Bitcoin Forum

http://online.wsj.com/news/articles/SB10001424052702304071004579407562692516576

This will affect the trend for sure. They will be trading 0.001BTC back and forth, front-running everybody else.
Bitcoin exchanges should NEVER allow high frequency traders to enter and in case you wonder how they could do that-it is simple-not allow HFT servers located at exchange and also categorically not allow RAPID (microsec) cancel orders: make a rule that there has to be 100 microsec between order and cancellaton and you will effectively not allow HFT.

It will happen.

Problem is that high-frequency trading is not well understood by the general public, just like bitcoin is/was not understood by the general public.

isn't it pretty much like cheating? I mean the exchange itself obviously has 1ms ping with its own servers. someone would soon situate their bots over the street of bitstamp's servers :P just to get better ping than anyone else

Depends on how you look at it, you can use it to your advantage as a "retail" customer. It provides lots of liquidity, so you pay the fair price.
High frequency trading will enable a liquid option market for bitcoin, which is needed to stabilize the price and to hedge risk for end-users.

HFT drove me out of the precious metals market. I sincerely hope it does not become widely adopted here in the cryptocurrency community.

Isn't a HFT bot something extremely sophisticated? I mean it's not like something your average bot can do right?

What i mean is that there are very few people that can get their hands on such a technology and i don't think they can
have a great impact in the market.

Any decent bot in the market currently, can perform HF trades it's all a matter of how it's written and configured.

To answer your question, yes, they are usually very sophisticated. But they can also be full of fail. HFT can lose money FAST if you don't know what you're doing.

Here is a great, how NOT to (http://finance.fortune.cnn.com/2012/08/02/knight-high-frequency-loss/)  ;)

I cant imagine how those things are profitable..

Aside from manipulation. Is that the goal? I saw something about someone using an HFT bot to prop the price up and offload at higher prices. How I cant totally understand, but apparently it works.

So how do ones that trade on relevant markets movement work? Only the first one there can win.. and its not even high frequency, just low latency trading then?

from my extremely limited understanding they are able to respond to changes faster and thus make money off of their speed. one thing i remember is that they scour relative news sources for names of companies and keywords that predict future impact of price. extremely interesting stuff. i am sure the first HFT bots for bitcoin will have problems that are able to be exploited.

Google "quote stuffing"

But why  early adopters with their big bitcoin stash wont place for example 1mil of bitcoins for specified price for sale and later big buy order liek $20 less to stabilise the price? That would allow merchants to work finally and allow other people to buy bitcoins and spread them more between people so others wont complain about most of them beign in few hands. Early adopters are rich anyway, aren't they?

how fees can affect HFT ?

Lot of the unfairness of HFT is that they seem to get access to information before others.  Basically exchanges provide the expensive data feed for HFTs and the other feed for everyone else.  The problem comes in that the HFTs get the information before others because of stuff ups etc.  I would be happy to allow HFTs as long as the same data is sent out to everyone at the same time.  This is not just about pings.  The data gets released faster to HFTs which is fundamentally unfair.

Read here for lots of stuff about HFTs:
http://www.nanex.net/aqck2/4450.html
and http://www.nanex.net/FlashCrash/OngoingResearch.html

HFT does need support from exchange...

Simplest thing would be to only use exchanges that don't allow HFT or set reasonable limits to speed of orders.

Exactly the exchange must to have a order matching engine capable to HFT...

some vendors ideas ;)
http://qconlondon.com/dl/qcon-london-2013/slides/JohnOHara_TheTechnologyBehindAnEquityTrade.pdf

http://www.cisco.com/web/strategy/financial/algo_speed.html 

Limit orders don't care about no HFT. 

Exchanges aren't ready for HFT in the slightest. The time between order submission and execution can exceed 1 second. On Bitstamp my orders are regularly placed "in queue" for more than 10 seconds.