From the comments, on high frequency trading

by on July 11, 2013 at 3:39 am in Economics, Uncategorized | Permalink

This is from a high frequency trader, in response to my link to this paper (pdf), favoring batch auctions:

The author’s purported cure is far worse than the disease. Positional externalities from shaving latency are indeed real, but they’re not really that large relative to market size. A good way to estimate their magnitude is by how much money has been spent on cutting down the Chicago-NYC messaging latency, the two most liquid and hence profitable trading centers. The cost recently spent on this infrastructure (largely microwave relay networks) is about $500 million. Assume that the infrastructure depreciates in about a year and generously assume that the spending on intra-market latency is about the same.

That’s a total cost of about $1 billion/yr in market costs imposed by latency based positional externalities. American equity markets trade $24 quadrillion in value a year (and that’s only counting shares, not derivatives). Which means the cost to the typical investor of the latency externalities comes out to an upper bound of $4.5e-05 per dollar traded, or for example to trade one share of MSFT: $0.0016. That’s the upper bound of cost savings by perfectly eliminating latency externalities. The cost certainly isn’t trivial, but it is much lower than the forced imposition of $0.005 in bid-ask trading costs because the SEC refuses to decrease the minimum $0.01 tick size. With an economical tick size the average bid-ask spread would easily go in half. (Plus it would reduce the latency externalities since market makers could price improve rather than rushing to jump first in line the order book queue). My point being is that if we’re that worried about reducing costs to investors there’s an alternative that we’re already ignoring that both has a larger impact and poses much less risk than completely tearing up the foundations of the market structure.

Finally the authors assume that batch auctions don’t come with any of there own structural costs. Not only do they indeed have substantial defects themselves, but they don’t even eliminate the latency externalities. The market already uses batch auctions at market open and close. As any trader will tell you these are far more manipulated than continuous trading. During a batch auction an indicative price is published prior to crossing based on the currently resting buy and sell orders. A trader can easily change this indicative price or imbalance by entering a large order and canceling it before auction. Analogous strategies aren’t impossible, but are much harder in continuous trading because a resting order can be crossed at any time, and hence poses real economic risks to the trader. To paraphrase Alex continuous trading acts as a tax on bullshit.

The flip side of a pre-cross indicative price is that traders will wait for as long as possible before the cross to enter their orders. No trader using proprietary signals is going to want other market participants to see his order for any longer than is absolutely necessary. The counter-strategy being shaving down your latency even further so you get to see others’ orders first. Then modify yours accordingly by trading even closer to the cross time using your lower latency. So what frequently happens in opening and closing batch auctions is that the order book and indicative price is pretty much garbage until a few milliseconds before the cross, at which point the real price formation occurs. When I worked in a much larger HFT firm I was a continuous guy, but sat next to the batch auction guys. We certainly cared about our latency, but generally we focused much more on our signals and execution algorithms. The auction guys in contrast were always obsessed with their latency.

Switching to batch auctions will not reduce the cost of latency positional externalities, and is pretty likely to increase them. On top of all that it will give us a much lower-quality and less efficient market structure. There are certainly better ways to tackle the latency externality costs. But it’s important to recognize the perfect’s the enemy of the good here, I doubt we can ever fully eliminate them under any sane structure. It’s better to think of moderate improvements that work on the margin, rather than centrally planned grand sweeping re-designs of the entire market structure.

At the first link, in the comments, he has several follow-up explanations, all recommended.

UKN0WN July 11, 2013 at 5:27 am

Whilst I did not bother to waste my time reading this article in it’s entirety (It is ignoring the the true issues with HFT), I can say that it is comprehensively misleading.

The true costs to Investors arising from HFT are far greater than those estimated using ‘latency based externalities’ by the author.

