Front Running, Flash Orders, or Blackbox/Algorithmic Manipulation?
- Thread starter pacific7
- Start date
Hi Pacific7,
I don't have a lot of time now but I will post more later. One quick thing - thanks for the example, that is the kind of thing I was looking for, but I don't see how flash orders could be responsible for this.
The trader's order wasn't a flash order, or at least you didn't say so. Only flash orders get flashed. Subscribers to flash orders get to see flash orders only, they don't get flashed everbody's market orders.
What you are describing is the trader seeing limit orders in the book when he decides to trade that are not there when he actually tries to trade. These are standing limit orders, not flash orders - he can't see those. To me that means the limit orders got cancelled or somebody sent a market order that beat him to them. Maybe limit order cancellation rates went up around the same time flash orders went up, but I can't see the causality there. Algos are known to place and cancel orders frequently, but I don't see how this could be related to the trader's straightforward market order. Maybe he is implying the order cancellations increased because algos are pulling their limit orders in response to other people's flash orders? I guess this is possible but I don't think likely - I'll tell you why in another post.
My pleasure, thanks for bringing it up. Like I said I think this is interesting stuff. But I don't want to act like I am an expert on it, I am just trying to think it through at the same time you are.
Quote from stock777:
so why dont you just trade liquid stocks with penny spreads and 5k or more on each side. There are plenty of those around.
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Try hitting ORCL with a FOK order for 40k when there's twice that on the level and see how many you get. Every market maker's ECN bid will vanish like a fart in the wind and you'll only hit the retail dummies.
This is a very real problem on all stocks. However the point is moot as it will all cease on Sept 1.
so why dont you just trade liquid stocks with penny spreads and 5k or more on each side. There are plenty of those around.
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Try hitting ORCL with a FOK order for 40k when there's twice that on the level and see how many you get. Every market maker's ECN bid will vanish like a fart in the wind and you'll only hit the retail dummies.
This is a very real problem on all stocks. However the point is moot as it will all cease on Sept 1.
I posted this in another forum before but I think it bears repeating and is pertinent.
The real heart of the issue isn't High Frequency Trading, it's High Frequency Quoting (HFQ), and High Frequency Front-running (HFF). Flash orders facilitate both. If you are asking yourself wtf is this guy talking about, spend some time actually looking at a level 2 screen and time and sales data.
For a clear example of HFQ take a look at a stock like SPY. All day there are hundreds of thousands of shares up and down the bid/ask and the values change endlessly, for no apparent reason, and you will see levels with a couple of hundred K posted that get flipped with a few thousand maybe 20 K actually printing at that price. What appears to be incredible depth is nothing more than vapor. The vast majority of this quoting is driven by very high powered co-loed boxes operating on fraction of a millisecond timeframes. Does this cause the dreaded 'market manipulation'?Probably not. The prices most likely find thier natural levels, but what it does do is create a very high 'noise' level and a difficulty in getting to the front of the line for execution. I would guess that if the boxes responsible for this quoting were turned off for a day, or even and hour, you would see something dramatically different on stocks like the SPY.
As for the High Frequency Front-running, lol ! Anyone who use EDGE facilites to execute orders against the specialist knows this story all too well. Or for other examples, just take a look at some of the stocks out there where there are huge out-sized EDGE orders posted up and down the bid/ask. The ELP's just fuck with everybody and do what they want with little risk because they get flashed on everything coming through so they can get the hell out of the way in one fuck of a hurry if they need to. Otherwise they just post their size up and down all day jerking everyone off and pushing the stock around with relatively low risk.
If the SEC bans Flash orders, the game won't change, just the tactics. There is too much $$$ invested in serious technology on all sides and too many egg-heads employed figuring out new and creative ways to use it.
Guys like Red Ink know exactly how this works. He executes trades in lots I would guess most here don't do in a day. And as he said when u try to get fills like 40+ k in one shot, even on apparently liquid stocks, you need to be smart. You are never fast enough! The guys with a vested interest (GS, Citadel, and many other funds engaging in HFT) are so far ahead of you that worrying about latency on your piss ant business internet connection is a total wate of time. This whole game is an arms race, and the vast majority of us discussing this subject are like Botswana.
It may sound distasteful but, you need to trade like a terrorist. Understand you are out gunned on the conventional front and look to exploit the weaknesses of the HFT/HFQ algos.
The real heart of the issue isn't High Frequency Trading, it's High Frequency Quoting (HFQ), and High Frequency Front-running (HFF). Flash orders facilitate both. If you are asking yourself wtf is this guy talking about, spend some time actually looking at a level 2 screen and time and sales data.
For a clear example of HFQ take a look at a stock like SPY. All day there are hundreds of thousands of shares up and down the bid/ask and the values change endlessly, for no apparent reason, and you will see levels with a couple of hundred K posted that get flipped with a few thousand maybe 20 K actually printing at that price. What appears to be incredible depth is nothing more than vapor. The vast majority of this quoting is driven by very high powered co-loed boxes operating on fraction of a millisecond timeframes. Does this cause the dreaded 'market manipulation'?Probably not. The prices most likely find thier natural levels, but what it does do is create a very high 'noise' level and a difficulty in getting to the front of the line for execution. I would guess that if the boxes responsible for this quoting were turned off for a day, or even and hour, you would see something dramatically different on stocks like the SPY.
As for the High Frequency Front-running, lol ! Anyone who use EDGE facilites to execute orders against the specialist knows this story all too well. Or for other examples, just take a look at some of the stocks out there where there are huge out-sized EDGE orders posted up and down the bid/ask. The ELP's just fuck with everybody and do what they want with little risk because they get flashed on everything coming through so they can get the hell out of the way in one fuck of a hurry if they need to. Otherwise they just post their size up and down all day jerking everyone off and pushing the stock around with relatively low risk.
If the SEC bans Flash orders, the game won't change, just the tactics. There is too much $$$ invested in serious technology on all sides and too many egg-heads employed figuring out new and creative ways to use it.
Guys like Red Ink know exactly how this works. He executes trades in lots I would guess most here don't do in a day. And as he said when u try to get fills like 40+ k in one shot, even on apparently liquid stocks, you need to be smart. You are never fast enough! The guys with a vested interest (GS, Citadel, and many other funds engaging in HFT) are so far ahead of you that worrying about latency on your piss ant business internet connection is a total wate of time. This whole game is an arms race, and the vast majority of us discussing this subject are like Botswana.
It may sound distasteful but, you need to trade like a terrorist. Understand you are out gunned on the conventional front and look to exploit the weaknesses of the HFT/HFQ algos.