Avoid Competing with HFTs

[MarketOwl]

Yes, HFT may have replaced human market makers and it would be silly to compete directly against them in THEIR market segment, but how does HFT prevent YOU from buying the day low and selling at the high?

The liquidity is there...it's up to you, really.

The liquidity is there if you trade small. Those who trade size have to break up their orders in order to try to minimize their impact on the market. But they know that thanks to HFTs and their front running algos, HFTs will fill only a small fraction of their orders at the price that they want and then front run them until all their orders are filled, at much worse prices.

It's either get a small fraction of the trade done at a decent price or the whole trade done at bad prices thanks to HFT predatory front running, and lack of human market makers who have been destroyed by the HFTs. There is a lot of fake liquidity in this market, the flash crash in 2010 and the sudden plunge and rebound on August 24 attest to this.

For most people on ET, HFTs probably don't matter. The HFTs are really the parasites of hedge funds, daytraders who trade size, and actively trading mutual funds.

 

[AlphaRocks]

The liquidity is there...it's up to you, really.

The HFT liquidity is there only if it's profitable for the HFT to provide the liquidity, when is not profitable, there's no liquidity. HFT's don't have "affirmative obligation" like traditional market makers which requires them to quote two-sided markets at all times, even when they rather not. This HFT-liquidity-when-convenient played a roll in the flash crashes of 2013 and 2010 when HFT's cancelled their bids and reversed their positions to sell, but there was no one to buy.
http://www.nanex.net/aqck2/4150.html

 

[Laissez Faire]

But now we seem to be moving on to a different discussion and deviating from the the first claim which was how HFTs and algorithmic trading has CHANGED intraday patterns and how they're now more random and irrational than in some distant past, thus harder to predict. Liquidity wasn't even mentioned in the original post, nor on the first page of the discussion.

Now, the problem seems to be that HFTs provide fake liquidity, but then it's said that this is not a problem for most on ET, but for the larger institutions (who do in fact employ HFT themselves may I add).

So, which is it?

 

[Laissez Faire]

By the way, I'm pretty sure the blame game is old news and that it was played prior to the HFT-era as well.

Back then it was the locals who f**cked you up the ass or the specialist. Or if not them, it was the Government or the FED with direct market interventions or what have you.

 

[botpro]

I've read in a recent article that an order gets confirmed in just 35 microseconds, ie. in 0.000035 seconds.
And in just 1 millisecond (that's 1/1000 of a second) the following is possible:
a highspeed trader (HFT) can in that time do 500 times issue a modification order (ie. change the order) and 150 times execute a trade.
Source (in German): http://dist.algotrader.ch/wp-content/uploads/2016/02/BILANZ_HighFrequencyTrading_2016_02.pdf

In the same article it says:

Of all the HFT orders at NYSE upto 90% gets cancelled. Such mass order cancellations distort the market prices
and irritate the other market participants.

It also says that TD Ameritrade is selling its trade data (ie. that of their clients) to other firms, mainly to Citadel, for millions of $ per year.
(ie. a kind of broker trading against own clients...)

 

[AlphaRocks]

But now we seem to be moving on to a different discussion and deviating from the the first claim which was how HFTs and algorithmic trading has CHANGED intraday patterns and how they're now more random and irrational than in some distant past, thus harder to predict. Liquidity wasn't even mentioned in the original post, nor on the first page of the discussion.

Now, the problem seems to be that HFTs provide fake liquidity, but then it's said that this is not a problem for most on ET, but for the larger institutions (who do in fact employ HFT themselves may I add).

So, which is it?

It's the same discussion, intraday patterns and trading in general has changed because the behavior of liquidity has changed. And this it's a problem for all traders and investors, small traders might not see it (fractions of a penny per share), but that doesn't mean they're not getting ripped off.

 

[Laissez Faire]

...intraday patterns and trading in general has changed because the behavior of liquidity has changed...

I don't yet see any proof of this in this thread.

Is it possible to see comparisons of intraday charts today and pre-HFT or some other metric to support this claim? If not, this all seems very speculative to me. I have no difficulty in believing it to be the case though, but I've learned not to accept things just because someone says so. I'd like to see the data.

In some other thread we were discussing volatility. I admitted to not having an up to date database, but that I suspected the volatility in the time period I mentioned were above the norm for the last 2-3 years. Some other user said I was wrong. Then another user, @wrbtrader, came to my rescue so to speak and could indeed verify that I was right, backing it with data from his own personal database:

You're absolutely correct...when you started this thread on Tuesday February 9th and using the VIX as your chosen volatility measurement...the VIX open @ 28.3 and closed @ 26.7

The volatility you saw on that trading day and from January 1st to February 9th was NOT the norm for the past 2 - 3 years. In fact, it was above the norm of year 2013 of 14.7, year 2014 of 14.5 and year 2015 of 17.5 based upon the average closing prices of the VIX per month.

In contrast, in my own personal databse, I prefer to use all data (every tick) instead of the average monthly close and Tuesday February 9th is still way above the norm. I also have my own personal (private) way to measure volatility in any trading instrument and for the Emini ES futures for the past 3 years...Tuesday February 9th was approximately 71.68 % above its norm.

In fact, in my personal database...January set a 10 year record involving the speed in the price action movement in the Emini ES futures during certain times of the trading day involving the Emini ES futures. In addition, the Emini TF futures set a 6 year speed record...same with the other Emini futures. Most of that is attributed to algorithm systems from around the world.

In fact, perhaps @wrbtrader has some insight on this subject as well?

 

[d08]

Yes, HFT may have replaced human market makers and it would be silly to compete directly against them in THEIR market segment, but how does HFT prevent YOU from buying the day low and selling at the high?

The liquidity is there...it's up to you, really.

Have you actually tried that? If you had then you'd know it's close to impossible. Try joining the bid and see if you get filled if the price doesn't trade through it (but there are plenty of fills at your level).
If it was like you said, it wouldn't be a problem at all. But in practice it's almost never like that.

 

[der_kommissar]

The HFT abuses have been well documented and abound in the blogosphere. Try the Nanex twitter feed or the homepage and you will have 25+ pages of documented evidence of what is going on...

 

[d08]

For most people on ET, HFTs probably don't matter. The HFTs are really the parasites of hedge funds, daytraders who trade size, and actively trading mutual funds.

HFT takes money from all participants, no matter their size. The more active you are, the more you pay.