Having spent several years running a a HFT (at a top HF) desk, I know how the real game works. Investors pay handsomely due to:

1. The manner in which order books are manipulated (quote stuffing, flash orders, order cancels etc..)
2. HFT seemingly ‘providing liquidity’ but in fact not doing so at all (In truth, HFT extracts liquidity when it is actually needed)
3. The real time volatility created by the nature of HFT orders which make up the majority of the order book today
4. The costs to investors arising from the sub optimal decisions derived from the distortion in information from the order book (perhaps the most important)

..to name a few.

For all intents and purposes, the markets are a zero sum game. HFT are not philanthropists and exist to take money out of the market – far more than people outside the HFT world are aware of – and their P/L is funded by non-HFT market participants. Both Institutional and private.

david July 11, 2013 at 6:03 am

Yeah – this statement:

A good way to estimate their magnitude is by how much money has been spent on cutting down the Chicago-NYC messaging latency, the two most liquid and hence profitable trading centers.

puts a lower bound on the marginal positional value of decreased latency between HFTers, but not any on the positional value of being low-latency to begin with, relative to the non-HF crowd of traders.

Rahul July 11, 2013 at 6:41 am

+1

The externalities are not the stronger argument against HFT’s

david July 11, 2013 at 6:42 am

Those other arguments are externality arguments too, albeit different ones…

KenF July 11, 2013 at 9:19 am

Thank you for actually explaining what is really going on. There is no “information” involved in all of this. HFTs just distort prices enough to take their cut. They are middle-men imposing themselves on the market.

What I also notice is that since their algorithms are similar, they are able to arms-length collude to affect stock prices, creating harmful volatility. This volatility is directly aimed at extracting money from human traders/investors.

Scout July 11, 2013 at 9:36 am

“they are able to arms-length collude to affect stock prices”

I wondered whether those strange HFT patterns highlighted a while back could be the result of genetic algorithms developing ‘handshakes’ with other algorithms. Genetic algorithms will and do ‘cheat’ if it improves performance.

KenF July 11, 2013 at 10:33 am

It’s pretty obvious from watching stock price movements. That’s how they are actually making money, the other stuff is a smoke screen for what they are really doing. They are manipulating markets in collusion, skimming off money for themselves.

KNOWN July 11, 2013 at 9:44 am

UNKNOWN – the argument that HFT is a zero sum game is ridiculous. When I pay $50 to my car mechanic to change oil, I am $50 dollars poorer and he is $50 dollars richer – by your definition it would be a zero sum game. Clearly, it’s not as there is some value created in the process. Same with HFT – the value is the fact that multiple assets are kept in line with each other via the trading that HFT. The volatility is not created by HFT orders – HFT orders respond to volatility and trading by “real money” investors. Why those guys trade so much is the real mystery. Perhaps because they have to justify their high fees.

Rahul July 11, 2013 at 10:28 am

Say I pay mechanic A $50 and leave my car for an oil change. He then pays $49.50 to Mechanic B. Who then realizes its too much work for him (but he’s made an obligation to B) so pays $49.65 to Mechanic C. And so on.

Eventually I do get my car oil changed from a Mechanic X who actually did the work. Everyone else was trying to make a few cents off it. Some did. Others lost. But was this all worth it?

My confusion is, how does one differentiate between these two aspects of HFT. Admittedly, I’m rather naive about the details of HFT.

eccdogg July 11, 2013 at 10:40 am

This comes down to the economic value of all middle men.

Middle men have value because they bridge gaps in space and time and reduce search cost. You yourself could have searched all day to find the cheapest mechanic which might have been in another part of town (or non existant) but instead you wanted to go to the guy who was right there a few blocks from your house.

Mechanic A and B bridged that gap and got your car serviced by the cheapest provider. You paid for the convenience of not having to search yourself and find the best bargain.

KNOWN July 11, 2013 at 10:59 am

eccdogg – you go girl

Rahul July 11, 2013 at 11:14 am

Fair enough. But how about this view: Say, you had a fairground game, either of luck or of skill. Now a player appears who’s enormously, superhumanly talented (or a very good cheater in the game of luck).

Won’t his presence in the long run drain away ordinary players?

