Crazy how much trading has changed over the last 30 years. I read an article the other day on how people use to have to call brokers and pay huge fees just to make simple trades, and sometimes it could take days to execute. Technology has definitely evolved
Does UA-cam even use algorithms for that? Seems like it uses single iteration if-then logic. It has been proven that a video titled "Gay Guy" will be demonetised. But if you change it to "Happy Guy" it will be remonetised. Also, not all algorithms are created equally.
While not every algorithm are created equally. But Yeah, I like the idea of algorithm suggestions, but humans can't compete against robots. It's not even fair. It places all the power into the owners of the robots.
Hey Richard. I just wanted to say that I love your videos, and thank you for making them! They are fun, high quality and also really informative. I can't thank you enough. Your videos expanded my understanding of investing and probably changed my life (even tho is hard to tell right now). I really wish the mighty UA-cam algorithm would be more kind to you, I went back and liked every single one of your videos, I hope it helps
Thank you for the incredibly kind words, it's really motivating to hear that you've found the videos helpful. And please do not feel obligated to join Patreon; it sounds like you're already supporting the channel quite a bit with your likes. :) I wish you all the best with your financial situation, and thanks again for the heartfelt comment.
In my opinion, HFT is a catalyst of instability rather than an optimal source to channel resources from lenders to borrowers. Anyway, at least you didn’t get demonetized this time x)
Yeah, but I also think that instability can be a good thing. It attracts traders, which adds money to the market, which keeps prices and liquidity higher. You don't want to see a market with few players. The spreads get stupid in low-liquidity markets.
@@gimmethegepgun considering apple degrades their batteries so people will buy new one, my bet is we would make too good of a battery for their products
Providing high volume of liquidity and withdrawing the offers, is call “quote stuffing” and its HFT’s bread and butter, using it to overwhelm and slow down everyone in that particular market place - even only for a short moment - in order to gain a further edge over the market and pick off the most profitable trade. a denial supply
They don’t get cancelled because of market manipulation. The price just moves a lot, and very fast. If I want to be competitive I need to cancel stake offers and change them. They’re not reneging or anything, just changing the price to follow the mkt. the media has no idea about HFT bc we never let them in. Spreads were 5-10% in 70s, now it’s
Posting a bunch of orders and then cancelling 99% is known as "spoofing" and has been illegal for 10 years, and is now aggressively prosecuted by the SEC. It is in fact pretty easy to tell whether it's still occurring or not. You personally may not know the identity behind an order, but the exchange where it was placed does, and everything is recorded.
Immediate-or-cancel orders aren’t illegal from my understanding; that’s how a lot of the orders end up being cancelled without being identified as spoofing, but yes spoofing is illegal and exchanges can identify people carrying out those practices. I was speaking more so about regulators/researchers who can’t see the data (although I’m sure there’s some disclosure between exchanges and regulators)
Good subject for any trader, as one of those who tried day trading (unsuccessfully). I can tell you this; buy quality, buy cheap, sell when up enough, and enjoy the ride.
I've been watching the markets everyday, virtually all day for the last three weeks. You know something is wrong when an index can swing up and down by as much as 5% up to 13 times a day and never sideways. There is never a period during the day that you have as many buyers as sellers??? Right..
Hey PB. Could you do a video on inflation? It gets mentioned very often in every economics discussion out there but I do not think I have a clear picture of how exactly it is caused. Why the increase in money supply CAN cause (undesired) inflation? How exactly does that work? And more specifically, I see a lot of speculation about the recent US Fed actions causing the devaluation of the US Dollar, but is that a reasonable assumption? Given that the USD is the reserve currency of the world and all debt in the US is denominated in this currency, so making more of it seems, on the surface, like a good idea for the US. Anyway, I am trying to get a grasp on this and if you find it interesting I would love to see some material about it. Thanks!
HFT’s can act as market makers to a degree. What’s crazy is that they have to use dedicated physical hardware in order to do latency arbitrage. A computer is too slow to do this.
I really enjoy these talks on a level I watch them a little more for fun than learning how to trade and invest. I am planning to complete an economics bachelors, and the school I'm going to offers Business Core Curriculum or a BBA. I hate accounting, but you and some other sources have totally convinced me that I should learn more about Finance and Marketing! Unfortunately accounting comes along with that, but you are awesome!
Why do people even engage in that kind of trading and investing? Just buy some stable companies and let them grow for the next 20 years. I'm looking to pick up some amazing companies on 30,50 and even 60 percent discounts right now. $AWK, $LNN, $XYL, $WM, $PEP, $T...
Oh I know what’s it called, Ethan. I run 3 different portfolios with 3 different time strategies on ‘em. None of them has a one-hour time horizon, tho. That’s different.
Because you can make a lot of many very quickly and then use that money to buy more long term stocks than you can afford. Everyone has their own strategies
Charging to cancel orders is also bullshit, though, because what if I'm on Robinhood, I can't get a fill to sell my shares at 99, so I need to roll down the price to 98.5?
