LLMs do match the level of sophistication of the user and the quality of questions they ask. So questions about, how do you improve the level of question? You see the answer in Terry's exchange, both AI and humans are doing an exchange that is thought provoking on both sides for what interesting questions to ask. That is the most startling thing about this -- they are exploring the solution space with the same naivete, to some degree.
Physics, they describe general relativity as a two way street. Space tells mass how to move, and mass tells space how to bend.
Here, Terence tells AI what question to explore, AI tells him what questions to ask next.
it's absolutely my bad -- when you have been doing this for 4 years, and a team works incredibly hard to do a trade that makes a lot of sense, seeing comments like i've seen here on this thread just straight up hurts. and again, i simply cannot share certain pieces of information. i would literally go to jail, so it's frustrating to see the stuff that is posted about us (and I'm a YC alum on top of that)
in general, you are telling me to stop but I am telling you guys to stop. you do so much damage to companies with completely uninformed comments than you can possibly realize. if you don't know what you're talking about, don't talk. and yes, there are "facts" that companies cannot discuss in an open format. that's the nature of a regulated business. we do not do cat photo sharing. we hold money and assets for people. think on that.
look, i really do not try to be an ass about this stuff, but the stuff people post is actually just wrong and hurts my business (people on hn can appreciate this) but i can't say anything substantive because we're regulated by the US govt and I can't say anything beyond what I am allowed to.
the comments were just straight up wrong assuming information that only I have, and I can't rebut it because, you know regulators would put me in jail. so now what?
go ahead and close my account. you guys have tolerated a lot worse in the past with others. i'm just being substantive, because you know, i sort of know what i'm talking about.
and yes, the data says 3600 for the call, which is the definition of a premium. nothing missing, guys. seriously. do more thinking before you post.
seriously no joke, I am the CEO there, former trader at Goldman so I sort of know what I am talking about with this type of stuff. You guys do not. It's hilarious to watch this conversation.
Without any regards to the stocks they are trading? Ironically, Mark Cuban shoots himself in the foot here when he complains about macro events dominating micro events.
It turns out to price an asset, like a stock, a wide variety of skills is needed. Some people focus on macro trends, like analyzing political events, oil prices, etc. Some people talk to management of the company, count cars at Wal Mart, etc. These are the micro trends.
And some people try to estimate the current supply and demand for a certain stock. That is what HFT does. So yes, it has "regards to the stocks they are trading." Just different regards. That's why specialization works so well. HFT worries about current supply/demand issues, and tries to estimate a fair price to set the market so that when the average investor comes in, and looks at a stock with a 1 cent spread, he is going to get a fair price. Over the long term, people who analyze micro and macro factors will trade with HFT, which will then force the algorithms to change the stock price to reflect their views.
Is an arms race to shave milliseconds off of trading times the most important thing in the world? Absolutely not. But is gaming the Apple app store to get your mobile app higher in the rankings any different? At least with HFT, milliseconds do matter in more situations than you can imagine. If one day you buy a stock that had bad news announced just milliseconds before, and HFT did not update that quickly so you paid a price way, way too high, you would be upset. Again, not the most important thing in the world but it does help.
The millisecond thing is highly overrated. Anyone in the industry knows that it only matters to a small degree…understanding supply demand and adjusting accordingly is the most important skill. That's why the most profitable high frequency firms don't care about what millisecond they execute in…that is one of the great ironies of this--you guys are concerned about something that not many other people who actually do this for a living are concerned about. But you guys latch on this minor point as the major one, and that is a mistake. Do developers worry about how quickly their apps load? Yes. Does it mean their product will be a success? Not necessarily. That is the same thing here. HFT shops work to make sure they aren't too behind, but focusing on that aspect is just trivial compared to the actual work they do.
Agreed, those blogs/publications are horrendous. Just factual stuff that is wrong all over the place. I wouldn't mind if people had concerns, as long as they realize it's a very complicated subject, so maybe they should ask questions, instead of making stupid assertions that are clearly false and try to sound like experts in a subject they've thought about for 10 minutes.
Does anyone here even have any experience in NYC, or on Wall Street?
Wall street knows what business it's in...lots of them. It does bond research, equity research, investment management, sales and trading, and yes, investment banking (to raise capital to all these poor companies that can't find anyone to pay millions of dollars in fees to do)
Do people really think that there are no investment bankers who raise capital anymore? That because of HFT, a job that pays 1mm a year when you're 30 has no more interest to anybody? That there are so many humanities majors graduating from princeton and harvard that normally do client relationship investment banking but because of HFT, they are going to write algorithms and optimize OS code for latency instead?
Have people seen how many layoffs are happening in investment banking division on wall street? (where they raise the capital for companies) It is NOT A ZERO SUM GAME. HFT doing well is NOT AT THE EXPENSE OF CAPITAL RAISING.
What kind of point is this? Is it even informed by any facts?
How is that even close to the point he was making? HFT vs HFT algo trades happen infrequently. They do happen, but it's rare. But guess what? This forces each other to be better, just like any other competitive industry. The ones that do poorly consistently are just being told by the market that they should leave and go find something else to do, because they're not any good at this.
If it's bad that one firm capitalizing on the situation of another firm making a mistake is the point, then I think he should really rethink his participation in capitalism.
Mutual funds do buy HFT services in executing their long term investments...they do so by going to the open market, where HFT dominates. They pay HFT services by paying the typical 1 cent spread.
