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cloudjacker

Wait till you try trading on an exchange without liquidity robots.

It kind of sucks

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Why? because the bid/ask spread is bigger?

Yeah primarily that, fills aren't instant, and there's basically nobody home

Yup, how it was in the "good old days" of open outcry floor traders. Say you want to move your pension funds around a bit? It might take a week for you to get to your final position, and the market has moved against you in the meantime. I perfectly efficient market, however it is achieved, is good for everyone, including the trading firms.

It's bad for the market makers that the HFTs disrupted.

HFTs are normally market makers, I worked for almost 5 years for Virtu Financial, one of the biggest electronic market makers in the US (look them up yourself).

If they're providing smaller spreads, they're taking profits from market makers who used to provide larger spreads. I'm not sure what you're trying to say here.

Ah I see what you're saying. Well I guess I see it like horse salesman when the Model T Ford was released. This is the natural evolution of the markets.

Small bid/ask spreads tend to be good for the overall markets, perhaps not for the market makers. However, the exchanges make up for this fact (that the markets are more efficient now than they ever have been in history) by offering rebates for market makers and massive rebates for designated market makers.

Fundamentally, capitalism is somewhat darwinistic. Adapt or die.

The rebate model is exactly why HFTs proliferated, see "Reg ATS".

For sure, but I find ATS/Dark pools as bad overall for the health of the market. Open markets are fair. Dark liquidity isn't as fair unless you're one of the dark pool participants.

Note that I work for an electronic trading firm.

The reason I don't mind dark pools is because it is merely an automated over the counter trade.

I think having some data from the dark pools would be good, just so people could have a frame of reference, but I don't think all trades need to be routed to one [set of] place(s)

This isn't true. HFTs are very active and profitable in markets where there are no rebates (some US stock exchanges and most dark pools, futures markets, most overseas exchanges). Even in markets where you have no fragmentation at all, you'll find HFT. The rebate just gets baked into how wide of a market you provide or how eager you are to pay the spread.

The main reason Reg NMS and Reg ATS drove a proliferation of HFT was breaking the NYSE specialist's monopoly on liquidity provision. Even before that companies like Tradebot where very active in Nasdaq stocks on various ECNs. Automated trading is simply cheaper and it drove manual market-makers out of business.

Your statement rests on the assumption that taking a week to make trades where there is a non-market-maker buyer is worse because the market "might" move down. The market "might" also move up (and if it's true that the market moves up over time, that's more likely). I don't think you've made a strong argument. What you're calling efficiency is actually expedience, because more work must be expended to achieve the same result, but the work happens in a shorter time-frame.

You make trades based upon the information available at the time. If your information says market X will move down and Y will move up - you want your trade completed before that happens. Any changes between the time the decision is made and when the trades are executed are referred to as slip. Assuming you're original trade decision was correct this slip will be against you.

Did the HFT really solve this, or did simply computerizing the market solve it?

Is it so terrible if your bids fill in 1ms instead of 50ns? Comparing it to open outcry seems a bit disingenuous.

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