HFT: not inherently evil

Bill Conerly at Forbes explains HFT
Bill Conerly at Forbes explains HFT

High frequency trading plays a large role in d4, as those who can see the future find that this subset of playing the stock market is ripe for providing them with an advantage over their less clairvoyant competitors. In real life, HFT (or high frequency trading) is not inherently bad or even unfair, as long as the rules behind it are equitable and of course as long as no traders really do see the future. This article from Forbes by Bill Conerly gives one of the simplest explanations I found on how HFT really works. Read below to see how d4’s hero Ariel explains it.

Chapter 5.

“That doesn’t make sense.” Nell was thinking while she walked. “If what you’re saying is true, then it takes a whole hundredth of a second just for information to go from Dublin to New York, because that’s about three thousand miles. Cillian ought to be losing every time he places an order just because he lives so far away. “

“That’s right.” Ariel was happy to discover that this woman could not only follow along but she could do simple division in her head while she did it. “But Cillian isn’t making the decisions. The other thing we do for Cillian is we design software to think for him. In fact, our programs take in data, analyze it, and issue buy and sell orders based on Cillian’s criteria, but far faster than he or any other human ever could. It, the machine with our software, lives right on Wall Street and right next to the London Stock Exchange. You’re exactly right, Nell. Milliseconds do matter and we make Cillian faster every single way that we can. He still won’t always come out on top in a trade, but he will more often than not, which is what investing is all about.”

“Oh,” Nell said it like she was surprised to find the mumbo-jumbo was quite so simple. “So what happens when everybody starts using your fancy high frequency techniques and they are all super fast? Then who wins?”