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FSA slaps heavy fine on high frequency trading boutiques
- Thread starter ASusilovic
- Start date
Quote from Occam:
I can't see any way for someone to frontrun you on a public ECN, unless your broker is colluding and/or your trading platform is horribly buggy.
It's called a flash order and it is a function that is/was provided by all the major exchanges & ECNs.
Just do some research, this is known info to anyone who even remotely stays in the loop of what is going on in trading. There have been a number of guests even on CNBC discussing this.
Quote from Anaconda:
It's called a flash order and it is a function that is/was provided by all the major exchanges & ECNs.
Just do some research, this is known info to anyone who even remotely stays in the loop of what is going on in trading. There have been a number of guests even on CNBC discussing this.
I don't think orders can be flashed unless an explicit order type is used -- one that only institutions typically use, according to your hallowed CNBC coverage. Whether or not some retail/individual traders are somehow using flash (now available only on EDGE) is open to question, but I'd assume that institutions know what they're getting into -- presumably, they know they aren't being frontrun, or at least have some way of knowing the risk. And if retail platforms are placing flashable orders, I'd call that a bug.
All that said, I really don't understand why the SEC is dragging its feet on banning flash orders. I'd say that the bigger problem with flash isn't the possibility (whatever it is) of frontrunning -- it's the impairment of market efficiency. But at least the ECN's aside from Edge removed flash voluntarily.
And why was flash covered so heavily, when broker internalization was not? Broker internalization is equivalent to a "flash" accessible by only a single entity, namely the customer's own broker, reducing competition even further. This causes orders of magnitude more inefficiency than flash ever did, and is on the rise.
Aren't we all trying to add liquidity to the market and get paid for it? I believe HFT's just do what we do on a micro time scale.
Example, I am a speculator and buy a share of X on Monday at 57. The seller is happy I was there to provide liquidity because the next best bid was 56, and they got an extra dollar when they wanted to sell.
On Tuesday, a buyer comes along and wants my share. The current price is 58, so I sell to him and pocket the dollar for my trouble. The original buyer is happy to buy from me, because the next best offer was 59, and they saved a dollar.
Now instead of Monday and Tuesday, imagine the timestamps as 11:15:23.0001 and 11:15:23.0002, the bid/ask spread as a penny instead of a dollar, and a million times an hour. You have yourself an HFT.
Basically all I was doing is profiting from the bid/ask spread with time shift as risk- the bid on Monday and the offer on Tuesday. This also adds liquidity for the buyer and seller if I make nothing, and also if I lose a dollar on my trade. Selling short adds liquidy too, because when I attempt to profit from a time-shifted bid/ask spread, it works whether if the time is 1 hour, 1 nanosecond, or even -1 day.
Example, I am a speculator and buy a share of X on Monday at 57. The seller is happy I was there to provide liquidity because the next best bid was 56, and they got an extra dollar when they wanted to sell.
On Tuesday, a buyer comes along and wants my share. The current price is 58, so I sell to him and pocket the dollar for my trouble. The original buyer is happy to buy from me, because the next best offer was 59, and they saved a dollar.
Now instead of Monday and Tuesday, imagine the timestamps as 11:15:23.0001 and 11:15:23.0002, the bid/ask spread as a penny instead of a dollar, and a million times an hour. You have yourself an HFT.
Basically all I was doing is profiting from the bid/ask spread with time shift as risk- the bid on Monday and the offer on Tuesday. This also adds liquidity for the buyer and seller if I make nothing, and also if I lose a dollar on my trade. Selling short adds liquidy too, because when I attempt to profit from a time-shifted bid/ask spread, it works whether if the time is 1 hour, 1 nanosecond, or even -1 day.