Important, all traders read, "issues"

There is no doubt that there is not a level playing field out there for the average trader or investor. One thing that came as a shock in a story from yesterday was that 'high frequency' trading now accounts for over 60% of the volume on any given day. This type of computerized extremely low margin biz takes advantage of sub-penny bids and offers. I have no problem with index trading as the very basis of this type of trading is to keep the 500 stocks in the S&P inline with cash futures. High-frequency trading and sub-penny bids and offers in its essence is out to accomplish one goal; to front-run orders that are placed in the system.

I applaud Don for starting this thread and bringing this to light. Short-term traders have taken the place of market makers and are not in my eyes at all similiar to these computer algorithms. When a stock trades off because of algo's running ahead of a large seller it has detected in the system, it is short-term traders that provide liquidity. You can argue this point all you want, but if you are in the trenches on a daily basis you will agree and see this as being a valid point. This being the case, eventually some kind of restriction or level playing field must be put in place. The regulators are there to protect the rights of investors, not the computers responsible for this.
 
tide31, you contradict yourself every other sentence.

high frequency trading IS market making, it IS index arbitrage, it IS short term trading.

some high frequency trading DOES sub-penny, but THE BULK OF IT does not.

i'm a high frequency trader. i make markets with fully automated models i've built. i value indexes and their components to establish fair value, and then provide liquidity. i trade short term. i trade at a prop similar to brights. i don't sub-penny. i also do variations of fair value trading based on mean reversion or trend. 95% of all other high frequency traders are doing the exact same things. in fact, 95% of ALL traders are doing very very similar things. so NO FUCKING WONDER it's over 60% of the volume.

keep dissing high frequency traders as if they're some unkown evil threat and you'll cut your own dick off, mark my words.
 
Quote from Don Bright:

I agree with all your concerns about retail trading. Some of the reasons for joining a Firm. The routing is the biggest issue IMO.

Most of our people trade in 500-5000 share lots, but the automated guys might so smaller size.

FWIW,

Don
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Its all about the routing!!! I might pay a little more for routing.. but i'm able to add liquidity almost all of the time and collect the rebates. Daytrading over the last decade has almost gone back to where it was 10 years ago (except for fractions.) When I first started, Rebate trading was the big thing.... Then poof...it was gone/ saturated with all the different ECNs. Now its back under the guise of high frequency trading. They might do away with it again in the future, but all the contacts that i deal with at the NYSE tell me that its here to stay with increased incentives on the way. So like any discipline.. You go with the "flavor of the day" til its gone. lol
 
Quote from propseeker:

tide31, you contradict yourself every other sentence.

high frequency trading IS market making, it IS index arbitrage, it IS short term trading.

some high frequency trading DOES sub-penny, but THE BULK OF IT does not.

i'm a high frequency trader. i make markets with fully automated models i've built. i value indexes and their components to establish fair value, and then provide liquidity. i trade short term. i trade at a prop similar to brights. i don't sub-penny. i also do variations of fair value trading based on mean reversion or trend. 95% of all other high frequency traders are doing the exact same things. in fact, 95% of ALL traders are doing very very similar things. so NO FUCKING WONDER it's over 60% of the volume.

keep dissing high frequency traders as if they're some unkown evil threat and you'll cut your own dick off, mark my words.
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Prop.. I agree with you 110%. I run a few automated High frequency strategies as well and could care less about sub-pennying (as it doesn't affect me) Its ALL ABOUT THE PARITY...As long as i get parity on the routing of my orders, i'll continue to push the on button at 9.30 am. :) People could debate/cry about high frequency trading all they want, but i'd like to think i'm doing my stocks a service by providing liquidity and stability. And the exchange seems to agree with me and pays me nicely for it.
 
Quote from propseeker:

tide31, you contradict yourself every other sentence.

high frequency trading IS market making, it IS index arbitrage, it IS short term trading.

some high frequency trading DOES sub-penny, but THE BULK OF IT does not.

i'm a high frequency trader. i make markets with fully automated models i've built. i value indexes and their components to establish fair value, and then provide liquidity. i trade short term. i trade at a prop similar to brights. i don't sub-penny. i also do variations of fair value trading based on mean reversion or trend. 95% of all other high frequency traders are doing the exact same things. in fact, 95% of ALL traders are doing very very similar things. so NO FUCKING WONDER it's over 60% of the volume.

keep dissing high frequency traders as if they're some unkown evil threat and you'll cut your own dick off, mark my words.
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You are not a market-maker if you have no customers. You are not doing index arb if you are not doing all 500 stocks against the futures. If you are that's an impressive book at a 'Bright-like' firm. My post did not 'diss' high-frequency, some of my partners have automated trading boxes. I asked simply for a level playing field for sub-penny orders. Re-read the OP's post, title, and my post. You jump to hasty, rambling, profanity and mistake-laden jibberish. Hope you are a better programmer then you are blogger.
 
first off, market making simply entails making a two sided market, it's not dependent on 'having customers.' if your game is the spread, by definition, you're making markets. period.

second, index arb is neither delegated to solely the sp500, nor is it necessary to trade all the components for it to be considered 'index arb'. period. regardless, if you lack the intelligence or creativity to create synthetic models or are enough of a masochist, it would be entirely possible to arb the spus against ALL it's components at a bright-like prop firm. bankrolls are not chump if you know what you're doing. pm don for more details (hahaha).

