|simon666 - 2019-02-08 |
Just to add on to this guy's explanation of what High Frequency Trading (HFT) is: There is another kind of HFT trading which is structurally unfair. (There might have been a video on this here at one point.)
Basically exchanges offer services to traders. One such service is a heads up on incoming orders. For instance, if A wants to buy 100,000 shares of MMM at $50 a share, usually not all 100,000 shares will be acquired at $50 each. What will happen is the first 40k shares are at $50 each, then the subsequent 60,000 shares are purchased at higher prices per share.
This happens in the following manner: A puts in an order for 100,000 shares of MMM at $50 each. That 100,000 order gets blindly routed to a given exchange to be fulfilled. Call this Exchange 1. Exchange 1 sells a heads up service on orders. In this case it tells its clients that it has an order for 100,000 shares of MMM at $50 each and it will fulfill 40,000 shares of that order. The clients of Exchange 1 get that information, then within microseconds, place orders at the next five exchanges in proximity for orders of MMM at $50. This causes MMM to trade at a price higher than $50 at Exchange 2, 3, 4, 5, etc., say $52 a share.
A's remaining order is sent to Exchange 2 and fulfilled at $52 a share. Then on to Exchange 3, and so on. Then the client can immediately sell at $52 or whatever price at a $2 gain per share.
This is the kind of HFT which is really unfair and unreasonable and it is structural because Exchange 1 is designed to allow for heads up views of orders before they are fulfilled.
I sort of get this but I need to find a YouTube video explaining it...
Well I appreciate the explanation!
Yeah let me find a video explaining it. I think the guy who started IEX had a talk on it and this is where I learned about the issue. I'll put it in the hopper when I find it.
Okay. Yeah there is a video by Brad Katsuyama, the CEO of IEX, who explains how HFT takes advantage of structural issues for a trading advantage.
It looks like I got some of the finer details wrong. Watch this video: https://www.youtube.com/watch?v=0eqqCwhPlyU
I'm going to put it in the hopper.
|Mr. Purple Cat Esq. - 2019-02-08 |
Thats interesting but I think we could improve it even further by firing everyone involved in 'finance' out of a giant cannon into space.
This is a solution worth pursuing.
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