‘HFT is killing the emini’ S&P, says Nanex

[Chicago_CTA]

While I don't necessarily *like* HFTs, it's important to remember that NOBODY is under any obligation to provide bids and offers. They add liquidity by choice, and I don't hate on them for being quick.

I would disagree that HFT is killing the e-mini, however.

Right now, Thursday @ 10:40am CT, spoos is approximately 400 bid/offered in the order book.

Normal liquidity is about 1500 bid/offered in the book.

*Liquidity declines as volatility increases.* Simple as that.

 

[Occam]

Quote from Random.Capital:


The simplest solution to the HFT bots is to return to nickel spreads. That will kill 80%+ of it right there. The problem is it will also expose just how little liquidity there really is post-2000, post-2008, and that would freak out a lot of folks.

I think setting a minimum spread like this would be horrible. A much larger proportion of the volume on higher-volume stocks would be internalized by the clients' B/Ds -- there would be almost no "real market" for many stocks anymore. Moreover, B/D internalization has a tendency to vanish instantly when markets go haywire (if you're not used to taking any risk at all, why start when the S&P is swinging 5%?), making liquidity even more scarce when it's needed most.

On top of that, such a large minimum spread would only intensify the speed/colocation race among liquidity providers. If you made an instant (almost) 5c per share on liquid names, it would really pay to be first.

A much better solution IMO would be to have a minimum order length of, say, 1 second. Although I admit there could well be negative consequences I'm missing.

 

[LeeD]

Quote from ksmetana:

I don't think anyone is on vacation right now, lol.

At the time I wrote the post in quiestion, half of the people I knew in the financial industry were on vactation. When the US downgrade hit (after my original post) some had to cut vacations short.

Yet the O.P.'s question is why volume was low during the first two months of summer. Seasonality?

 

[ASusilovic]

Quote from LeeD:

At the time I wrote the post in quiestion, half of the people I knew in the financial industry were on vactation. When the US downgrade hit (after my original post) some had to cut vacations short.

Yet the O.P.'s question is why volume was low during the first two months of summer. Seasonality?

It has nothing to do with seasonality, moreover traders have more experience with HFT machines and the way they operate. The less volume you show - the less HFT machines can "learn" about your intentions.

In short: don´t show your cards until you really "must do".

 

[SnakeEYE]

Quote from ASusilovic:

Nanex’s Eric Scott Hunsader — the guy who likes to dig through trading data to unearth weirdly fascinating algorithmic patterns — is out with quite a chart on Monday:

i see a tons of mooney

 

[austinp]

I wouldn't say HFTs are "killing" the ES... I would say that right now algos have effectively killed the TF for methodical trading. But that's another story.

The ES is highly tradable and very inefficient right now... but noisier and more "erratic" i.e. the counter-direction pullbacks are deep and usually very whippy. I'd guess that's the algos sweeping liquidity to x-degree before swapping directions in v-turn fashion.

It's different now than high VIX times in the past, but markets are always different. Just a matter of adjusting to the nuances now versus back then.

Overall, trading conditions are fantastic now compared to not long ago. Hopefully, some degree of volatility and expanded ranges will stick around for a long time.

 

[dhpar]

Quote from achilles28:

Why not just honor FIFO and charge an incidental 5-10 cents per canceled order? That would take care of front-running and quote stuffing.

+1.

half a cent for canceled order is more than enough....

and no credits for adding liquidity (when times are good who cares about added liquidity while when times are bad no incentive is enough...)