Posts tagged with global

Slow and steady.


Last week @gappy3000 shared the Bank of International Settlements’ autumn 2011 assessment of the impact of high-frequency trading on foreign exchange (currency) markets.

For the lazy, here’s a summary of the executive summary:

HFT in FX operates on high volume but small order sizes, low margins, low latency (… milliseconds) and short risk holding periods (… well under five seconds). …[I]t occurs mainly in the most liquid currencies.

Market functioning: HFT[’s] impact on … FX market[s] … could be seen as beneficial in normal times. HFT helps to distribute liquidity across the decentralised market, improving efficiency, and has narrowed spreads…. Questions remain about HFT[s’] … willingness to provide liquidity … under [stressed] market conditions. … That said, recent experience  suggests that HFT participants are not … flightier than traditional participants in times of market stress….

Systemic risks: The 6 May 2010 “flash crash” in equities suggests that systemic risk is … more likely to be triggered by a “rogue” algorithmic trade than by pure HFT, which tends to involve small-size trades, short horizons and diverse strategies. Nonetheless, HFT may … propagate shocks initiated elsewhere….
Market integrity and competition: Many of the “predatory” or “unfair” practices attributed to HFT participants … are in fact not new. HFT is but the latest high-tech, high-speed manifestation of them.


Here’s something curious about lawyers. Locally they fight negative-sum games — effectively, expending resources fighting over the division of a non-increasing good.

  • lawyer 1: OK, I get x%
  • lawyer 2: and I get 1−x %
  • lawyer 1: Yes. Now, I vote that x be increased
  • lawyer 2: But that would mean that my share, 1−x, would decrease
  • lawyer 1: Exactly.
  • lawyer 2: But…
  • lawyer 1: Exactly.

Globally, however, the effect of lawyers is positive-sum. Without a justice system, grievances would not be heard, property rights would not be enforced, and the world would be worse off.

So … a space with locally negative curvature and globally positive curvature … hmm, how can that work?