhat promising if people are that interested/worried about this to check out.

Yes. That makes it rigged.

What part in particular? It is probably a fine line, sure, but how is it any different than event driven trading? Is it rigged that people use algo trading to trade on breaking news? Is it rigged that people pay to get this data milliseconds early? Where is the line drawn? I imagine it is different for everyone but even then, this isn't really going to affect retail investors at least directly. Retail investors aren't really being frontrun and they still won't be able to compete with computers on breaking news. And any restrictions or regulations have to take into account that liquidity premiums will go up which will most likely affect retail investors more. Sure, some retail money in institutional investors is affected but in a country where 50% of the population doesn't even own stocks, it seems a bit over dramatized.

I believe exploiting technical flaws in the system to divert money out is akin to rigging it.

Except this pretty much explains what traders and HFT's have been doing for years and nobody seemed to care. Traders have essentially been trading arbitrage opportunities on different exchanges for as long as they could.

I can only speak for myself. I wasn't aware of the skimming until recently. If I knew it was going on sooner I imagine I would have cared sooner.

I wasn't aware of frontrunning from exchange to exchange but the general premise of what they've been doing hasn't changed. They are still buying and selling stocks in milliseconds for profits of pennies or less. They're essentially trading on momentum or similar to trading on news except you are giving them information to trade against you which certainly does bring about a grey area.

But HFT has always traded between exchanges to provide liquidity and largely been seen as a good thing. Even going back to the days when traders just realized they could find arbitrage between the different exchanges/securities. Closing up those inefficiencies is largely hailed by economists as good for the market. It is just pretty amazing that they've gotten so good at this that instead of trading basic arbitrage, they are trading arbitrages between the exchanges that the investor creates.

Either way though, it is a tough area to find a solution. Regulation will be difficult and costly. Letting these exchanges like IEX try to compete seems like a great idea. If investors are so worried about it, then they can create a market for it and IEX will dominate. If not, then investors obviously see some value in it.