Re:Timekeeping in Financial Exchanges
by deanCommie on Sunday October 11, 2020 @02:26PM
(#24747900)
Honest naive question - Just because HFT firms provide liquidity does that mean it is the ONLY way such liquidity could be provided?
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Re:Timekeeping in Financial Exchanges
by lucaspauker on Sunday October 11, 2020 @02:29PM
(#24747924)
Market makers provide liquidity as a service. HFT firms are market makers: https://www.investopedia.com/terms/m/marketmaker.asp
Long before HFT firms, we had Market Makers -- they were often a separate department of the brokerage firm you were already using.
Therefore, Markets don't need HFT firms to provide this service, they simply coopted a friendly-sounding rationale in an attempt to dismiss skeptics.
"Market maker" refers to a "role" in a market. HFT is simply one way that role is fulfilled, in some markets (equities, futures, ...) but perhaps not others (corporate bonds, MBS, ...). No market needs HFTs to provide the service, but they exist because in those markets they provide a monumentally better (cheaper) service than their predecessors.
You don't need HFT, but those market makers lost to HFT on price. HFT is far far cheaper than the old market makers.