Can someone explain something about HFT
- Thread starter tsgiannis
- Start date
What are you defining as "better" ?
If you're defining the sub-penny "price improvement" crap that the HFTs define as "better", then be my guest, bend over and let yourself be screwed at any of the HFT friendly exchanges.
You get better fills on IEX because you don't get front-run by the HFTs.
And with IEX D-PEG (https://www.iextrading.com/trading/dpeg/ & https://www.bloomberg.com/news/arti...s-matt-levine-interviews-iex-s-brad-katsuyama) it goes one step further because you get protection against adverse selection and crumbling quotes.
See also http://www.nanex.net/aqck2/4661.html (especially the graphs at the bottom)http://www.nanex.net/aqck2/4661.html
You all know HFT usually affects institutional traders with large market orders. Not sure how it affect retail traders, especially limit orders with less than 500 shares.
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I don't trust anything Michael Lewis says. Do you personally get better fills on IEX?
Yes - I do get better fills on the IEX.
Eric Hunsader (CEO of Nanex - micro market structure expert)
I might add that today in 2013, it is any “limit” orders where the retail investor potentially gets shafted. Say Bank of America (BAC) is trading $13.93 bid and $13.94 offer. The retail investor has very little chance of being able to buy on the bid at $13.93. That person is typically at the back of the queue, behind all the HFT’s. The only time they get filled is when the quote rolls over them (the bid becomes the offer). In most cases, for the retail investor it is better to buy BAC at the $13.94 offer, get filled and not risk the market moving and not get filled at all……just pay what amounts to a one penny “toll” to get filled. In the old days of human NYSE market makers, or specialists as they were known, the retail investor had a much better chance of buying on the bid.
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Because IEX is run by folks who know a lot about these HFT games and who were creative about how to work around it, you can expect that they will be intelligent about how IEX routes out your orders. This creates an interesting tool to traders: using IEX as a smart router. They have a proprietary method in which they re-route orders to other pools of liquidity (they have filed patent applications covering it). What they do disclose is the following:
Yes - I do get better fills on the IEX.
Eric Hunsader (CEO of Nanex - micro market structure expert)
I might add that today in 2013, it is any “limit” orders where the retail investor potentially gets shafted. Say Bank of America (BAC) is trading $13.93 bid and $13.94 offer. The retail investor has very little chance of being able to buy on the bid at $13.93. That person is typically at the back of the queue, behind all the HFT’s. The only time they get filled is when the quote rolls over them (the bid becomes the offer). In most cases, for the retail investor it is better to buy BAC at the $13.94 offer, get filled and not risk the market moving and not get filled at all……just pay what amounts to a one penny “toll” to get filled. In the old days of human NYSE market makers, or specialists as they were known, the retail investor had a much better chance of buying on the bid.
________________________________________________________________
Because IEX is run by folks who know a lot about these HFT games and who were creative about how to work around it, you can expect that they will be intelligent about how IEX routes out your orders. This creates an interesting tool to traders: using IEX as a smart router. They have a proprietary method in which they re-route orders to other pools of liquidity (they have filed patent applications covering it). What they do disclose is the following:
- After leaving IEX, the order does not go through dark pools or internalizers first (which is the case with quite a number of retail brokerages’ smart routers). Frequently orders that hit dark pools tip off HFTs and allow them to cancel their orders in other places. Because routing to a dark pool is a shot in the dark, you don’t know how many or if there are any shares of your stock bid or offered there at all, your upside can be limited and the downside of alerting HFTs is significant.
- They have direct data feeds from the exchanges that they are trying to hit. This means that their order router is looking at the present rather than looking at the past which is the case with the SIP.
- They will hit those 11 exchanges plus LavaFlow over a custom-built dark fibre network (which is proprietary) that is designed as to not allow the HFTs there to cancel or modify orders in other places when they see the buy or sell interest.
- Their own 350 microsecond delay prevents HFTs from outracing IEX’s smart order router to the other displayed exchanges based on “signaling” from buy or sell interest on IEX.
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Man, you are more naive than I thought. #SAD.
Perhaps, reading more and posting less would be wise?
Yes I do. And yes I do route all my relevant US flow there.
As @comagnum says, IEX is built by people who know all the dodgy games in the market and are determined to build a platform that cannot be subject to those games. At IEX, you play on the same level playing field whether you're a retail investor or a large institutional. The only people who loose at IEX are the HFTs, and that's no bad thing.
Many interesting and some inaccurate comments in the mix here. I'll say that I have had a lot of contact with the HFT space and this diagram isn't exactly an accurate depiction of the HFT world.
First, trades cannot occur outside of the NBBO due to Reg NMS. Therefore, any fill that the BD routing the order in the example gets is within the bound at that time. IEX is bound by the same rules.
Second, if a market participant comes in for size on a particular exchange, of course the other markets will get lifted. This information transfer is the exact idea of an efficient market. If anything, this just demonstrates the concept of market impact and liquidity premium. Given that this only occurs at institutional size trades, said institutions should learn how to mitigate market impact opposed to bitching about being "front run". Retail trades don't often hit lit venues.
The words NANEX, Brad Katsuyama, and Micheal Lewis scream conspiracies and book sales to me.
First, trades cannot occur outside of the NBBO due to Reg NMS. Therefore, any fill that the BD routing the order in the example gets is within the bound at that time. IEX is bound by the same rules.
Second, if a market participant comes in for size on a particular exchange, of course the other markets will get lifted. This information transfer is the exact idea of an efficient market. If anything, this just demonstrates the concept of market impact and liquidity premium. Given that this only occurs at institutional size trades, said institutions should learn how to mitigate market impact opposed to bitching about being "front run". Retail trades don't often hit lit venues.
The words NANEX, Brad Katsuyama, and Micheal Lewis scream conspiracies and book sales to me.
Brad has his very own exchange, do you?
IEX sounds like a great option for adding liquidity. My question is do you guys route IEX for taking liquidity or just use straight super smart order that sprays everybody? Obviously market orders are going to be gamed by hft does IEX help at all on market orders?