It's not a perception though. Short-term trading opportunities are zero-sum. To win trades you either must undercut your competitor by trading for less edge, or beat him to realizing the opportunity by either predicting better or getting faster, usually some combination of all those. All of that means effectively working your ass off to take food off another man's table before he takes it from yours. That probably happened less in the pit days because there was a camaraderie between the locals facing off against paper. Nowadays I never see the guy I'm trying to beat into the queue. We aren't going out for beers. It's just business.
I'd say being successful in this business feels less like war and more like riding a bear. You never get to rest and there's a constant fear that someone, somewhere is hungrier and smarter than you are, plus the bear might snap and eat you.
>Traders are generally hired for the trading strategies they have been exposed to and the potential value within. There are very few individuals who create new and successful ideas.
The better firms tend to hire people out of school and train them up so they can do novel research. It's a smarter long-term play. I agree that few people are up to the task, even the best and brightest. It does amuse me that some guy a couple blocks away probably runs a super similar model with a different cool code-name and we battle each other for years in Sisyphean fashion. I'll never even know his name. A zipless fuck.
I don't like the author's characterization of HFTs as "parasites." Someone can be a middle-man and still add value. Market users don't need to trade with HFT dealers. They can easily work their own orders or wait around in a block trading facility hoping to find a natural match instead. For most of them, it's a bad trade-off. Even though the HFTs make money on average, trading with them costs less than becoming an expert in market microstructure, finding good hedges, facing non-execution risk, etc. CarMax makes money when they buy/sell your car in the same way, but it's usually more convenient or cheaper than doing it yourself.
In a way, HFT is like insurance in that they only provide a valuable service when they lose, but overall people prefer paying for certainty. Almost every winning trade I make is one where two natural counter parties could have found one another had they waited a short period of time or were in the right place/product, but I lose on a huge % of trades as well. If HFTs weren't in a competitive environment or if one firm had a clairvoyant pricing model, this would be problematic but unfortunately for me, that's not the case.
> To win trades you either must undercut your competitor by trading for less edge, or beat him to realizing the opportunity by either predicting better or getting faster, usually some combination of all those.
On the other hand, at least in theory, the rest of the market benefits from smaller spread (a lot), and faster execution time (a bit).
I trade in stocks that aren't constrained by the tick size. Latency still matters a lot.
I agree the rule isn't sensible though. Much of the fragmentation in the US is driven by exchanges with inverted rebate structures (maker pays, taker gets paid to hit/take) + midpoint trading that are effectively a back-door way to quote sub-penny in stocks where the true competitive spread should be less than 1c.
It's not a perception though. Short-term trading opportunities are zero-sum. To win trades you either must undercut your competitor by trading for less edge, or beat him to realizing the opportunity by either predicting better or getting faster, usually some combination of all those. All of that means effectively working your ass off to take food off another man's table before he takes it from yours. That probably happened less in the pit days because there was a camaraderie between the locals facing off against paper. Nowadays I never see the guy I'm trying to beat into the queue. We aren't going out for beers. It's just business.
I'd say being successful in this business feels less like war and more like riding a bear. You never get to rest and there's a constant fear that someone, somewhere is hungrier and smarter than you are, plus the bear might snap and eat you.
>Traders are generally hired for the trading strategies they have been exposed to and the potential value within. There are very few individuals who create new and successful ideas.
The better firms tend to hire people out of school and train them up so they can do novel research. It's a smarter long-term play. I agree that few people are up to the task, even the best and brightest. It does amuse me that some guy a couple blocks away probably runs a super similar model with a different cool code-name and we battle each other for years in Sisyphean fashion. I'll never even know his name. A zipless fuck.
I don't like the author's characterization of HFTs as "parasites." Someone can be a middle-man and still add value. Market users don't need to trade with HFT dealers. They can easily work their own orders or wait around in a block trading facility hoping to find a natural match instead. For most of them, it's a bad trade-off. Even though the HFTs make money on average, trading with them costs less than becoming an expert in market microstructure, finding good hedges, facing non-execution risk, etc. CarMax makes money when they buy/sell your car in the same way, but it's usually more convenient or cheaper than doing it yourself.
In a way, HFT is like insurance in that they only provide a valuable service when they lose, but overall people prefer paying for certainty. Almost every winning trade I make is one where two natural counter parties could have found one another had they waited a short period of time or were in the right place/product, but I lose on a huge % of trades as well. If HFTs weren't in a competitive environment or if one firm had a clairvoyant pricing model, this would be problematic but unfortunately for me, that's not the case.