Does HFT have this risk?

eccdogg July 11, 2013 at 11:23 am

I think it does have the risk of scaring away the large informed investor, because it seems to me that HFT reduces the value of having information early because the algorithms “steal” some of this value by front running.

However by the same token it seems that any strategy that drives price away from “value” at the same time provides an opportunity for informed investors. I mean the flash crash was a huge opportunity.

Brian Donohue July 11, 2013 at 1:02 pm

I wouldn’t use the term ‘investor’ here. ‘Trader’ is more appropriate.

I’m an investor, and this all means diddly-squat to me.

eccdogg July 11, 2013 at 2:06 pm

Agreed. My view on this is that it is largely a fight between two types of traders. HFT should be neutral/beneficial to long term investors.

HFT criticism July 12, 2013 at 10:16 am

The following is an extensive bibliography of research critical of high frequency trading. There are separate sections dedicated to commentary as well.

http://blog.themistrading.com/wp-content/uploads/2013/04/HFT_Bibliography_Dec2012.pdf

Shane M July 13, 2013 at 9:56 pm

UNKNOWN, I have a question I was wanting to post to someone who may know. Can HFT firms see my order coming before it gets there?

I’ve had several cases that make me suspicious as I’ve had cases where a security will be sitting at a stable bid-ask spread for a while, and I’ll go to place my order – and then it seems as soon as I hit the bid with my order to sell (or the ask with a buy) then the spread will change and my order never executes.

One time in particular that made me curious was an after-hours trade in MSFT – where a large block bid sat out there for maybe 15 minutes with very little to no volume/activity – and immediately when I placed my sell order at the bid price the buyer disappeared. Is it coincidence that this happens, or can HFT traders see my order coming before it gets there and respond appropriately before it hits the market? thanks,

Steven July 14, 2013 at 5:29 pm

I’d be very interested in an answer as well

Rahul July 11, 2013 at 6:42 am

>>>American equity markets trade $24 quadrillion in value a year <<<

How much of this is HFT generated trade?

Conor July 11, 2013 at 6:45 am

Not an economist at all, mainly check this site for the links. So just a regular Joe. What does HFT do for me in the first place? Keep it simple.

JoeDog July 11, 2013 at 7:44 am

You don’t need economics training to understand HFT. It’s a trading strategy. Basically, these guys get fast computers and place them near exchanges so they can move in and out of trades in fractions of a second. They exploit price movement for fun and profit….

Silas Barta July 11, 2013 at 5:12 pm

The question was “What does HFT do for me”, and you didn’t answer it. Is this because you don’t know the answer, or you didn’t want to reveal it?

Beefcake the Mighty July 21, 2013 at 5:23 pm

“Basically, these guys get fast computers and place them NEAR exchanges so they can move in and out of trades in fractions of a second.”

Bingo. They’re exploiting a market design flaw, nothing more. Middle men do indeed provide economic value, but that has nothing to do with essence of HFT.

eccdogg July 11, 2013 at 11:06 am

Two things.

1) Increases liquidity and lowers spreads so you pay less for a trade than you did before.
2) Really no impact for the average Joe.

If you are a day trader, occasionally HFT has created hiccups like the flash crash which have caused big price moves intra day and if you got scared an liquidated you would have been harmed.

If you are a big investor who used to be able to make money by trading on information flow it is harder now.or if you are a big investor who does big trades and just take the market price it might cost you more because the traders front run you.

Mo July 11, 2013 at 11:42 am

There is no evidence that HFT increases liquidity, at least when liquidity is needed. Most (almost all?) of the research and evidence point to the opposite conculsion, that HFT reduces liquidity when it’s needed and increases volatility.

KNOWN July 11, 2013 at 12:01 pm

that’s a ridiculous assertion which also happens to be false. for example

http://www.futuresindustry.org/ptg/downloads/HFT_Trading.pdf

KenF July 11, 2013 at 12:21 pm

So an industry publication supports a hugely profitable industry practice? That is a surprise.

