Lumifer comments on The immediate real-world uses of Friendly AI research

[Lumifer]

getting your trades completed in a millisecond instead of a second is that valuable ?

The benefit to the small investor is not really faster execution—it is lower bid-ask spread and lower trading costs in general.

For example there was a recent “natural experiment” in Canada (emphasis mine):

...in a recent natural experiment set off by Canada’s stock market regulators. In April 2012 they limited the activity of high-frequency traders by increasing the fees on market messages sent by all broker-dealers, such as trades, order submissions and cancellations. This affected high-frequency traders the most, since they issue many more messages than other traders.

The effect, as measured by a group of Canadian academics, was swift and startling. The number of messages sent to the Toronto Stock Exchange dropped by 30 percent, and the bid-ask spread rose by 9 percent, an indicator of lower liquidity and higher transaction costs.

But the effects were not evenly distributed among investors. Retail investors, who tend to place more limit orders — i.e., orders to buy or sell stocks at fixed prices — experienced lower intraday returns. Institutional investors, who placed more market orders, buying and selling at whatever the market price happened to be, did better. In other words, the less high-frequency trading, the worse the small investors did.

…In a paper published last year, Terry Hendershott of Berkeley, Jonathan Brogaard of the University of Washington and Ryan Riordan of the University of Ontario Institute of Technology concluded that, “Over all, HFTs facilitate price efficiency by trading in the direction of permanent price changes and in the opposite direction of transitory price errors, both on average and on the highest volatility days.”

(source)

Here are some informed opinions on HFT: here, here, and here. If you want a more sceptical, but still informed opinion, here’s an example.

[Kyre]

Thanks, that is interesting.