They are evil and do not provide any type of depth of liquidity, it's insane to make the claim as some of CNBC's pundits do that HFTS provide a useful role. Those of us old enough to remember the Meltdown of October 1987 watched the Nasdaq Market Makers not pick up the phone and we could not get a Bid.
The Flash Boys are not taking any risk, we all know how they will jump in front of us using the "Dark Pools" and sell to us at a higher rate if we use the Market Order. Have you ever had those Offer's and Bids disappear until the stock turns around and those guys with their 25 to 125 share lots hit our offer? I have a idea how those idiots work but probably only know a tenth of all their tricks they use.
The NYSE Specialist is cool, he is willing to take on risk while the Flash Boys flee at the first sign of any risk. Is it true the Flash Boy's don't take any risk and offer cash to Firms willing to offer up orders stacked in those Dark Pools so they can shave us badly?
I agree with you Stock777, I have seen how nasty they operate in thinly traded stocks and how they screw us! Good Post!
Perfect example of what I'm talking about.
Since I am quite the professional, listen up ... and please,
if anything here is factually incorrect, please feel free to say where it is factually incorrect. I was simply waiting for the ad hominem et argumentum ad pasiones to end and waiting for a comment like that.
There is HFT, and then there is front-running. HFT's are simply the algorithm that are used
by everyone. Flashing the Bid, and Flashing the Ask, or snooping orders definitely exists,
but it's not as if ALL HFT is snooping orders. An
HFT FIRM has incredibly close space to facilitate direct access, and then with that incredbily geo-physical promixity with direct access to the floor, they
can snoop. To snoope, you have to have geo-space, which is incredibly expensive. And that's an
HFT firm
But it's not as if all market making firms snoop. But do all market making firms use HFT algo's?
Yes
So how in the world is "
All HFT bad or manipulative"?
You have to have market makers, and HFT has given us an absolute gift in this space.
Knight Capital blew up.
Why?
They were trying a
new HFT algo to make the market for large orders
Were they front running? Was their
any snooping?
No
Was their implementation of a new algo that was HFT? Yes. But it was simply an attempt to
handle large block orders from very large firms, make the market, and get them executed. After all,
we all know that it's
stupid to expect that Green Light Capital can execute a buy order in one go. They're too big. It might take them a week or more to get into a position. A bug in the code at Knight, killed the entire firm inside of 5 minutes.
No front-running ... all HFT market making algo-'s
Look at regulators on the issue. They want to keep HFT, but possibly look at getting rid of the snooping and the front-running.
Uh ... wait ... if it were true that ALL HFT was front-running (
its not) then how would that even be possible? How would it be possible
to get rid of snooping and keep the HFT algo's?
Because snoopers are
USING HFT, but HFT is not exclusively snooping and front-running. Its main purpose is market making which we need
There have always been market makers on exchanges. There used to be one exchange where a given stock was listed and when you bought or sold stock you did so through a specialist on the floor. His job was to buy at a lower price and sell it to you at a higher one. The spread is his profit for performing a service. Before electronic crossing engines were built you all paid a WAY higher price to trade. Not in the form of commissions. But via the
spreads made by
the specialists
Years and years ago (
like I said this is me) To sort of encapsulate what I'm talking about here (
though not stocks, derivative futures, but still) a little story from a few years back.
I had this option on Hogs, I think it was. So I had this option, and had my profit, so I was calling up my broker to close out the trade with a profit. But by this point, the fight between the Electronic Futures and the Pits was full on. Hogs, and especially it's options market was quickly evaporating in the Pits, and there was this big tug of war between the old Market Makers, old money that held seats in Chicago, and the new Electronic platforms (ie, HFT)
So the broker tells me, yeah they'll send it to the floor (pits), we discussed the spread so I knew round about's where I was going to get filled. Well lo' and behold, later I check in and it's showing that I had a total loss on the trade, for the total cost of the option
BOLOGNA
I knew what the spead was when that order went in and I was pretty insistent (
as you might imagine) when I call up the broker, getting ready to give him
what-for
I can still remember the guy I got on the desk's name was Scott. He started with some Bullcrap explanation, and suddenly stopped himself
"
Well there is normal slippage when dealing with markets that ar ... uh ....
wait a minute ..
Uh ... can I get back to you ? "
So come to find out, the guys on the floor filled the option at ZERO and tried to pocket
the spread as the option itself Scott gets a hold of me, and says:
"
You're not going to believe this man but they tried to just basically take the entire option from you, claiming it was the spread "
It all got straightened out and I got my profit. But still. That's the whole issue.
Somebody has to make the market and has always been paid the spread to do so
HFT algo's has solved all of that. That was an extreme example, because of what was going on politically between electronic HFT market making and the old pits. But the point being is that we don't have to deal with that sort of outright bullcrap and we have HFT market making to thank for it.
Was that guy "
front running my order"? No. He was making an
outrageous spread, which has to be done, and has been done before computers even existed. He just opened that spread up to an absolutely criminal degree. But spreads of 15 ticks were at one time completely normal
because the specialist had to make the market for us and at the same time make his profit for the service of getting our order filled which historically has been in the spread
We live in a tech rich world so firms have figured out that a computer can be programmed to handle all the order flow more efficiently than a human. Designated market makers regulated as such. COMPULSORY buying and selling to make the market. So whats this about all the speed, etc?
Competition. It's fortunate for everyone all exchanges now compete with each other for order volume. This resulted in an arms race for speed between HFT market makers
And the benefit to you is the lowest spreads in history
Never before in history, have spreads been this low. It costs you LESS to participate in the markets than ever
Some ... I repeat
some of the tactics these firms have used in the past to compete with EACH OTHER have been controversial but the bottom line is use your heads. If you are a swing trader that wants to hold a stock for even a week how could what is happening as a result of competition between HFT market making firms at the nano second level and the 1/100th of a basis point difference in the spreads as a result have any effect on your ability to make or lose money?
It doesn't
Especially since historically you at times had to deal with
spreads that were much wider.
We're living in a spread paradise now. It's never been cheaper.
Because there are a handful and
I mean a small handful of firms who are not market makers using similar speed advantages for discretionary trading based on speed advantage the media has somehow twisted what HFT is about 180 degrees from reality
Saying "
HFT represents 80% of the trading" is like saying "S
pecialists on the NYSE floor represent 80% of the trading". Well ... yeah, in a way if you want to look at it that way. Order floor has always gone through market makers that's how the best bid/offer is kept and always has been. If you call your broker to buy Apple stock today there is probably more than an 80% chance it will be routed to a so called HFT market maker.
The bottom line is people need to question what is portrayed by the media and Michael Lewis and really look into order flow, execution and market making, even if they don't play in that space. The media has played everyone. Again.
The speed of light is finite. The closer to the physical data hub you are theoretically the faster you can see the info and react to it. If it's that important to you to level the microsecond field you can purchase a dedicated server or VPS space in the same building as the majority of the HFT firms inexpensively. The same speed is available to all who want to pay for the infrastructure but if you live in Iowa you'll have to automate your strategy because your local connection, mouse click speed defeats the purpose. But again as longer term investors or even day traders looking to catch swings for hours or even minutes why would you want to? The media has done a great job at frothing you all up over nothing but the natural progress of technology just as in every other industry