@@marcushendriksen8415 shit like that is why the big wallstreet guys were able to keep common investors away for a hundred years, acting like regular people are too stupid to be market participants. It's elitist to have a cancel fee
@@capn2k620 not at all. If it's a flat cancellation fee (which is what I envision), then the high volume traders are hit the worst by it, not the common investors.
No. I can trade in this type of market. It basically reminds me of playing a fast paced 1st person shooter against either super computers or really fast human players. Its easy once you get up to speed, no pun intended, but this has created a gold mine of a trading environment. The only thing that needs to happen are, first, companies need to watch their leverage. 2nd, companies need to know the government/tax payer will not and cannot bail them out. Thats it.
It really depends. The more involved you are, the short the time frame. Thats why we suggest long term (5 years) for most people - because they dont work in finance or dont have the time to study it.
Its such a stupid idea to rely on advanced algorithms. The more complex they get the more volatile the algorithm becomes. Tech is not infallible, and in fact is the opposite due to the artificial nature of these algorithms
I remember getting front run many times when using a very popular investment banks software. They basically front run your orders and make a few pennies from them.
I will disagree that there is no definition of high frequency trading. High frequency traders are considered with bid/ask spreads and hitting the bid/ask book correctly. They make their money from the spread. This is different from market makers who are by definition liquidity suppliers. HFT have no legal responsibility to ensure liquidity in an asset, and thus can dodge big changes in the order book.
5:30 - Wouldn't reducing the 'bid/ask spread' entail _lowering_ the ask price, and _increasing_ the bid amount? You said it the other way around. Just making sure.
I've made some intraday paper trading with cryptos and I've concluded that it is a viable strategy for quick few bucks but very high risk. Cryptos are very volatile all the time.
Nothing helps to underlying company after the IPO. The movement of share prices during the day is good for investors because the curve is smoother, rather than just holding your breath for market open and praying
Helps liquidity, reduces spreads, pumps up the markets, keeps people like me from mugging people like you... You don't want to tear down the very systems that have kept civilization running for the last 100+ years. Be extremely careful about what you wish for.
The time for a trade has gotten so short that some trading firms that engage in HFT rent space in the stock exchange basement to have their computers that much closer to the delivery point.
The fact that exchanges sell 'colocation services' to hedge funds (e.g. get your computers as closer to our market engines as possible for a fee!) is outrageous, it is virtual corruption. They're stealing your money.
Not true. When you place a trade, you're choosing to put your own money at risk. That's not theft. You voluntarily put your money out there. You signed the exchange agreements saying that you understand that you could lose some or all of your investment. Don't be salty just because your trade idea didn't work. Cut losses quick and move on to the next trade idea. Not everyone is losing money. If that were true there would be no market and no exchange.
@@SaltyWarPig You could not be more wrong. Everyone should have the same risk factor when entering the market, however HFT's do not, they reduce their risk unfairly by spending hundreds of millions in resources, infrastructure and other 'services', some of them offered by primary exchanges to select institutions to give them advantage on market data over *you*, How is this fair? Lol.
@@SaltyWarPig It's called an investment. Their initial investment is peanuts compared to their year-by-year profits. They spend an initial sum in order achieve ridiculously good results, precisely because they have less exposure to risk than that of normal (fair) market participants, which, btw, do not have access to perform the same investment, because they're not in the same position of privilege.
@@db8458 Actually, I'd say their year-by-year profits are peanuts compared to their initial investment. Remember, they have to not only pay initially for the equipment and property and infrastructure, they have ongoing costs in personnel to man the desks and to constantly adjust the algorithm's code. It's no different than any other business. They provide a service to the world, and only hope to make enough profit to keep the lights on and to retain talented staff, and to put a little money in their pockets to make the whole venture worthwhile.
A certain 10 percent will ensure its employment anywhere; 20 percent certain will produce eagerness; 50 percent, positive audacity; 100 percent will make it ready to trample on all human laws; 300 percent, and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged. -- Karl Marx The actual portrait of financial industry. As a 4th year student at uOttawa, seeing the financial student only have money in their mind without any humanity or basic moral, no wonder why they're so much "illegal" financial operation in the world.
I don't get it PB. At 5:28 you said "The trades submitted by these entities... reduce the B-A spread on stocks, lowering Bid prices and increasing Ask prices". But at 4:00 you said that example stock's Ask price is 50.10$ while the Bid price is 49.90$. If i lower the Bid and raise the Ask price the B-A spread gets bigger, not smaller. Plus: how do HF Traders do money if the spread is negative (aka they lose 20 cents from buying at 50.10$ and selling at 49.90$ each share)?
Yea I unfortunately misspoke at 5:28, bid prices are the lower of the two and are what you get for selling, ask prices are the higher and are what you pay. I added a card to clarify. The HF Traders (market makers) take the other end of the bid-ask spread. In other words, they are the ones that set the bid-ask spread. They'll put the ask price (what they sell for) as high as they can until people stop buying, and they'll put the bid price (what they buy for) as low as they can until people stop selling. From my understanding, ask prices will always be higher than bid prices, so you can't have a negative spread. Hope that clears things up!