Beefcake the Mighty July 21, 2013 at 5:27 pm

Remember a few weeks ago when some brilliant prankster hacked some propaganda minister’s twitter account, and said the presidential palace had been attacked? Didn’t the algos exist the market en masse? Hmm. One would think that is precisely when a “liquidity provider” would be most needed.

Is it too much to ask people in an economics discussion to talk about liquidity *at some price* before making blanket pronouncements about the benefits of liquidity provision as such? What’s the name of the blog again? Starts with an “m”? Anyone?

KNOWN July 11, 2013 at 12:11 pm

eccdogg:

if you are informed investor on long frequency then sometimes you will think the market is going up over the next 3 days and you need to buy and high frequency traders are selling because they think in the next 30 seconds market is going down – so in some cases they may “front run” you and you pay higher price to buy, but in other cases you pay lower price to buy, so on net, you should be unaffected

Yeah Right July 11, 2013 at 6:53 pm

” eccdogg July 11, 2013 at 11:06 am
Two things.

1) Increases liquidity and lowers spreads so you pay less for a trade than you did before. 2) Really no impact for the average Joe. ”

HFT does not increase liquidity. If you understand what HFT seek to achieve within the order book, then you know this is basically nothing short of a lie.

With the existence of HFT, the fluctuations in price with timeframes of seconds (or less) actually result in non HFT paying the equivalent of a hidden bid-offer spread because the truth is, a non-HFT will almost always be on the wrong side of the trade within that timeframe.

dead serious July 11, 2013 at 5:31 pm

You get all the benefits of a flash crash with none of the carbs!

The Anti-Gnostic July 12, 2013 at 9:10 am

They are moving piles of money around. No value is being created.

Hoosier July 11, 2013 at 8:14 am

Am I getting this right? The original comment broadly defended HFT, with some caveats, as promoting liquidity and efficiency in capital markets. It was also fearful of the harm regulation would create.

While the comments to this post won’t have any of that, and don’t see much of any benefit at all to the retail investor from HFT.

So is this all just the same regulation vs. no regulation argument that’s been repeated over and over the last however many years?

Quadrillion here, quadrillion there July 11, 2013 at 8:49 am

The commenter is off by a factor of a thousand. Equity markets did not trade $24 quadrillion. More like $25 trillion, off by 1000x. The error undermines the argument and makes other figures suspect.

Douglas Knight July 11, 2013 at 8:59 pm

According to this, $3 quadrillion. I think you are thinking of market cap.

Quadrillion here, quadrillion there July 12, 2013 at 8:42 pm

Unless I misread the chart you link to, it shows US value traded as an annual average of 136% of GDP during the years 2008-2012. That would be about $20 trillion. The World Federation of Exchanges (www.world-exchanges.org) confirms dimension, and shows US equity trade value of about $23 trillion in 2012.

Douglas Knight July 12, 2013 at 9:32 pm

You’re right.

Bryce July 11, 2013 at 9:23 am

Why would batch auctions with an interval of one second look anything like the start-of-day clear that the trader criticizes?

The fundamental problem seems to be that traders can remove orders and change published prices before the clear, but presumably if the market is clearing once per second, there would be no price published in advance of the clear, and it would be entirely reasonable to require that once placed, a bid could not be removed until after the next clear.

Electricity Market Participant July 11, 2013 at 12:07 pm

These seem like very good points. I would be interested if any HFT has a response.

KNOWN July 11, 2013 at 12:13 pm

if you have a batch auction, in between the auctions nobody knows where the true market is at any one moment – because news arrives continuously – so that would make providing liquidity much more risky than it is right now

Electricity Market Participant July 11, 2013 at 2:01 pm

You really think there’s a serious efficiency concern in having to wait 0.9 seconds after receiving news to buy or sell? I’m generally very pro-market but I find that hard to believe.

Also, the nice thing about auctions every one second is that bids would all be accepted at the same moment, so there wouldn’t have to be a list of public standing orders that the fastest participant can frontrun.

