I know a lot of engineers work in HFT and it is quite lucrative. But doesn't it cause too much volatility? What kind of regulations are there? Curious to hear from engineers or analysts in the industry.
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- Microsoft not-a-devYup the majority of transactions in the market are now driven by algorithms. It’s going to be a mess when things don’t work out anymore.
- The SEC has breakers in place to protect the markets should large swings occur in any given stock - limit up limit down halts, trade through protection, best execution regulation.
That’s Not to say that a lot of firms out there don’t benefit from volatility in the markets...Mar 121
I think on the hole market quality increases thanks to competition within HFTs.
- What makes you say that it causes high volatility? The US equities market is one of the most regulated, liquid and efficient markets out there
- Bloomberg / EngWPslayermoreSo what’s the problem with volatility?
SEC got the market they asked for when they implemented Reg NMS. Everyone hated the Specialists @NYSE for collecting their 1/16th of a point, and the Market Making forms on the NASD for their “manipulation” of markets. SEC made it so all markets had to respect other markets quotes.
Nobody could make a profit market making after decimalization.
So exchanges by offering rebates to firms who posted order flow. Firms figured if you could post a buy and a sell on two different exchanges you could make rebates on both...... if you got their first. Hello low latency arms race!
HFT’s do God’s work of providing liquidity for investors who want to actual move inventory. Not their fault that the SEC mandated such a shitty market structure.
- Charles Schwab EGjV76Algorithmic trading tends to reward particular strategies in such a way that they become self-reinforcing at scale. At some point seemingly everyone is following the same strategy. The insanity can continue for a surprisingly long time but it almost always breaks at some point and everyone following the popular strategy is punished. Rinse and repeat...