From a philosophical point of view, the market should be a reflection of our (human) perceived value of stocks since this is what a market IS to just about any person. The fact that 80% of the market is a non-thinking algorithm means that the market is only loosely based off of human input (those humans that made the algorithm). I find this to be a huge flaw, even Buffet has expressed negativity. Almost no "good deals" exist because an algorithm will be there to buy it up if so (this is also obviously influenced by the amount of media present and how fast humans can obtain articles compared to the past).
HFT firms compete with each other to fill orders. Just like human traders, a small percentage of them succeed, while the rest go out of business because the competition is fierce. In fact, HFT firms competing with one another for your order flow is the reason we have such tight bid/ask spreads today, which we didn't have 30 years ago. Unlike in the past, retail investors today are able to get in and out of a position with literally one penny of slippage because markets are highly liquid. They are highly liquid because there are so many market makers participating, including algos and HFT firms. Retail traders and investors should be thankful for them. They aren't there to take advantage of you. They are there to provide liquidity. They literally don't care what your order is for, they only want to get you filled because that's their job. Whether it's equities, equity options, futures, or futures options, without those guys we would all be staring into the abyss at the massive difference between what we paid for a position and what it's going to cost us to get out if we need to. This video is a bunch of bullshit that doesn't give the whole story. The US financial markets are the most fair, transparent, and liquid markets in the world. HFTs and algos have to play by the same rules as the rest of us. They don't all make money, just like not all of us make money. They don't have any more edge than anyone else. It's still a negative-sum game for them as it is for us. They have to pay exchange fees just like we do, although theirs are lower because of their volume. It still makes it a negative-sum game, not a zero-sum game. They have to be right on direction to make money just like we do. The fact that there is competition among them proves that. Competition nullifies any edge they have. And we retail traders are the real beneficiaries of that.
Thanks Richard, as always very well researched video. It shows that you put a lot of time making these videos. Suggestion: It would be nice if you could do some videos regarding the current market situation. We need some clever people like you to voice their informed opinions.
Your description of latency arbitrage is misleading. Most latency arbitrage involves jumping said ticket queue at the sight of a new order. They aren’t identifying “opportunities” humans are too slow to see, the opportunity is what the human sees.
You get internet points for using realistic-looking C++ function signatures in your pseudo-code on the computer graphic. Actually, those might even be valid signatures. I see no errors in syntax.
This is why i invest in highly volatile stocks like Tesla. Algorithms can try all it wants but at the end of the day. The stock moves based on faith and short-sellers. Those who believe in it's CEO's ability to execute the impossible and those who think he is a fraud. Love him or hate him, he has a great work ethic and i'll never bet against people that are that drive to succeed.
Very timely topic. You made it all sound very tidy and neat, but these tools can be used to wreck serious havoc in the markets. A look at cryptomarkets would show you how former Wall Street boys have created the wild wild web of trading. Big players use more and more sophisticated algos, gifted programmers create their own software every day to bypass the wealth divide, and exchanges maintain the High frequency wash-trading status quo. All in all, HFT is the reason why volatility during periods of uncertainty gets crazier and lightning fast crashes become the norm. Let the short-sellers celebrate and party throughout the upcoming recession, I'll just be sitting on the sidelines and munching a plain bagel throughout. :)
Hi I must say I love these videos. They're really well made and informative. I'm just wondering if someone hypothetically had a lot of money (as in tens of billions of dollars) and they decided to buy shares in a gold mining company and then buy a lot of gold thus driving the price of gold up and most likely increasing the value of the gold mining companies shares as well and then you sell the shares in the gold mining company for a profit. Does anyone know whether this would be considered insider trading or not. Thanks.
But doesn't these algorithms make it easier for us, long term investors to make more money since it can cause meaningless volatility and make companies underpriced?
and in most online games bots are illegal because they are seen as cheating. Perhaps its time we started to think the same thing about real money markets.
Doesn't a nine percent hit to bid ask spread sorta sound OK if it also saves 17% on market fees? I don't have half your understanding of these systems, but to me, if those estimates of the costs of HFT are close to accurate, the average trader should be better off after the change?
I think the problem is who it impacts. A wider bid ask spread directly hurts individual investors, whereas HFT generally costs the larger investors/traders the most. But you do raise a good point!
@@ThePlainBagel pls do! Start uploading same video content as mp3 or just sound format on spotify. Its easier to listen to podcast while going to work or doib anything than watching a video.
@@Jtzkb use marketable limit order - the limit order that crosses the spread and digs into sell side up to the price that is acceptable to you. they you will have guarantee that you order is filled and at price not exceeding your limit. Trading 101.
Mortgage rates are closely tied to the central bank rate, but they may diverge if banks believe there's a higher-than-normal risk lending to people (they add a risk premium to the rate they get from the central bank). Hope that clears it up!
