Quote from achilles28:
Are you an idiot?
English comprehension isn't a strength, obviously.
... and...
Dark Pools don't "save money" on execution.
They "limit market impact".
It's the same thing, man. Lets call a duck, a duck.
This is the kind of hostility that makes ET a waste of time. English comprehension is not an issue achilles28... and look at the second quote... you said they don't save money they do limit market impact... then you say those two things are the same thing... so they do save money, right?
Confused, convoluted thinking... contradiction... mixed in with a big dose of anger and hostility = a pretty typical ET poster. <sigh>
First of all, I owe the ET community an apology. This happens every couple of years now... I read a few posts and then write a little flood on the topic, then stop posting. In this case, I had a discussion re the public perception of HFT / non displayed liquidity with a friend who suggested I take a look at this ET thread... ugh... mistake. Sorry and sorry to have posted some confrontational messages late last night.
Give me the liberty to do two things in this post and then I will slip back into lurking mode for several years lol. Let me address a couple issues remaining with this discussion and then some general words on why I didn't find ET to be a helpful part of my evolution as a trader.
First of all, there are still a lot of misconceptions on this thread about what HFT is, what frontrunning is etc. Just because I know someone is buying and buy in front of that order, that is NOT frontrunning. It depends on how I got that information. If I got it from looking at a chart formation and realizing that a lot of funds are going to need to buy a stock, or from fundamental analysis that tells me a stock is deeply undervalued and people are going to have to buy no one would say that's front running, right? Well it's the same intraday... if I see that people are going to have to buy intraday because of a pattern on the chart or in the order book and I take a position in front of that order, that's still not called front running. It's called "trading" and it's what we do.
A lot of trading involves figuring out where buyers and sellers are and what they're going to have to do. That's what trading is. If I do it by probing order books (whoever said you can probe market orders is wrong... you can probe limits) either by hand or with an algorithm, that's also not front running. If I'm standing on the floor of an exchange and I know a broker has a big order because I can read him and tell when he's nervous about filling a big order... and I take a position in front of him... that's also not trading. it's good trading and while it might cost the buyer a higher price here, on balance this kind of activity adds liquidity and tightens spreads.
it's also not free money for me because there is some risk that a smart seller could be tricking me. maybe he's making it look like he's buying when he's actually selling. I used to do it all the time in thin stocks... say it's 10.25 @ 10.60 and I have a ton to sell... I would BID .28 and algos would penny me at .29... i would bid .32 and they would penny me at .33 etc... until it's bid in low 40's at which point I hit the bid and sell to the unwitting high frequency trader who just got screwed. Bad trades happen to black box / HFT algos and the failure rate for new programs like this is extraordinarily high. It's not free money that Wall Street is taking from poor unsuspecting retirees trading Ameritrade accounts. It's called "trading".
On the other hand, if I have knowledge of the order because I am a broker or because someone told me someone had to buy, and I personally take a position in front of that otder, that is clearly front running and is illegal. I believe that happens very rarely now and offenders are punished when they're caught. That's just not what is going on with HFT.
Re the cost of Dark Pools, the poster who mentioned fees is correct. The customer pays a lot for Dark Pool access which is why it's profitable for the banks running those pools fyi. However, for me the customer they often ended up being cheaper. Any large trader should understand transaction cost analysis (Plexus Group is one of the leaders in this work) which shows consistently that market impact is usually a bigger part of the cost than commission. So the answer to which is cheaper is, it depends. For you doing 1000 shares of XOM in your Ameritrade account, obviously the primary market is cheaper... for an institution doing 1,000,000 shares the question is more complicated and depends on how quickly you want the order done, among other things. Part of the job of an institutional trader is knowing which venue is ultimately cheapest for certain orders. You won't always be right, but you will be right more often than you're wrong. Again, it's called "trading".
I find achilles28's defeatist attitude toward algos and HFT discouraging. It's sad to see someone critical of those who are successful, but that seems to be the predominant attitude on ET. Big traders generally got big because they were good at what they did, so they got more money and hired more smart people. If you don't have the tools to do something you want to do, get those tools. If you want to do HFT, then learn to program. If you want to trade patterns, then learn statistics, etc etc etc. If you want to learn to trade, find a mentor with a style that matches what you would like to do. That's the American way right? If you want something, find a way and figure it out.
My journey is proof that this is possible--you really can start out with a very small amount of money and eventually make it in this business. As I walk past the NYSE on the way to my office most mornings, I often reflect on my first idiotic trades, my losses, the times I almost quit... and now it's all worth it and there's no reason anyone else can't do the same thing. But my caution to you is that it is probably a lot harder and longer road than you would expect. you are setting out to do something enormously difficult... something that goes against the way your brain is hard wired from millions of years of evolution. it involves sacrifice and expense... don't be afraid to pay for information and education (but i also have had contact with numerous "market wizards" and have been very surprised at their generosity and willingness to help someone out.) There are definitely things I wasn't able to do in life while I was learning to trade... it takes completely focus to the point of obsession, an understanding family, and the right personality to persevere... and frankly it probably doesn't hurt to be a little too stubborn and too stupid to quit. I turned down jobs with bulge bracket banks that would have made a very comfortable living for me and my family for the uncertainty of trading income.
in a way though, this is no different than the sacrifice and uncertainty you would assume opening a restaurant, or a sign store, or any other business... or developing a skill such as being a professional dancer or athlete. sacrifice, time and hard work. but... be clear... this is a business and will only reward a real commitment and here's where we arrive at my point: the problem with ET is that most people here are not successful. Successful traders generally do not waste their time posting here. There are people here who make outrageous claims and who try to sell some product and the community reacts with overwhelming negativity... which is justified but it becomes an overwhelmingly negative attitude towards everything. Leaving ET and the old Yahoo groups was a milestone in my development as a trader... it was really holding me back and if you're serious about trading you might want to think about the issue seriously.
Sorry this became so long... back to lurking mode now.
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