hey HFT scum, yeah, you. Watch this

[brownegg]

Quote from Jerkstore:

What? Absolutely not. Flash trading is nothing more than prearranged trading by another name. Both the flasher (the customer benefits if voluntary, and the broker almost always benefits) and flashees are benefitting at the detriment of every market participant not involved. The trader who is on the receiving end of adverse selection pays the largest price. The cost to the rest of the market participants who are not privy to the flashed info is more difficult to measure, though it is definitely significant.

The trader who posts to NBBO publicly is providing price discovery and should be rewarded with trades. No trader should be able to sit back and cherry pick flash trades. Remember the term "carp" from the floor? How about when brokers did "whisper trading" with their buddies? There is a very good reason why these practices were discouraged (sometimes violently) on the trading floor. Flash trading is the worst of both of these practices.

I actually don't think you've made a huge new point here, but of course I can't disagree re: price discovery and the auction mechanism. And I don't think you can actually elect for an order to be "flashable", so there's no benefit to the broker. It's part of the exchange matching process. But again, that's going to be specific and I don't know the options world at all at this point. If you could point to a definition or rule somewhere I'd like to see it though.

[...] After a second of flashing the trade on the ISE, not only may the NBBO change organically, but you will also have to compete with frontrunning a$$holes. Think about a one second flash auction at the ISE. (I forget the exact time, but it was a second when the flash auction program began.) Every ISE member who can write code has the ability to see this order as well as the chioce but not the obligation to step up and trade the order. If they choose not to trade your order, these participants can easily use the info to front run your trade to other exchanges where they can lift the deltas or vol risk liquidity in front of you.

Again, we're going to have to get into specific definitions. In its original incarnation, Flash orders were only sent to participants who partially filled an order that was to have its balance routed away. In other words, liquidity providers were given an opportunity to do more of the same thing, and no one who didn't participate in the first place could execute against a Flash order. In addition, they're only sent to a select group, and never posted publicly. So the only way NBBO/away markets could change is if someone partially filled a Flash order, saw there was more size, and then went away and scratched their trade. That's not going to be common, but you're right, that screws the aggressing order. I stand corrected.

[...] Almost any sophisticated trading company can access flash quotes. Those companies that trade with a customer designation can typically still access the information via a broker's membership. Of course you have to put up huge size for your broker to spend their time working with you on this project, but it happens quite often. It is the retail customers, and those without access to programmers who have no ability to access private flash info. It tends to be this same class of trader that has no idea their order is being flash auctioned and chewed up. These poor chaps are getting chewed apart. The regulators need to step in and outlaw this incidious practice.

I agree it should be banned, but it is 100% untrue that anyone ("sophisticated" or otherwise) can get access to the info. At least on some exchanges; maybe options is different.

 

[brownegg]

Quote from ammo:

not really,... they saw morgan or merrill,smith barney coming in selling unusual size, they never new what was behind it,... nor were they often selling you 1000 contracts and turning around and buying 5000,...the shrinkage or extermination of large houses,..lowered the risk to each as there werent as many houses vs houses , opponents on 2 side of the market...., ...what started out with crt and timberhill,oconnor,arbing 1/8s and 1/4s on options that were mathematically under/over priced has morphed into mega houses ,.... with government in the mega houses kennel,....sleeping and toothless, .....fighting to peel the public mom and dads,daytraders,pension funds, 401ks,entire small countries,..it's the sopranos times 100...why were offshore credit default swaps ever allowed to trade publicly,.... if legal, why go off shore to begin with,...for tax reasons,... then propose a new tax law to regulate them, ...sleeping and toothless, ....so why stop there...,create dark pools ...front running,...deregulation, ..allow houses to become banks overnight to skirt margin requirements....,its a huge push,.. not sure of its end mean,... but the repeated lack of regulation and relaxation in the laws... tells its a 5/10/20 year orchestrated plan ...with a means to an end that can't be good or we would have had everything spelled out..argue all you want about what the hft's are and arent..and i agree they are sort of a catchall dog to kick.....but they are one of a handfull of tools thats allowing the expansion of the transference of wealth,...into fewer hands... at an increasing pace.. and the world economic health ...doesnt seem to be able to withstand it's side effects..it only seems to make it's demise accelerate

You may have some interesting points in there, but I can't respond to that. If you can't organize what you want to say, I don't feel any obligation to do it for you. Don't mean to sound like a bitch, but part of the reason spelling/grammar count is because it shows you care enough to make things readable for others.