Is it possible to introduce long term stocks that can be traded only after a certain timeframe - weeks/months/years, with generous yields to make them attractive and create a damper for Wall Street? Something akin to bonds?
I mean we have 'options' but they can be bought or sold at any time. It's the right but not obligation to buy or sell a stock at(European) or before a specific date.
Why those high speed traders are using high speed computers? All comupters should be as slow as my 80286 IBM PC that I still use. This is not fair that everybody os faster than me. This is unfair advantage! Even my neighbour uses iCore 7 for trading over fiber channel internet connection. This is outrageous. He should not be allowed to use it! Only 2400 bod modems should be allowed to use! and no error correction, no mouse, no LCDs!
@2:10 Does that 80% figure include when I place a limit order that takes a day or two before executing? I'm skeptical that "80% of trades are by computers" means that "80% of trades are by algo-trading".
I don’t believe limit orders are included in that, but to address why the number is so high, a big part of it is the market maker side of things. When you or I place an order on the stock market, there’s a good chance we’re buying the stock from a market maker, who most of the time is an algo-trader, so that becomes an algo trade. I hope that clears it up a little
FYI the "blink of an eye" thing is a complete exaggeration. Actually HFT trade hundreds of thousands of times faster than you can blink.
understatement then
I'm not too sure about that. I can blink pretty quickly...
@@LearnLightAnimations No, it's an exaggeration of the speed and/or frequency you can blink your eye at.
@@hannessteffenhagen61 But seriously though. They ARE THAT FAST. Faster than you can read a word in an article
My heart rate is at a high frequency in this current market
aren't we currently all
Stay the course man !
Well, at least you have now learnt that compounding doesn't just work in one direction...
same
Crazy how much trading has changed over the last 30 years. I read an article the other day on how people use to have to call brokers and pay huge fees just to make simple trades, and sometimes it could take days to execute. Technology has definitely evolved
@@tz4217 Why is there so much prejudice towards autisistic people in society?
@@joecurran2811 it's a reference to an online community of self proclaimed autistic traders
@@tz4217 can we have a link???
@@jkk20 go to Reddit and search up r/wallstreetbets
@@tz4217 thanks for the help.
Bots in social media, websites, cyber security, and finally in markets
BOTS EVERYWHERE!
Robbing bots. :)
We let algorithms to perform 80% of the trades in the world, despite algorithms couldn’t even properly manage UA-cam’s demonetisation word list. Woah.
trust me, their algos work. : \
Does UA-cam even use algorithms for that? Seems like it uses single iteration if-then logic. It has been proven that a video titled "Gay Guy" will be demonetised. But if you change it to "Happy Guy" it will be remonetised. Also, not all algorithms are created equally.
it's just Buy & Sell times 9000
While not every algorithm are created equally. But Yeah, I like the idea of algorithm suggestions, but humans can't compete against robots. It's not even fair. It places all the power into the owners of the robots.
I expected all the top comments to be from a week ago saying "HODL THE LINE"
Hey Richard. I just wanted to say that I love your videos, and thank you for making them! They are fun, high quality and also really informative. I can't thank you enough. Your videos expanded my understanding of investing and probably changed my life (even tho is hard to tell right now). I really wish the mighty UA-cam algorithm would be more kind to you, I went back and liked every single one of your videos, I hope it helps
Thank you for the incredibly kind words, it's really motivating to hear that you've found the videos helpful. And please do not feel obligated to join Patreon; it sounds like you're already supporting the channel quite a bit with your likes. :)
I wish you all the best with your financial situation, and thanks again for the heartfelt comment.
3 years later. Hope life is treating you well man ??
In my opinion, HFT is a catalyst of instability rather than an optimal source to channel resources from lenders to borrowers. Anyway, at least you didn’t get demonetized this time x)
Yeah, but I also think that instability can be a good thing. It attracts traders, which adds money to the market, which keeps prices and liquidity higher. You don't want to see a market with few players. The spreads get stupid in low-liquidity markets.
@@manictiger not to mention actually getting a fill.
What a wholesome man
The Matrix has begun, the machines are going to take down our economy and use us as batteries 😭
D:
Humans make bad batteries.
If we made good batteries then Apple would've long since started including human batteries in their phones.
@@gimmethegepgun considering apple degrades their batteries so people will buy new one, my bet is we would make too good of a battery for their products
Providing high volume of liquidity and withdrawing the offers, is call “quote stuffing” and its HFT’s bread and butter, using it to overwhelm and slow down everyone in that particular market place - even only for a short moment - in order to gain a further edge over the market and pick off the most profitable trade.
a denial supply
They don’t get cancelled because of market manipulation. The price just moves a lot, and very fast. If I want to be competitive I need to cancel stake offers and change them. They’re not reneging or anything, just changing the price to follow the mkt. the media has no idea about HFT bc we never let them in. Spreads were 5-10% in 70s, now it’s
Doesn't HFT increase market efficiency by trading away arbitrage opportunities and getting to the fair market price?
yes
no
Undefined
Posting a bunch of orders and then cancelling 99% is known as "spoofing" and has been illegal for 10 years, and is now aggressively prosecuted by the SEC. It is in fact pretty easy to tell whether it's still occurring or not. You personally may not know the identity behind an order, but the exchange where it was placed does, and everything is recorded.
