High Frequency Trading Programs account for 70% of market volume. TAKE AWAY 70% of MARKET VOLUME AND YOU HAVE FINANCIAL ARMAGEDDON.
http://seekingalpha.com/article/153555-five-reasons-the-market-could-crash-this-fall
High Frequency Trading Programs (HFTP) collect a ¼ of a penny rebate for every transaction they make. Theyâre not interested in making a gains from a trade, just collecting the rebate.
Letâs say an institutional investor has put in an order to buy 15,000 shares of XYZ company between $10.00 and $10.07. The institutionâs buy program is designed to make this order without pushing up the stock price, so it buys the shares in chunks of 100 or so (often it also advertises to the index how many shares are left in the order).
First it buys 100 shares at $10.00. That order clears, so the program buys another 200 shares at $10.01. That clears, so the program buys another 500 shares at $10.03. At this point an HFTP will have recognized that an institutional investor is putting in a large staggered order.
The HFTP then begins front-running the institutional investor. So the HFTP puts in an order for 100 shares at $10.04. The broker who was selling shares to the institutional investor would obviously rather sell at a higher price (even if itâs just a penny). So the broker sells his shares to the HFTP at $10.04. The HFTP then turns around and sells its shares to the institutional investor for $10.04 (which was the institutionâs next price anyway).
In this way, the trading program makes ½ a penny (one ¼ for buying from the broker and another ¼ for selling to the institution) AND makes the institutional trader pay a penny more on the shares.
And this kind of nonsense now comprises 70% OF ALL MARKET TRANSACTIONS. Put another way, the market is now no longer moving based on REAL orders, itâs moving based on a bunch of HFTPs gaming each other and REAL orders to earn fractions of a penny.
Currently, roughly five billion shares trade per day. Take away HFTPâs transactions (70%) and youâve got daily volume of 1.5 billion. Thatâs roughly the same amount of transactions that occur during Christmas (see the HUGE drop in late December), a time when almost every institution and investor is on vacation.
HFTPs were introduced under the auspices of providing liquidity. But the liquidity they provide isnât REAL. Itâs largely microsecond trades between computer programs, not REAL buy/sell orders from someone who has any interest in owning stocks.
In fact, HFTPs are not REQUIRED to trade. Theyâre entirely âfor profitâ enterprises. And the profits are obscene: $21 billion spread out amongst the 100 or so firms who engage in this (Goldman Sachs (GS) is the undisputed king controlling an estimated 21% of all High Frequency Trading).
So IF the market collapses (as it well could when the summer ends and institutional participation returns to the market in full force). HFTPs can simply stop trading, evaporating 70% of the marketâs trading volume overnight. Indeed, one could very easily consider HFTPs to be the ULTIMATE market prop as you will soon see.
TAKE AWAY 70% of MARKET VOLUME AND YOU HAVE FINANCIAL ARMAGEDDON.
http://seekingalpha.com/article/153555-five-reasons-the-market-could-crash-this-fall
High Frequency Trading Programs (HFTP) collect a ¼ of a penny rebate for every transaction they make. Theyâre not interested in making a gains from a trade, just collecting the rebate.
Letâs say an institutional investor has put in an order to buy 15,000 shares of XYZ company between $10.00 and $10.07. The institutionâs buy program is designed to make this order without pushing up the stock price, so it buys the shares in chunks of 100 or so (often it also advertises to the index how many shares are left in the order).
First it buys 100 shares at $10.00. That order clears, so the program buys another 200 shares at $10.01. That clears, so the program buys another 500 shares at $10.03. At this point an HFTP will have recognized that an institutional investor is putting in a large staggered order.
The HFTP then begins front-running the institutional investor. So the HFTP puts in an order for 100 shares at $10.04. The broker who was selling shares to the institutional investor would obviously rather sell at a higher price (even if itâs just a penny). So the broker sells his shares to the HFTP at $10.04. The HFTP then turns around and sells its shares to the institutional investor for $10.04 (which was the institutionâs next price anyway).
In this way, the trading program makes ½ a penny (one ¼ for buying from the broker and another ¼ for selling to the institution) AND makes the institutional trader pay a penny more on the shares.
And this kind of nonsense now comprises 70% OF ALL MARKET TRANSACTIONS. Put another way, the market is now no longer moving based on REAL orders, itâs moving based on a bunch of HFTPs gaming each other and REAL orders to earn fractions of a penny.
Currently, roughly five billion shares trade per day. Take away HFTPâs transactions (70%) and youâve got daily volume of 1.5 billion. Thatâs roughly the same amount of transactions that occur during Christmas (see the HUGE drop in late December), a time when almost every institution and investor is on vacation.
HFTPs were introduced under the auspices of providing liquidity. But the liquidity they provide isnât REAL. Itâs largely microsecond trades between computer programs, not REAL buy/sell orders from someone who has any interest in owning stocks.
In fact, HFTPs are not REQUIRED to trade. Theyâre entirely âfor profitâ enterprises. And the profits are obscene: $21 billion spread out amongst the 100 or so firms who engage in this (Goldman Sachs (GS) is the undisputed king controlling an estimated 21% of all High Frequency Trading).
So IF the market collapses (as it well could when the summer ends and institutional participation returns to the market in full force). HFTPs can simply stop trading, evaporating 70% of the marketâs trading volume overnight. Indeed, one could very easily consider HFTPs to be the ULTIMATE market prop as you will soon see.
TAKE AWAY 70% of MARKET VOLUME AND YOU HAVE FINANCIAL ARMAGEDDON.