 

[WinstonTJ]

Quote from Bob111:

brownegg-here is my examples of how HFT or whatever you prefer to call it impact the markets and me in particular ..i would appreciate your comments on those particular examples above, rather than saying some shit that make no sense...
one of my favored depeche mode songs comes to mind-"try walking in my shoes."

just fucking try it..or try to explain the "fairness"

Thank you!

Who is your broker? Are you using market orders?

If you are using a direct access broker and limit orders this would never happen. Anyone who uses market orders are asking to buy the book up/sell the book down. Also, most retail broker dealers do not show every quote from each ECN therefore the price changes can be more dramatic and go very much against you since your order will be internalized based on limited information your broker feeds you.

Yes you are getting f'd over but its your broker screwing you not some random market participant. (but this is only a guess since you didn't provide enough information to comment on)

Quote from stock777:

the egg says the solo daytrader is dead but gives no empirical evidence as to why.

look at any series of charts of any random day and tell me why a trader with even a 10 minute time horizon can't make money.

Then why are you here complaining?

 

[Bob111]

Quote from WinstonTJ:

Who is your broker? Are you using market orders?

If you are using a direct access broker and limit orders this would never happen. Anyone who uses market orders are asking to buy the book up/sell the book down. Also, most retail broker dealers do not show every quote from each ECN therefore the price changes can be more dramatic and go very much against you since your order will be internalized based on limited information your broker feeds you.

Yes you are getting f'd over but its your broker screwing you not some random market participant. (but this is only a guess since you didn't provide enough information to comment on)

Then why are you here complaining?

what's else to comment? read my posts once again..broker is IB,orders (in examples )are off course limit. happens 10's of times each day in real trading

 

[WinstonTJ]

Quote from Jerkstore:

Nonsense.

Flash orders are alive and well. The CBOE, ISE, along with quite a few dark pools still use private flash messages to give their users or members an advantage over those not engaging in the flash info exchange. The flash messages can only be used by sophisticated computers. It is true that flash messaging does not alone define HFT, nor does every HFT company use the flash messages. However, the companies that use flash messages are HFT companies.

Dark Pools don't count - they are private. Another poster mentioned close to 50 ECNs in the US so you are saying that only TWO ECNs use flash and then a slew of DP which the general public does not have access to anyway. Have you seen/worked with flash orders? Have you ever seen a market order turned down and flashed out?

Quote from Jerkstore:

You have a strange definition of HFT. I suppose that is to be expected since HFT has become a catch all for any company using hi-speed computers and algo trading methods.

Just like the flash quotes, not all HFT companies take advantage of internalization, however pretty much all companies that do, are doing so within a HFT strategy. That is very clear to "people in the know." Also, linkage among the normal exchanges can often result in legalized front-running.

Flash messaging and internalization should both be eliminated completely. Dark pools should be regulated just like exchanges. An entity, whether an individual or a company, should either be allowed to engage in trading for its own profit/loss, or to represent a customer's interests--never both. A trading company should never be allowed to internalize a brokerage company's order flow, or gain information about that order flow which is not available to the public.

On the other side of the coin the regulators should not put in trading speed bumps, data dissemination pauses, or forcefully close exchanges because having one seems more "simple".

We, as the trading public, should differentiate between HFT--which encompasses almost every proprietary trading company these days, and the specific structural problems that require regulatory attention. It is our duty to uncover those practices which are harmful to the investing public and the capital raising process which is our financial markets. We must exorcise our own demons, lest we leave our market structure in the hands of ignorant, bought-off politicians.

Regulators do need to decide 1) if exchange information is wholly owned by the exchanges or if the information should be public knowledge, 2) if payment for order flow can ever be compatible with a broker's fiduciary duty to it's customers, 3) re-evaluate regNMS from the standpoint of today's less latent world.

The reality is that the market has tiers and that will probably never change. Personally I think this is a good thing, but that's just my opinion. You have retail, professional and institutional players in the market. Retail gets screwed over by their broker not by flash orders or market makers. Most everyone would agree that today's Market Maker matching engines are considered HFT so with that said you can't deny that a MM or internalizing broker uses HFT... however - There is a massive difference between your retail broker (or low-level prop firm) screwing you over by providing minimal quote & market infomation, structuring fees in such a way that MKT is really the only affordable solution, and then providing you with a fill price that seems "better" than the quoted price provided to you by your broker when in fact you have no idea what the market really looks like.

I'm not trying to shift blame here from HFT/Flash but the vast majority of people that complain about HFT aren't really even exposed to it. I don't consider an internalized MM to be HFT because if you get rid of internalization and give everyone direct access to the markets it would make most of these issues go away.

 

[WinstonTJ]

Quote from stock777:

where are the BILLIONS they are making coming from?