Immediate-or-cancel orders aren’t illegal from my understanding; that’s how a lot of the orders end up being cancelled without being identified as spoofing, but yes spoofing is illegal and exchanges can identify people carrying out those practices. I was speaking more so about regulators/researchers who can’t see the data (although I’m sure there’s some disclosure between exchanges and regulators)
@@ThePlainBagel oh right. I've never heard of these IOC orders. I'll have to read about them.
I see them withdraw their bid temporarily to see what other people are willing to pay, or is it another firm that swoops in?
Good subject for any trader, as one of those who tried day trading (unsuccessfully). I can tell you this; buy quality, buy cheap, sell when up enough, and enjoy the ride.
I've been watching the markets everyday, virtually all day for the last three weeks. You know something is wrong when an index can swing up and down by as much as 5% up to 13 times a day and never sideways. There is never a period during the day that you have as many buyers as sellers??? Right..
I know it is impossible, but suppose you timed the market perfectly last days. You would have made decent profits
It's certainly possible, look at low volume stocks. It happens everyday
Hey PB. Could you do a video on inflation? It gets mentioned very often in every economics discussion out there but I do not think I have a clear picture of how exactly it is caused. Why the increase in money supply CAN cause (undesired) inflation? How exactly does that work? And more specifically, I see a lot of speculation about the recent US Fed actions causing the devaluation of the US Dollar, but is that a reasonable assumption? Given that the USD is the reserve currency of the world and all debt in the US is denominated in this currency, so making more of it seems, on the surface, like a good idea for the US.
Anyway, I am trying to get a grasp on this and if you find it interesting I would love to see some material about it.
Thanks!
I think this guy overestimates the speed of my eye blink
HFT’s can act as market makers to a degree. What’s crazy is that they have to use dedicated physical hardware in order to do latency arbitrage. A computer is too slow to do this.
1000 point Dow loss.
This last month: Am I a joke to you?
@@riftalexa3904 even the ratio is higher
Hey guys! Check out nordvpn.com/theplainbagel and use code theplainbagel to get 70% off a 3 year plan plus one extra month for free.
I really enjoy these talks on a level I watch them a little more for fun than learning how to trade and invest. I am planning to complete an economics bachelors, and the school I'm going to offers Business Core Curriculum or a BBA. I hate accounting, but you and some other sources have totally convinced me that I should learn more about Finance and Marketing! Unfortunately accounting comes along with that, but you are awesome!
Algo-trading: stocks being Bot and sold?
ayo
ba dum tss xD
Why do people even engage in that kind of trading and investing? Just buy some stable companies and let them grow for the next 20 years. I'm looking to pick up some amazing companies on 30,50 and even 60 percent discounts right now. $AWK, $LNN, $XYL, $WM, $PEP, $T...
B.A.B.Y Investments it is called time diversification
Low risk low pay out high risk high payout..its all about how much you want to risk..
Because people want it all and want it NOW!!! Patience is a lost art
Oh I know what’s it called, Ethan. I run 3 different portfolios with 3 different time strategies on ‘em. None of them has a one-hour time horizon, tho. That’s different.
Because you can make a lot of many very quickly and then use that money to buy more long term stocks than you can afford. Everyone has their own strategies
HFTs operate faster and more accurately than humans, and humans get predictably mad about this
Charging for order cancellations would solve this problem instantly and force casual investors to be much more prepared
Charging to cancel orders is also bullshit, though, because what if I'm on Robinhood, I can't get a fill to sell my shares at 99, so I need to roll down the price to 98.5?
@@capn2k620 then that's just tough luck, isn't it? You could either do more careful research or simply leave the order in for longer.
@@marcushendriksen8415 shit like that is why the big wallstreet guys were able to keep common investors away for a hundred years, acting like regular people are too stupid to be market participants. It's elitist to have a cancel fee
@@capn2k620 not at all. If it's a flat cancellation fee (which is what I envision), then the high volume traders are hit the worst by it, not the common investors.
No. I can trade in this type of market. It basically reminds me of playing a fast paced 1st person shooter against either super computers or really fast human players. Its easy once you get up to speed, no pun intended, but this has created a gold mine of a trading environment.
The only thing that needs to happen are, first, companies need to watch their leverage. 2nd, companies need to know the government/tax payer will not and cannot bail them out.
Thats it.
5:30 It's the opposite: to reduce the bid-ask spread you have to increase bid and lowering ask prices ;) other than that a great video
yup I picked up on that too, what you said is correct
Conclusion: be a long term investor. Thank you, Mr. Bagel ! - canada
It really depends. The more involved you are, the short the time frame. Thats why we suggest long term (5 years) for most people - because they dont work in finance or dont have the time to study it.
