The HFTs are doing something which reminds me of the mutant attack with Bitcoin. And the 'fix' is also very similar to how you can try to defeat mutants, if not by making mutation impossible in the protocol (which we are trying to do), but also making it more difficult to beat the propagation of the original transaction with mutants; by transmitting it to more nodes concurrently.
Unlike the mutant attack, in this case there are possible positive effects that can arise.
But what I don't understand is this. I place a human order to buy 1,000 shares of X for price P through a public exchange. The HFT algorithm can get those shares for (P - a) on a private order book I don't see, before my order even arrives there.
But from the perspective of the seller(s) on the private book, they had open sell orders with weighted average (P - a) for those 1,000 shares. That's open orders, a.k.a willing sellers. As long as there are real shares being bought by the HFT before the sale to the original buyer, then how can you complain?
But what I really want is to be able to place these cross-exchange orders with something like a 2 phase commit. Get a 'lock' on the public buy and the corresponding private sell(s) before having to commit. And then clear the committed transactions concurrently on both exchanges.
That's a risk-free trade, and the result you might expect is the spread is shared between buyer and seller. Maybe some of it goes to transaction fees.
And that's how I look at the HFT algos. They are basically a hidden transaction fee on a very fast routing of your order. There super-order-routers charge a transaction fee which is applied by tweaking the listed price. Over time the amount of the tweak decreases until it exactly equals your stated price, which means the super-order-router gets no fee.
If you had [paid for] access to that other order book, you could have spent less / earned more on the trade. But there's the added cost of having a direct connection to that order book. So basically you buy it yourself, or someone else pays for it and acts like an automatic passive router. In the end you get exactly the price that you asked for.
I wonder how often the HFT algorithm is selling shares that it doesn't really own. No one should have been surprised that MtGox wasn't running full reserve. Who's publishing the crypto-proof that the public exchanges are running full reserve? Haha, actually we know that they don't - they just call it naked shorting. So I guess I'm asking, how much naked shorting (even over brief time periods) do the HFT algos get away with?
Unlike the mutant attack, in this case there are possible positive effects that can arise.
But what I don't understand is this. I place a human order to buy 1,000 shares of X for price P through a public exchange. The HFT algorithm can get those shares for (P - a) on a private order book I don't see, before my order even arrives there.
But from the perspective of the seller(s) on the private book, they had open sell orders with weighted average (P - a) for those 1,000 shares. That's open orders, a.k.a willing sellers. As long as there are real shares being bought by the HFT before the sale to the original buyer, then how can you complain?
But what I really want is to be able to place these cross-exchange orders with something like a 2 phase commit. Get a 'lock' on the public buy and the corresponding private sell(s) before having to commit. And then clear the committed transactions concurrently on both exchanges.
That's a risk-free trade, and the result you might expect is the spread is shared between buyer and seller. Maybe some of it goes to transaction fees.
And that's how I look at the HFT algos. They are basically a hidden transaction fee on a very fast routing of your order. There super-order-routers charge a transaction fee which is applied by tweaking the listed price. Over time the amount of the tweak decreases until it exactly equals your stated price, which means the super-order-router gets no fee.
If you had [paid for] access to that other order book, you could have spent less / earned more on the trade. But there's the added cost of having a direct connection to that order book. So basically you buy it yourself, or someone else pays for it and acts like an automatic passive router. In the end you get exactly the price that you asked for.
I wonder how often the HFT algorithm is selling shares that it doesn't really own. No one should have been surprised that MtGox wasn't running full reserve. Who's publishing the crypto-proof that the public exchanges are running full reserve? Haha, actually we know that they don't - they just call it naked shorting. So I guess I'm asking, how much naked shorting (even over brief time periods) do the HFT algos get away with?