Exploiting microtime moments in information flows is (in my view) parasitical on the real element of information-flow in markets. I don't think profiting in 10us of speed advantage seeing a thing, and acting on a thing, is itself market-informing and so it has to be (kind of definitionally) market-distorting.
algorithmic trading is market distorting. its not actually helping "us" with real value for our futures, funds, company value. Its not informed trade on real conditions, its trade on the mechanistic moments in trading message flows.
its a really bad feedback of second-order differential.
Things you can do with that 10us advantage like frontrunning are parasitical, but why is a speed advantage itself a bad thing?
Surely waiting a day to act on the information isn't helpful. How about a minute? A few hundred ms, about the speed of a conscious awareness? Getting down to 10us seems like the logical conclusion of all this.
I think the more nuanced view was talked 3/4 of the way down: with algo trading, prices are based on the models not the fundamentals. And then you add in models of what the other guys are doing. And pretty soon you don't care where the price should be, you just care about computing in 10us where everyone else thinks it's going to be in 15us.
> Another fallacy in the lead-up to the financial crisis was the assumption that financial markets were so efficient that participants didn’t need to do the underlying work to figure out what the securities were actually worth. Because you could rely on the market to efficiently incorporate all available information about the bond. All you need to think about is the price that someone else is willing to buy it from you at or sell it to you at.... if they assume that the price of an instrument already reflects all of the information and analysis that you could possibly do—then they are vulnerable to that assumption being false.
I used to believe the only socialised goal of a market I appreciated was setting price. I now realize a significantly higher percentage of trade is not aimed at that outcome but solely at extraction of profit in the movement of price. At the point nobody cares what the price is but only cares about it's Delta and velocity, I'm out. Why are we doing this?
it's simply realizing/acting on market information at a faster pace than humans could mechanically, I don't see how that distorts markets. If anything it makes markets more efficient because it adjusts prices to information faster. Yes it makes human traders less able to make money but I don't see why that is actually bad for the market.
If it were inefficient, unless the algo traders were putting arbitrarily large sums of money behind their positions, they would get eaten alive. Since the successful ones don't, it seems they are just pricing market reactions faster
algorithmic trading is market distorting. its not actually helping "us" with real value for our futures, funds, company value. Its not informed trade on real conditions, its trade on the mechanistic moments in trading message flows.
its a really bad feedback of second-order differential.