Its such a stupid idea to rely on advanced algorithms. The more complex they get the more volatile the algorithm becomes. Tech is not infallible, and in fact is the opposite due to the artificial nature of these algorithms
If the algorithm fails the person that put money into the computer loses. Just don't let them leverage 9x their net worth.
Are you a full time UA-camr or an employee??
He said on his Q+A that he works full time and does UA-cam on the weekends. Dude is crazy productive.
The trick is to let them move before you move level 2 helps with this
Small correction: at 5:35, the added liquidity raises bid prices and lowers offer prices, not the other way around.
Yes this correction is true
@@entropicallydriven If they lowered bid prices and raised ask prices, the spread would widen.
@@johnmonrow9981 yeah you're right idk what I was thinking
I remember getting front run many times when using a very popular investment banks software. They basically front run your orders and make a few pennies from them.
I will disagree that there is no definition of high frequency trading. High frequency traders are considered with bid/ask spreads and hitting the bid/ask book correctly. They make their money from the spread. This is different from market makers who are by definition liquidity suppliers. HFT have no legal responsibility to ensure liquidity in an asset, and thus can dodge big changes in the order book.
5:30 - Wouldn't reducing the 'bid/ask spread' entail _lowering_ the ask price, and _increasing_ the bid amount? You said it the other way around. Just making sure.
Michael Lewis: Flash Boys - a must read for those interested in this.
sounds like front running
I really like the positive notes at the end of the videos. Not sure I could take all that realistic talk about economy without it. ;)
So should we forget day trading?
thanks for that interesting description, i should've seen this when I'm writing my assessment reponse.
Just stop intra day, why do we even need intra day trading, how does it help the stock market or the underlying companies.
Well, it helps liquidity
I've made some intraday paper trading with cryptos and I've concluded that it is a viable strategy for quick few bucks but very high risk. Cryptos are very volatile all the time.
Nothing helps to underlying company after the IPO. The movement of share prices during the day is good for investors because the curve is smoother, rather than just holding your breath for market open and praying
Helps liquidity, reduces spreads, pumps up the markets, keeps people like me from mugging people like you...
You don't want to tear down the very systems that have kept civilization running for the last 100+ years.
Be extremely careful about what you wish for.
The time for a trade has gotten so short that some trading firms that engage in HFT rent space in the stock exchange basement to have their computers that much closer to the delivery point.
other ideas that would go under this vid subject: price discovery, darkpools and rebate trading
The fact that exchanges sell 'colocation services' to hedge funds (e.g. get your computers as closer to our market engines as possible for a fee!) is outrageous, it is virtual corruption. They're stealing your money.
Not true. When you place a trade, you're choosing to put your own money at risk. That's not theft. You voluntarily put your money out there. You signed the exchange agreements saying that you understand that you could lose some or all of your investment. Don't be salty just because your trade idea didn't work. Cut losses quick and move on to the next trade idea. Not everyone is losing money. If that were true there would be no market and no exchange.
@@SaltyWarPig You could not be more wrong. Everyone should have the same risk factor when entering the market, however HFT's do not, they reduce their risk unfairly by spending hundreds of millions in resources, infrastructure and other 'services', some of them offered by primary exchanges to select institutions to give them advantage on market data over *you*, How is this fair? Lol.
@@db8458 How are they reducing their risk when they're spending hundreds of millions of dollars to get set up? Sounds like a lot of risk to me.
@@SaltyWarPig It's called an investment. Their initial investment is peanuts compared to their year-by-year profits.
They spend an initial sum in order achieve ridiculously good results, precisely because they have less exposure to risk than that of normal (fair) market participants, which, btw, do not have access to perform the same investment, because they're not in the same position of privilege.
@@db8458 Actually, I'd say their year-by-year profits are peanuts compared to their initial investment. Remember, they have to not only pay initially for the equipment and property and infrastructure, they have ongoing costs in personnel to man the desks and to constantly adjust the algorithm's code. It's no different than any other business. They provide a service to the world, and only hope to make enough profit to keep the lights on and to retain talented staff, and to put a little money in their pockets to make the whole venture worthwhile.
A certain 10 percent will ensure its employment anywhere; 20 percent certain will produce eagerness; 50 percent, positive audacity; 100 percent will make it ready to trample on all human laws; 300 percent, and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged. -- Karl Marx
The actual portrait of financial industry.
As a 4th year student at uOttawa, seeing the financial student only have money in their mind without any humanity or basic moral, no wonder why they're so much "illegal" financial operation in the world.
I don't get it PB.
At 5:28 you said "The trades submitted by these entities... reduce the B-A spread on stocks, lowering Bid prices and increasing Ask prices".
But at 4:00 you said that example stock's Ask price is 50.10$ while the Bid price is 49.90$.