I don't know of any system or firm that has made billions on HFT alone so the easy answer is that you don't know what you are talking about so please stop trolling this thread.

A better answer for those that actually care to read and understand this thread is: Liquidity providers usually make the spread and earn a rebate for their trading. Because HFT increases liquidity and recuces spreads, the better the HFT systems get the less money there is to make (similar to any other trade/area that gets saturated). There are also many arbitrage opportunities - so between arb, making markets and providing liquidity there are several opportunities to make a decent living - but I have yet to meet anyone who has made $1billion on HFT alone.

 

[brownegg]

Quote from WinstonTJ:

I don't know of any system or firm that has made billions on HFT alone so the easy answer is that you don't know what you are talking about so please stop trolling this thread.

A better answer for those that actually care to read and understand this thread is: Liquidity providers usually make the spread and earn a rebate for their trading. Because HFT increases liquidity and recuces spreads, the better the HFT systems get the less money there is to make (similar to any other trade/area that gets saturated). There are also many arbitrage opportunities - so between arb, making markets and providing liquidity there are several opportunities to make a decent living - but I have yet to meet anyone who has made $1billion on HFT alone.

A recent Aite Group report pegged HFT at about $2B/yr net. I think that's high; it necessarily involved 2008, which was ridiculously phenomenal maybe once-in-a-lifetime conditions.

That said, GETCO has certainly made a billion over time, and Goldman and RenTech. Can't think of anyone else I'd put in that group.

As far as where the money comes from 777, have you not noticed how many more shares are traded? That alone, coupled with liquidity rebate and tape revenue sharing programs is probably half the money right there.

 

[WinstonTJ]

Quote from Bob111:

what's else to comment? read my posts once again..broker is IB,orders (in examples )are off course limit. happens 10's of times each day in real trading

Quote from rsi80:

WinstonTJ, can you possibly elaborate on "internalization"?

Thanks.

Great - this can kill two birds with one stone. Bob111, when you send an order do you route "Auto" or do you specify an exchange? Are you bundled or unbundled?

Interactive Brokers' prop trading arm is Timber Hill - I don't remember exactly how and when they merged/partnered. Just like E*Trade uses Citadel and many others have special relationships with market makers who internalize orders. rsi80, what this means is that when you buy or sell stocks through most retail brokers, unless you specify to send the order to ARCA/NYSE (or any other ECN, usually at a higher cost), they will internally match the order against another of their customers. At IB, most people are trading against other IB customers, same at E*Trade, TD Ameritrade, etc. Timber Hill matches the orders so they make the profit on the spread and make the profit on your fees.

Internalization = your order never goes outside the firm. It is crossed/matched internally and your broker makes the spread + your ticket fee, plus has the option to totally F you over if you send market. Furthermore, as I mentioned in another post, most brokers do not provide customers with full market data (not all ECNs) which means that the prices you see aren't always accurate and the orders you are trying to fill against aren't always accurate. This, combined with the fact that price structure is skewed in favor of market orders at retail firms, making it easier for them to hold a market order to sit for the max time while they pull liquidity on you makes it legal and very easy to take from their customer base.

Also, just like how many Stock Loan desks (for short sales) have recipricol agreements, many of these internal crossing desks/prop desks will flash your order to dark pools that other internalizing firms subscribe to, before routing your order out to an exchange. So if your retail broker can't (or does not want to) fill your order, it first flashes it out to a dark pool (essentially other internalizing firms) and then it will route out to wherever there is true liquidity. This is why people are pissed off at HFT when actually its your own broker screwing you over.

Bob, If you submit a limit order to buy 1000shs @ $50 it is impossible for your broker (or anyone for that matter) to fill you at $50.01 or anything over $50. Your order simply would not get filled. It is possible however for you to submit a limit order to buy @ $50 and for you to receive a fill at an average price of $49.9999 or at any price lower than $50 (price improvement that goes in your favor). Are you paying through? (when offer would be $50 and you bid $50.25 to make sure you get filled? I don't understand how its possible for someone to walk up the book ahead of your limit order. If you do get filled outside your limit just call up IB and get price improvement. They will go back and credit you for the ticket price (if it was truly limit and there was size to fill it).

 

[Bob111]

unbundled, smart mostly

 

[brownegg]

Timber Hill predates IB by several years (maybe 10). IB grew out Peterffy's recognition that he could monetize his market making infrastructure.

bob, I think you got at least a potential explanation how you could observe what you do: it's possible someone in the chain is grabbing liquidity before you, via the propagation of retail orders in dark pools, flash, etc.

But Winston is spot-on: there's really no one to blame but your broker. You'll also see different behavior if you select a specific destination.