A lot of people support "market making", but then talk about frontrunning trades in situations that are morally and technically equivalent to market making. Computer nerds tend to assume the role of "market maker" is more formally defined than it really is. Really, there are just liquidity sellers and liquidity buyers.
Firstly I am not a fan of the term buying liquidity - I prefer injecting liquidity or extracting liquidity. In exact also but at least gives the one sided nature of the deal
secondly I also dislike the justification that HFT is ok be ause it is Market making. I see it as a form of Market making trying to capture the equivalent of the consumer surplus - I was quite happy to sell my shares at 505 and old boring mRket maker would turn and sell them at 510 tomorrow - but HFT nips in buys from me at 504 and old Market maker has to take them at 506
no real liquidity has been added to the Market in that situation - a deal was ready and raring to be done and another just reduced margins. Not bad, ethically fine but not actually adding much to the system
Liquidity costs money. It has buyers and sellers. Obviously, those aren't terms I'm making up. I know you're not making up "injector" either, but that term is less precise.
If you want to sell at 505, an HFT can't change that. Place a limit sell at 505.
If you're not willing to hold out for 505 and want to sell at the market price, you're a liquidity buyer paying a premium (of some sort) for getting out of the market right now.
People love to point out this scenario where the HFT buys something at $9 that a human would have paid $10 for. They never acknowledge the fact that by doing that, the HFT assumed the downside risk; the HFT is now to some extent illiquid and exposed to the market. If the price goes to $11, the HFT wins, sure. But if the price goes to $8 --- which should be equally likely, else why sell --- the HFT is fucked.
Broccoli is delicious. Here's what you do: blanch it in boiling water, just like 20-30 sec, shock it in ice water, and then dry it off. Put it in a bowl, douse it in olive oil, shake some fish sauce into it, cumin, chili flakes, maybe a little sriracha or maybe some lemon juice. Shake the bowl up. Now grill it. Yum. Eat it with sriracha mayonnaise, which is the highest calling of mayonnaise.
Yes, the HFT assumes the risk, for it is acting as a Market maker. My point was that there already was a Market maker there - another is not more liquidity. Liquidity is a binary term IMO. Having two Market makers in same product does not make more liquidity it just makes liquidity cheaper. That might benefit the seller but makes no difference to the exchange function
in the comics, when Superman is protecting Metropolis and Supergirl turns up, she cannot do anything the Man of Steel
could not do - she just looks better in tight blue Lycra.
Kudos for your recipie.
Edit removed my dumb, knee jerk, unappetising broccolli recipie/comment on state of English cooking in my childhood. Nevermind.
Isn't the cost of liquidity its only reasonable metric? Anyone can be "liquid" if they're willing to take a sufficient hit on prices. In that sense, "just makes liquidity cheaper" is like saying "just makes more liquidity".
That's not true. An extra market maker provides the benefit of competing market makers, which should reduce the spread.
Most markets are not specialist markets. Specialists at the NYSE were accused of skimming hundreds of millions of dollars from customers. They're an anachronism and a much more disquieting idea than robots competing to provide the best price --- which is pretty much what most HFT systems do.
But. That's the thing. They CAN 'bugger off' home at any time. And often do.
If a particular market maker can't work for some reason with some particular symbol [there are thousands of symbols], at some particular time, he would just pause. And they often do.
Unfortunately, HFT firms playing at market maker don't actually have any obligation to stay in the market and provide liquidity. There are some people that want to see this changed (for example, I heard the head of the financial stability department at the Bank of England complaining about it on the radio the other day) but until then...
Some HFT firms have agreements with the exchanges that require them to be in the market providing liquidity no matter what. This is not true of all HFT practitioners, but major key players are required to do so.