If i lower the Bid and raise the Ask price the B-A spread gets bigger, not smaller.
Plus: how do HF Traders do money if the spread is negative (aka they lose 20 cents from buying at 50.10$ and selling at 49.90$ each share)?
I have the same question in mind xd
Yea I unfortunately misspoke at 5:28, bid prices are the lower of the two and are what you get for selling, ask prices are the higher and are what you pay. I added a card to clarify.
The HF Traders (market makers) take the other end of the bid-ask spread. In other words, they are the ones that set the bid-ask spread. They'll put the ask price (what they sell for) as high as they can until people stop buying, and they'll put the bid price (what they buy for) as low as they can until people stop selling.
From my understanding, ask prices will always be higher than bid prices, so you can't have a negative spread. Hope that clears things up!
@@ThePlainBagel thank you so much, crystal clear!
From a philosophical point of view, the market should be a reflection of our (human) perceived value of stocks since this is what a market IS to just about any person. The fact that 80% of the market is a non-thinking algorithm means that the market is only loosely based off of human input (those humans that made the algorithm). I find this to be a huge flaw, even Buffet has expressed negativity. Almost no "good deals" exist because an algorithm will be there to buy it up if so (this is also obviously influenced by the amount of media present and how fast humans can obtain articles compared to the past).
HFT firms compete with each other to fill orders. Just like human traders, a small percentage of them succeed, while the rest go out of business because the competition is fierce. In fact, HFT firms competing with one another for your order flow is the reason we have such tight bid/ask spreads today, which we didn't have 30 years ago. Unlike in the past, retail investors today are able to get in and out of a position with literally one penny of slippage because markets are highly liquid. They are highly liquid because there are so many market makers participating, including algos and HFT firms. Retail traders and investors should be thankful for them. They aren't there to take advantage of you. They are there to provide liquidity. They literally don't care what your order is for, they only want to get you filled because that's their job. Whether it's equities, equity options, futures, or futures options, without those guys we would all be staring into the abyss at the massive difference between what we paid for a position and what it's going to cost us to get out if we need to. This video is a bunch of bullshit that doesn't give the whole story. The US financial markets are the most fair, transparent, and liquid markets in the world. HFTs and algos have to play by the same rules as the rest of us. They don't all make money, just like not all of us make money. They don't have any more edge than anyone else. It's still a negative-sum game for them as it is for us. They have to pay exchange fees just like we do, although theirs are lower because of their volume. It still makes it a negative-sum game, not a zero-sum game. They have to be right on direction to make money just like we do. The fact that there is competition among them proves that. Competition nullifies any edge they have. And we retail traders are the real beneficiaries of that.
It's scary how a broken algorithm can practically cause a total market crash if there weren't "limit down" triggers in the stock market.
Thanks Richard, as always very well researched video. It shows that you put a lot of time making these videos. Suggestion: It would be nice if you could do some videos regarding the current market situation. We need some clever people like you to voice their informed opinions.
Your description of latency arbitrage is misleading. Most latency arbitrage involves jumping said ticket queue at the sight of a new order. They aren’t identifying “opportunities” humans are too slow to see, the opportunity is what the human sees.
Excellent video and very simple to understand. Love that Metalgearsolid alert sound effect
You get internet points for using realistic-looking C++ function signatures in your pseudo-code on the computer graphic.
Actually, those might even be valid signatures. I see no errors in syntax.
This is why i invest in highly volatile stocks like Tesla. Algorithms can try all it wants but at the end of the day. The stock moves based on faith and short-sellers. Those who believe in it's CEO's ability to execute the impossible and those who think he is a fraud. Love him or hate him, he has a great work ethic and i'll never bet against people that are that drive to succeed.
Hello from Brazil!! Big fan of yours
wait so making a program to trick the algos is ILLEGAL? when the algo itself isn't? insane
How much would it cost to set one up in my house?
Flash boys is a great read on the subject.
Does scalpers also contribute into high frequency trading?
Can you do a video covering how brokerages like Robinhood are able to "trade" fractional shares of a stock?
Prob the broker front the shares and sells fractions to its users internally.
You're the SciShow of Finance!
Very timely topic.
You made it all sound very tidy and neat, but these tools can be used to wreck serious havoc in the markets.
A look at cryptomarkets would show you how former Wall Street boys have created the wild wild web of trading. Big players use more and more sophisticated algos, gifted programmers create their own software every day to bypass the wealth divide, and exchanges maintain the High frequency wash-trading status quo.
All in all, HFT is the reason why volatility during periods of uncertainty gets crazier and lightning fast crashes become the norm. Let the short-sellers celebrate and party throughout the upcoming recession, I'll just be sitting on the sidelines and munching a plain bagel throughout. :)
Hey, can you do a video on stock buy back? This term is being used a lot lately.
