I have read the anti-FlashBoys book to try and grasp it (HFT is not bad and has cut spreads in equities by 5/6ths in ten years) but I still do not understand one HFT algorithm (other than the debunked front running idea)
Could someone explain what algo traders / HFT actually do?
Is it all looking for a variation off of a relationship between say OrangeGrowersInc and OrangeJuiceBottlers Inc? And why is speed so important then?
Yes thank you. Well worth reading. I was quite annoyed by what seems to be such evident lack of critical thinking by Michael Lewis
I picked up (and have even blogged about) the idea that "good" traders were trying to buy 100m USD of BP shares in three different exchanges and that by the time 1/3 of the order hit London HFT traders "somehow" worked out that there was another 2/3 going and sped over microwave towers to front run the order. But how do you work out that the london order is going to be for 100m? What if it's just for 50m - suddenly you have bought 50m shares of BP no one wants. It's an insane risk.
So I still don't know what HFT and algo is about (it seems to be there are arbitrage opportunities between strongly correlated stocks, and presumably arbitrage opportunities between strongly correlated stocks in different exchanges. And the speed issue is having to beat other people who have the same algo / correlation as you)
Could someone explain what algo traders / HFT actually do? Is it all looking for a variation off of a relationship between say OrangeGrowersInc and OrangeJuiceBottlers Inc? And why is speed so important then?