What's the difference between HFT front-running and Insider-trading?
- Thread starter schizo
- Start date
But the exchanges make money by allowing front-running by the HFT. This is like leaking M&A and FDA approval before it becomes public. In my mind, that's same as inside trading.
One and the same thing. But in Merica laws are made by and for the rich. Keeping this simple concept in mind pretty much explains everything in financial services if you ever wonder.
Front running implies knowing of clients' orders and using that information to position in front of them. HFTs don't know, they guess. They use publicaly available info, generally speaking. There's lots of info/tools/deals which is available to pros which is out of reach for most. Always been this way, always will be this way. Nothing to do with HFTs.
Whatever they do with it, however bad, is not front running as per below definition. I don't think you want to front run dumb flow, maybe fade it?
https://www.investopedia.com/terms/f/frontrunning.asp
HFT is required for liquidity providers to participate in the derivatives market.
The only way that this could be avoided would be total consolidation of exchanges and order books and making private sale, OTC, and dark pool trading illegal without public dissemination of volume and (confidential client orders).
The obvious use of HFT is for creating indexes of cash bonds and cash equities in order to 'know' the net influence of the underlying vs derivative order flow.
If you are accurately tracking order flow on listed and unlisted underlying instruments, as well as on the derivatives exchange, then you can combine the data and have an informational advantage.
The liquidity providers need to create aggregate trade flow models that can predict prices.
Then you can 'front run' liquidity providers that are just nanoseconds/microseconds behind in accurately predicting the immediate price of underlying and derivatives.
Example
Information advantage has always existed in derivatives markets. Latency arbitrage is an example.
https://www.greatpointcapital.com/blog/latency-arbitrage-predatory-algorithm-trading/
The only way that this could be avoided would be total consolidation of exchanges and order books and making private sale, OTC, and dark pool trading illegal without public dissemination of volume and (confidential client orders).
The obvious use of HFT is for creating indexes of cash bonds and cash equities in order to 'know' the net influence of the underlying vs derivative order flow.
If you are accurately tracking order flow on listed and unlisted underlying instruments, as well as on the derivatives exchange, then you can combine the data and have an informational advantage.
The liquidity providers need to create aggregate trade flow models that can predict prices.
Then you can 'front run' liquidity providers that are just nanoseconds/microseconds behind in accurately predicting the immediate price of underlying and derivatives.
Example
Information advantage has always existed in derivatives markets. Latency arbitrage is an example.
https://www.greatpointcapital.com/blog/latency-arbitrage-predatory-algorithm-trading/
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