High frequency traders literally printing money!!! LITERALLY PRINTING MONEY!!!!

[intradaybill]

Now, I have read each and every post and I think there are several notions of HFT and contrary opinions.

Let me address all with a question:

There are two traders Joe and Bob. Joe is in New York and has broadband connection and Bob is in Argentina and has a DSL connection. They both trade NYSE stoks.

Joe sees an offer at $10.00 for 100 shares of XYZ stock on his screen at T1 = 1:00 PM EST. Apparently, Bob will see that after a few ms at T2 = T +dt due to connection delays.

Now, Bob intended to hit the offer would it come through but Joe hit it before and the offer went up to 10.01. When Bob hits the offer for a market order to buy 100 XYZ he gets the price of 10:01.

Q1: is Joe front running Bob?

Q2: Since Bod knows he is at a serious disadvantage why is he insisting to trade with market orders and not limit orders? Had Bob placed his order 5 minutes before he would have gotten his price.

My answers:

Q1: No

Q2: Bob is an unimformed or stupid trader

My conclusion:

HFT makes money because there are so many stupid traders around that continue to day trade the old fashioned way when technology has advaned so far. HFT does not affect short-term position traders or investors who place limit orders long before the price is reached and anyone who claims it does he does not understand how markets work, probably has never traded and is just spewing crap all over the place.

 

[failed_trad3r]

Quote from ProfLogic:

Only a couple of the HFT houses took a pause through the flash crash on the 6th and those that did were the newbies that didn't know how to handle the volitility. Most stayed in and did well. What do you think helped in the recovery from 2:45 pm EDT & 3:45 pm EDT. Buy levels triggered sending the hedges and the HFT's back in to buy. Do some research, use search engines for more that porn, pick up your phone and learn something.

I think you should do some research yourself. The firm that shut down computer is Tradebot, who an earlier poster said made money every day for 4 years. Also Tradebot itself claims to make up 5% of liquidity on USmarkets. So when they shut off, suddenly 5% liquidity disappeared, just like that. Yet they are allowed through market maker advantages to "front-run" orders the rest of the time. An example is the decimalization to 1/100th of a penny. That makes no sense at all to implement it will only benefit front-runners.

 

[promagma]

Quote from MoreYummy:

HFT is not providing liquidity. Its the side affect of the front running, and the way they trade.

If you trade at-market HFT gives you a better price .... period, end of story!

If you try to play the limit order game against a computer ... well be prepared to lose (I guess we should outlaw computers??)

 

[ProfLogic]

Quote from failed_trad3r:

I think you should do some research yourself. The firm that shut down computer is Tradebot, who an earlier poster said made money every day for 4 years. Also Tradebot itself claims to make up 5% of liquidity on USmarkets. So when they shut off, suddenly 5% liquidity disappeared, just like that. Yet they are allowed through market maker advantages to "front-run" orders the rest of the time. An example is the decimalization to 1/100th of a penny. That makes no sense at all to implement it will only benefit front-runners.

Thanks for proving my point.

Tradebot you say makes up 5% of the liquidity and a little research shows their exposure in the S&P futures at about that level on May 6th. That means, for the day, they moved a little over 280K contracts . . . all day.
Waddell & Reed moved 75K contracts between 2:32 pm EDT and 2:52 pm EDT on the same day. They weren't front running, they were simply hedging their long positions.

hedging - Risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. It employs various techniques but, basically, involves taking equal and opposite positions in two different markets (such as cash and futures markets). Hedging is used also in protecting one's capital against effects of inflation through investing in high-yield financial instruments (bonds, notes, shares), real estate, or precious metals.

Next someone will tell me that since I use Constant Volume Bar charts instead of minute or tick charts I have an unfair advantage in the markets. We saw the top confirm on April 30th and again on May 3rd. (see chart). I guess the next time a major top or bottom confirms I should take an ad out in all of the newspapers in the world so those less informed can prepare.

Oh, that's right . . . I'm delusional.

 

[Chicago_CTA]

Quote from QuikrRetirement:

there seems to be hostility against those who actually learn to make money in the market...

+1

HF Trading does indeed provide greater liquidity. They often create tighter "spreads" which can benefit other traders wililng to buy/sell market.

If HF firms decided to pull their bids or offers, creating a "vacuum" that's their prerogative. You & I would do the same if we suddently decided we didn't want a position in a dangerously volatile market.

Their edge is different from a lot of other people's edges, which is fair. I don't agree, however, with the use of so-called "FLASH" orders, which I believe permit unfair advantages to certain larger players.

Nonetheless, HF is here to stay - you can't put the cat back in the bag! Personally, I've never felt 'cheated' by HF trading, although I trade listed futures contracts, not individual stocks.

Hopefully recent events will push even more players into the listed futures arena, which has, I'm proud to say, weathered the storm with nary a technical glitch.

Good trading,

 

[Vulcan Trader]

I've been trading for over a decade and this has never been a problem for me. No problem trading cocoa, cattle, soybeans, corn, wheat, silver, gold, forex, stocks, etf's or options. The only people complaining are the people who's money we took a may 6th. I'm sorry for your loss. SIKE no I'm not I appreciate the income. Thanks

 

[krazykarl]

Quote from S2007S:

you mean front running!!!

You are a douche-bag - anyone you think that makes money in the market must either be:

-a crook
-front-running
-evil
-part of some new-world-order
-breaks the rules


What do you do for a living?

 

[kinggyppo]

thoughts?

http://www.iimagazine.com/Popups/PrintArticle.aspx?ArticleID=2455058

 

[RedDuke]

Quote from risky63:

what was the name of the movie that highlighted the stockmarket implosion as the begining of anarchy and ww3?
came out in the late 80's or early 90's.

Rollover come to mind, but it was made in early 80s.

 

[Elitist Trader]

Quote from trade2live:

Ok so does anyone have an idea of the returns these firms make ? Do they manage OP money ? No losing day in years doens't mean they make huge returns. I know of some systematic (probably HFT) FX programs that have very few losing months, their risk adjusted returns are great but it's not like they make 50 or 100% per year every year.

Some of the firms lose shit tons of money. If the people writing the algos cannot adapt quickly enough, they are free money for all the discretionary traders that do know what they are doing.

Rentec is one of the firms that can make 50-100% per year every year. They are printing money.. but in saying that, its not a given that just because you have co-location servers that you are going to make money.