You're looking at Less Wrong's discussion board. This includes all posts, including those that haven't been promoted to the front page yet. For more information, see About Less Wrong.

Lumifer comments on The immediate real-world uses of Friendly AI research - Less Wrong Discussion

6 Post author: ancientcampus 26 August 2014 02:47AM

You are viewing a comment permalink. View the original post to see all comments and the full post content.

Article Navigation

Comments (11)
Tags: stock market friendly narrow ai

Comments (11)

You are viewing a single comment's thread. Show more comments above.

Comment author: Lumifer 26 August 2014 03:16:17PM 3 points [-]

Which is why it frankly ought to be stopped.

I disagree.

It doesnt add any informational value to the prices of stocks, nor does it raise any capital for investment.

That's not why it's useful. It's useful because it provides liquidity and reduces the costs of trading.

to divert a good chunk of the return from other people's investments into their own pockets by gaming the system

I don't think this statement is true.

That sort of thing is not good for ... the social order

8-/ Lots of things (like questioning authority) are not good for the social order. I don't consider that a compelling argument.

Comment author: Kyre 27 August 2014 05:44:01AM 5 points [-]

That's not why it's useful. It's useful because it provides liquidity and reduces the costs of trading.

Absent other people getting their trades completed slightly ahead of you, getting your trades completed in a millisecond instead of a second is that valuable ? I'm not being rhetorical - I know very little about finance. What processes in the rest of the economy are happening fast enough to make millisecond trading worthwhile ?

I would have guessed a failure to solve a co-ordination problem. That is, at one time trades were executed on the timescale of minutes (or maybe even days or weeks once upon a time), and that at every point in time since, there has been a marginal advantage to getting your trades done a little faster than everyone else. At some point the costs of HST outweighed the liquidity benefits but on-one (alone) was in a position to back out without losing - the end result being major engineering projects aimed at shaving milliseconds off network propagation delays, and flash crashes.

I can imaging an alternative universe where, at the point when trade times got down under a second, everyone got together and said "look, this could get silly", and decided to agree that exchanges should collect trades arriving in 1-second buckets and execute them in a randomly permuted order. (Or does something like that not work for some obvious reason ?)

(Also, I would guess that HST does not divert "a good chunk" of the return from other people's investments - if it were more than a sliver, I suspect the co-ordination problem would have got solved.)

Comment author: Lumifer 27 August 2014 06:19:04AM *  10 points [-]

getting your trades completed in a millisecond instead of a second is that valuable ?

The benefit to the small investor is not really faster execution -- it is lower bid-ask spread and lower trading costs in general.

For example there was a recent "natural experiment" in Canada (emphasis mine):

...in a recent natural experiment set off by Canada’s stock market regulators. In April 2012 they limited the activity of high-frequency traders by increasing the fees on market messages sent by all broker-dealers, such as trades, order submissions and cancellations. This affected high-frequency traders the most, since they issue many more messages than other traders.

The effect, as measured by a group of Canadian academics, was swift and startling. The number of messages sent to the Toronto Stock Exchange dropped by 30 percent, and the bid-ask spread rose by 9 percent, an indicator of lower liquidity and higher transaction costs.

But the effects were not evenly distributed among investors. Retail investors, who tend to place more limit orders — i.e., orders to buy or sell stocks at fixed prices — experienced lower intraday returns. Institutional investors, who placed more market orders, buying and selling at whatever the market price happened to be, did better. In other words, the less high-frequency trading, the worse the small investors did.

…In a paper published last year, Terry Hendershott of Berkeley, Jonathan Brogaard of the University of Washington and Ryan Riordan of the University of Ontario Institute of Technology concluded that, “Over all, HFTs facilitate price efficiency by trading in the direction of permanent price changes and in the opposite direction of transitory price errors, both on average and on the highest volatility days.”

(source)

Here are some informed opinions on HFT: here, here, and here. If you want a more sceptical, but still informed opinion, here's an example.

Comment author: Kyre 28 August 2014 04:35:05AM 3 points [-]

Thanks, that is interesting.

Powered by Reddit Powered by Reddit