Having traded in 2000, 2008 and now...the dramatic fall-off in market liquidity is noticeable...I suppose that it's a "good thing" when prices can be set at higher levels, but as we've seen, if there is selling en masse, exchanges go offline, liquidity "providers" step aside and prices "skid" without much liquidity at all...
Avoid Competing with HFTs
- Thread starter MarketOwl
- Start date
You don't have to believe anything I say; personally, I'm always skeptic of anything I see on ET. However, after you spend some time learning about HFT and its impact on the markets you might reach a similar conclusion as me. I don't have access to sub-second quotes and trade info, so I can't prove it to you, but I suggest you spend some time reading about HFT and market microstructure. Nanex.net has a lot of HFT related posts which are helpful, from specific anomalies in market behavior (like the apple case below) to more in depth research reports. The following might help get you started:
10-Jul-2013 ~ HFT Causing High Volatility in AAPL
http://www.nanex.net/aqck2/4352.html
HFT and Volatility
https://www.heartland.org/sites/default/files/ssrn-id1691679.pdf
Liquidity and High Frequency Trading
http://www.nanex.net/aqck2/4136/LiquidityAndHighFrequencyTrading.pdf
Well, my chosen market is the ES (S&P e-mini futures) and I've never had any issues with as much as 10 lots, but I've never gone beyond that. Mostly, I've done between 1-5 lots and never had any problems getting filled using limit orders. Obviously, small size, I know. But I've made inquiries on this forum and have been told that during RTH, the ES can take 50 lots as easily as it can 10 lots, on most days. And seeing the liquidity that's available and transacted on a daily basis and how ES tends to back-fill a lot, I don't doubt it.
Other markets may be different though. I have zero experience with day trading stocks for instance.
Thank you. I'll look into it.
HFT is more active in stocks.
Also, you're trading tiny size in the world's biggest contract, you're an extreme example.
Have you gotten filled at the low, ever?
Try putting in a significant order where you clearly affect the market equilibrium and the games will start. And your order doesn't have to be millions to be significant as during the day, most equities are quite thin.
Is there any good videos or websites explaining how these HFT identify large institutional trades and front run them? Very keen to understand how these behind the scenes actions take place, and how it affects retail traders.
If you trade size in a stock and display it on the bid price, the HFTs will often hit the best offer on the order book. If you do it on the ask, they will hit the best bid on the book. Doesn't happen so much with things like SPY, but it does happen to a lot of individual stocks. That is why you had spoofing strategies, now illegal, which tried to trick the HFTs into front running fake size for profit.
Honestly, it doesn't affect most retail traders because they dont trade big enough to have HFTs front run them. In fact, Citadel and others that pay for dumb money order flows to the likes of TD Ameritrade, ETrade, etc. want to be on the other side of the retail trades, or just lean on their orders, not front run them.
Usually, when people say "front run". What they usually mean, is that some institutional trader is so stupid, that they can't hide their intentions. They make it is so obvious that smart traders can pick it up and take advantage of their lack of micro market structure knowledge. Even IEX Brad, star of Flash Boys came to realize. If you are smart about routing your orders, the problem isn't a problem.
To answer your question. I don't know where you can go to learn about it. Wherever you go and find info, it will be slanted by whatever agenda that person/group has.
The best way to learn exactly how they do it, it's to go work at an HFT firm or hire one of their programmers. Some of the terms you might want to google for is "dark pool pinging", and "latency arbitrage" -- most retail traders fall pray to latency arbitrage and don't even notice, and when noticed, they might experience some slippage, or the price running away from them.