One of the greatest examples of how nothing nefarious is going on is from a large multi billion dollar hedge fund I used to work at. They have both an equity investment group, as well as a HFT equity liquidity providing platform. I worked on HFT, and knew the equity guys. They always wanted to execute with us in the open market. It was so much better than what they used to have to do.
Why would one of the most sophisticated equity investors in the world want to run an operation that "skims" from the other? Because that's not what HFT does, and of course they know that. They use their own product (their HFT system) to execute their own buy orders. If that's not a testimonial, I don't know what is.
What are you talking about? If a non HFT buyer/seller both want to buy/sell at 20, then they will go to the market and that will happen. In fact, that happens all the time.
This is precisely the point about HFT. If you are a seller, there isn't always a buyer. HFT is there when there ISN'T the other side. The scenario you described is absurd. How often do a buyer / seller want to interact within the same millisecond?
They can of course. HFT does nothing to stop that. Two people can trade in the open market with each other whenever they want. The reason most of the time HFT is involved is HFT gives the best price. That's why it's become so big. They provide the best price to their customer, not attacking some "flaw" in the exchange.
It is not a zero sum game between you and HFT. It IS a zero sum game between an HFT firm and another HFT firm, or an HFT firm versus people specialist traders. You think that burly guy from queens who used to be a janitor and now works on the floor of the NYSE will give you a good price? HFT cuts the line in the sense that it competes with him to give you a better price. HFT firms are fast to compete for your business vs other HFT firms. HFT and the average retail investor is not a zero sum game. It is mostly zero sum between HFT and the old system of specialist traders. It turns out the biggest critics of HFT are the old specialists who have lost their jobs and people who do not know what they are talking about.
So say you trade against an HFT algorithm. If you are talking about the narrow context of the trade, it is zero sum. But that is not how the world works. Bill Gates can sell a share of Microsoft to a market maker trader/HFT. Say he does this for $26.00. Tomorrow, it goes to $30.00. In the context of the trade, Bill Gates "loses" $4 to the HFT algorithm. But that is not the whole story. He took that $26 and did something with it. Maybe he helped fund a startup which has created value and doubled his money. So now the HFT trader is up $4, and Bill Gates is up $26. Zero sum, huh? Or maybe he invested it in a Malaria vaccination program that has no easy dollar valuation but is clearly positive to the world. This is why in the context of the system, everyone can win, and it can be a positive sum game.
If you invested your savings 18 years ago for your kid to go to college, at some point you will sell that stock to raise cash and pay for college. You are investing in your child's education, so that he can have a good life, invent things, cure cancer, solve P vs NP, improve Shor's algorithm, and more. That seems like a good return, even if 4 years later the HFT algorithm you sold your stock to made money because the stock went up.
When the world changes, prices change as well. As an HFT firm, you are always sending prices that are competitive for customers. HFT being fast is the effort to improve prices as quickly as possible, or admittedly, pull prices if they are no longer fair. Often, this is a typical scenario for an HFT firm…news comes out on a stock that is positive. The old bid for the stock was 20.00. That means if you are sending an order to sell your shares in the stock, to say, raise money to send your kids to a good college, you will hit the bid at 20.00. If HFT is not fast, you will get $20 for your share, even though the news hit 2 seconds ago. HFT algorithms compete for your business in the sense that they try to be fastest to improve that bid price to 20.05. If they are not fast, you get $20. If they are fast, then you get $20.05. What is the problem here?
The bottom line of all this misunderstanding is, I believe, a distrust of where all this money is coming from that they make. It's simple--it's from them cannibalizing the old human, specialist trader business (do you know how many billions they made from retail before HFT?). It's no different from a startup upending an old industry veteran by undercutting their prices by 90% and taking away all their business.
All right, enough. The amount of ignorance out there about HFT is huge.
I developed HFT algorithms in a previous life at a very large, well known bank. The majority of trades out there are in fact market making related. The ones that are market taking are usually at the expense of OTHER HFT algorithms, the ones that are slow and showing out dated prices.
And yes, HFT algorithms most DEFINITELY hold inventory. Some don't, but most do. It's too expensive to get hit on a bid and then try to get rid of it right away. They often hold inventory for days, weeks, even months. I know this for a fact. I can't tell you know much time is spent on worrying about and managing the inventory HFT systems accumulate.
HFT is immensely useful for large mutual funds. They replaced a broken system of high school dropouts who worked on the floor of the NYSE. Mutual funds HATED calling the floor, waiting an hour for execution, not knowing what was happening, and inevitably being taken for a ride. This is all public...go ahead and read a lot of the articles after Thain took over as president of the NYSE and gave tours of the floor to the large mutual fund managers...they were not impressed, to put it mildly.
With HFT, you have transparency and immediacy. You put in an order, and you get that price. In the old days, mutual funds called in an order, and had no idea what they would get, it would be whatever fill the NYSE trader gave them. Executing orders throughout the day makes perfect sense, and is cheaper execution in the long term. You simply get a bad price if you try to sell a billion shares of MSFT in an instant, so instead you spread it over time.
HFT does not front run in any way that is different than trading since the beginning of time. They are trying to understand if their is future demand, and adjusting their prices accordingly. You don't think that after being hit on a bid, the old NYSE floor traders didn't change their prices? They're doing the same exact thing as HFT does.
There's a ton more to say about it, but these are just to counter some of your points.
Physics, they describe general relativity as a two way street. Space tells mass how to move, and mass tells space how to bend.
Here, Terence tells AI what question to explore, AI tells him what questions to ask next.
The exchange that ensues is just magic to watch.