third, you in fact DID diss high frequency trading or i wouldn't have said you did... you see, i'm what you call 'conscious' and 'not an idiot'. since it appears your knowledge of trading rivals your lightning quick short term memory, lemme refresh it for you, like an annoying iceberg algo:

Quote from Tide31:

High-frequency trading and sub-penny bids and offers in its essence is out to accomplish one goal; to front-run orders that are placed in the system.
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fourth, bright and co seem to be making equally idiotic self-destructive accusations, hence my very ON TOPIC replies in this thread.

fifth, please run your posts by your automated trading partner's desks before you post them here... you're making them look like asses.

sixth, this is a forum not a blog, but i AM a pretty damn good programmer thank you for your hopes and dreams, and i WILL speak knowledgeably and factually about trading and the industry from first hand experience as a successful high frequency trader... punctuated with colored language where appropriate. if that's too much for you to handle, i'd suggest you move along.
 
OK, when Don mentioned "high frequency trading," I am sure he meant GS style of "flash trading" or "front-running."

I don't think any trader is against trading at a high frequency, or medium frequency, or medium-to-high frequency. I think the only one who is against people trading more frequently is Warren Buffet, this guy hates people making profits trading more frequently while he is holding the bag for the next 10 or 20 years.

Personally, I like people doing more trades, the more, the better. I don't want people to stop trading during the mid-day hours. I don't care how you trade=using a computer model or an AAA escort or a whore, as long as you trade on the exchange instead of in a dark pool or a dark cave or an underground tunnel. I want you trade publicly on an exchange where every trader has EQUAL ACCESS!

yes, Let's trade on a level field, no tricks, no frauds, no scams!!!

If you dare to trade on a level field with me, I promise you that I will beat the crap out of you every day, you bunch of dishonest imbeciles!!! (I probably just convinced these morons that their only chance of making money is to stay in the dark pool. :p )

I don't mind your flash trading, really. But you have to come out of your dark pools. Trading in a dark place is not good to retail traders, because we cannot get hold of you idiots.

If you idiots are willing to come out of your dark pools, I will let you do your flash trading. Seriously.
 
Quote from propseeker:


sixth, this is a forum not a blog, but i AM a pretty damn good programmer thank you for your hopes and dreams, and i WILL speak knowledgeably and factually about trading and the industry from first hand experience as a successful high frequency trader... punctuated with colored language where appropriate. if that's too much for you to handle, i'd suggest you move along.
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Propseeker-.. You should definitely get on board with E-quotes through the NYSE handheld devices. My rep also told me that they'll soon be doing the same for Nasdaq stocks too. I'm sure you could get a ton of trader requests to program as well. Not sure what links i'm allowed to post from the NYSE website. So PM/ message me if you are interested in Parity/High Frequency Trading and i can get you contact info.
 
I think there are a couple of (related) issues playing into this, one being fragmentation, and the other internalization.

The following was quoted by an FT blog from WallStreetAndTech:

The reason that internalization is such a contentious topic is the obvious conflicts of interest inherent in the practice. As a broker, the firm has a fiduciary responsibility to obtain the best possible execution for its clients. However, as a dealer trading against the firm's own clients, there is strong incentive to give clients the worst prices possible while conforming to existing - and rather vague - rules on execution quality.
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(Original article: http://www.wallstreetandtech.com/advancedtrading/showArticle.jhtml?articleID=60404324)

This isn't a problem in itself for independent traders, however; that comes indirectly. Adam Nunes from Nasdaq commented in TradersMagazine in Oct 2008:

The bigger issue there is insuring that there are competitive quotes in the market. In the equities market, about 75 to 80 percent of volume is matched on an exchange or ECN. Around 20 to 25 percent is internalized.

Now, if you imagine a world where those are flipped, you will have a number of people saying, "Why bother posting aggressive bids and offers? I never get to trade, because it all gets internalized and traded upstairs." So you could hypothesize that spreads would widen out a bit-which would be even better for the internalizers, so they could internalize more. And you would start to see the quality of executions deteriorate.
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http://www.tradersmagazine.com/issues/20_287/102246-1.html

What surprises me is that flash orders (which I think were indeed bad, but not nearly so bad as internalization) garnered so much attention from the more "mainstream" financial press; yet internalization (often spun as "price improvement", as the Bright presentation points out) gets almost no mention at all.

The problem seems to be getting worse; see http://nasdaqtrader.com/trader.aspx?ID=marketsharedaily. In these spreadsheets, compare the Nasdaq-matched volume with the TRF volume, which represents a portion of broker internalization as well as certain other off-exchange trading. As you can see, the TRF proportion has grown to a level that now exceeds the Nasdaq-matched volume; i.e., over 50% of the Nasdaq total volume is FINRA/Nasdaq TRF, versus 36% in Feb 2006, the earliest month for which these data are available on the above page.

Examining the most recent (Oct 2009) data, I find that 25% of all NASDAQ-listed stocks now have over half of their total consolidated volume reported on the FINRA/Nasdaq TRF alone (there are other TRF's, too). This means that over half of the volume in these stocks never touched a real exchange. What proportion of that is internalization vs. dark pools, I'd certainly like to know, but I don't know of any source for this that's updated relatively frequently; let me know if you do.
 
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