Unless you already mad a video on it
Informative and fun to watch. Man, I love this channel.
another great book on this is "Flash Boys" by Michael Lewis
Hi I must say I love these videos. They're really well made and informative. I'm just wondering if someone hypothetically had a lot of money (as in tens of billions of dollars) and they decided to buy shares in a gold mining company and then buy a lot of gold thus driving the price of gold up and most likely increasing the value of the gold mining companies shares as well and then you sell the shares in the gold mining company for a profit. Does anyone know whether this would be considered insider trading or not. Thanks.
Great and informative video! This has taught me a lot.
Thank you for the post, and keep up the great work!
Very well explained, thank you
Now what is the difference between this and what navinder singh sarao did?
But doesn't these algorithms make it easier for us, long term investors to make more money since it can cause meaningless volatility and make companies underpriced?
And vice versa
Thanks bagel guy
They need to level off the playing field. This is so unfair for retail investors.
If passive market makers reduce the bid-ask spread, shouldn’t they increase bid prices and decrease ask prices instead @5:39
Same question, is it a mistake or just some counter-intuitive market thing?
@@pulkitdigani2075 he has corrected it now
and in most online games bots are illegal because they are seen as cheating. Perhaps its time we started to think the same thing about real money markets.
Doesn't a nine percent hit to bid ask spread sorta sound OK if it also saves 17% on market fees? I don't have half your understanding of these systems, but to me, if those estimates of the costs of HFT are close to accurate, the average trader should be better off after the change?
I think the problem is who it impacts. A wider bid ask spread directly hurts individual investors, whereas HFT generally costs the larger investors/traders the most. But you do raise a good point!
@@ThePlainBagel Makes sense, thanks for the clarification.
Wasn’t there a fake tweet and the algos caused a stock to plummet, can’t remember what stock it was though.
4:02, isn't that just spoofing? which is illegal no? got a warning for cftc once for doing that
Hey. Do you have a podcast? Would be great to listen to u on spotify
I do not but I’ll keep the idea in mind!
Good idea
@@ThePlainBagel pls do! Start uploading same video content as mp3 or just sound format on spotify. Its easier to listen to podcast while going to work or doib anything than watching a video.
Thank god for HFTs
I want to see what people trying to trade was like before the internet😂
@Lovecraft lol we've all seen that clip
Go to Venezuela.
Is It possible to make an HFT for Forex?
When you press market buy "they" will quickly cream the price and sell for you at higher price.
do not press market buy. use limit buy
@@Jtzkb use marketable limit order - the limit order that crosses the spread and digs into sell side up to the price that is acceptable to you. they you will have guarantee that you order is filled and at price not exceeding your limit. Trading 101.
5:30 lowering bid and increasing ask does not narrow the spread, or am I misunderstanding something?
Hi plain bagel. Can you please explain why mortgage rates may go up while bank of Canada cutting its policy rate
Mortgage rates are closely tied to the central bank rate, but they may diverge if banks believe there's a higher-than-normal risk lending to people (they add a risk premium to the rate they get from the central bank).
Hope that clears it up!
Also demand. More of if will push rates. And the market was red hot before the virus.
Negative interest rates may be coming.
Thanks to your Bagel Buddies video I only hear « big-ass spread »
You'll see tomorrow what HFT does to the market
Very informative thanks
I feel a Lehman Brothers, Bear Sterns & AIG dejavu...maybe it's just me...
Is it possible to introduce long term stocks that can be traded only after a certain timeframe - weeks/months/years, with generous yields to make them attractive and create a damper for Wall Street? Something akin to bonds?
I mean we have 'options' but they can be bought or sold at any time. It's the right but not obligation to buy or sell a stock at(European) or before a specific date.
What your thoughts on synthetic stocks?
Where are the links?
In the video description!
@@ThePlainBagel Thank you
His bid-ask example assumes someone either shorted or lost money on a long position.
aight
Why those high speed traders are using high speed computers? All comupters should be as slow as my 80286 IBM PC that I still use. This is not fair that everybody os faster than me. This is unfair advantage! Even my neighbour uses iCore 7 for trading over fiber channel internet connection. This is outrageous. He should not be allowed to use it! Only 2400 bod modems should be allowed to use! and no error correction, no mouse, no LCDs!
Y'know, let's forbid anyone to buy and sell the same stock on the same day?
Or let's do that reCAPTCHA thing before every order?
U can just make the market work on ticks length of a second
@2:10 Does that 80% figure include when I place a limit order that takes a day or two before executing?
I'm skeptical that "80% of trades are by computers" means that "80% of trades are by algo-trading".
Yeah, if you place a limit or a stop loss, you are an algo trader, passive market maker, placing a resting order. Welcome to the 80%.
@@capn2k620 , I am the 80%.
I don’t believe limit orders are included in that, but to address why the number is so high, a big part of it is the market maker side of things. When you or I place an order on the stock market, there’s a good chance we’re buying the stock from a market maker, who most of the time is an algo-trader, so that becomes an algo trade. I hope that clears it up a little
Can you do a video on "Stop-Loss Hunting"?
learn market geometry
Gracias