KNOWN July 11, 2013 at 3:32 pm

Electricity Market Participant: imagine waiting 0.9 seconds to buy or sell after receiving news that Lehman and Bear Stearns went under and Israel is considering nuking Iran. Market literally could be anywhere during that 0.9 seconds. Most recent example: false rumor that Prez was shot. Who would want to make a market knowing that for 0.9 seconds nobody knows where the market is, during this sort of event ?

Electricity Market Participant July 11, 2013 at 4:58 pm

Known, I think your example actually illustrates a real benefit of the auction over continuous trading. Whether we have continuous trading or discrete auctions, 0.9 seconds after news like that, there’s still gonna be tons of volatility. Would you really claim that even with HFT, someone could accurately predict where the market would be an hour later within 0.9 seconds? Of course not.

What will happen in a situation like that though, is HFTs will quickly execute lots of orders with counterparties at prices that the counterparties no longer would choose to offer at, because the HFTs can execute their orders before the slower counterparties can change their standing orders. If the next trade was at a discrete time interval a second later, every moderately sophisticated investor is on an even playing field with whoever owns the fastest cable, because all their orders can be evaluated in a single auction.

To the extent there’s any loss of liquidity, it would be from moderately sophisticated investors’ trading software with rules like “if there’s news that the President is shot, submit no bids to the market until [human] enters new bid.” But note this would be an efficient result, because it would reflect the preference of the counterparty to reflect on their bid under certain situations, instead of having its lunch eaten by an HFT.

The quest for an efficient amount of liquidity doesn’t mean “execute trades so quickly that they can be executed at prices that no longer appeal to both counterparties.”

Tom July 11, 2013 at 5:58 pm

“imagine waiting 0.9 seconds to buy or sell after receiving news”

OK, I’m imagining it … Whew, that wasn’t so bad.

Yeah Right July 11, 2013 at 6:43 pm

“KNOWN July 11, 2013 at 3:32 pm
Electricity Market Participant: imagine waiting 0.9 seconds to buy or sell after receiving news that Lehman and Bear Stearns went under and Israel is considering nuking Iran. Market literally could be anywhere during that 0.9 seconds. Most recent example: false rumor that Prez was shot. Who would want to make a market knowing that for 0.9 seconds nobody knows where the market is, during this sort of event ? ”

Complete and utter nonsense. On the contrary, it would be categorically more equitable to all market participants in such a situation if HFT did not exist. Why? What is the impact on the majority when when a very small minority have the ability to trade using algorithms with microsecond latency at a time of such events.

Secondly, I refer you to the ‘flash crash’ of 2011. Despite what has become the conventional wisdom, a 9% move in the DOW WAS caused by HFT and there was no such news event.

Your argument above along with all of your comments to this post are either intended to mislead those who wish to understand but lack the knowledge and experience on this subject and/or you are naive enough to believe what you write.

Anon. July 11, 2013 at 1:34 pm

That brings up the problem of never being able to see the order book. How do you trade in that kind of market, when you have absolutely no clue about what sort of liquidity may be there, and no clue about the price where it’s at? The best you can do is an educated guess on how far you need to place your limit order from the previous auction’s result in order to get filled, but with no guarantees whatsoever. How do order imbalances clear if everything is hidden?

Electricity Market Participant July 11, 2013 at 2:08 pm

If the market publishes the number of shares bought/sold and the auction clearing price every single second, that seems like more than a clue as to what sort of liquidity there is and at what price it’s at.

Anon. July 11, 2013 at 2:15 pm

It’s not really a clue because you need someone to take liquidity in order to see that it’s there. So now we’re at the point where we’re sending tiny “ping” orders to discover liquidity like you do in dark pools, just to see if you can trade. I don’t see how the retail investors could participate in that kind of market…

Electricity Market Participant July 11, 2013 at 2:33 pm

Say a retail investor places a large order at noon, and finds it is not all filled in the 12:00:01 auction. If he’s not filling his order, he’s the marginal buy-order, which means his offer is the clearing price. Any seller that sees that clearing price and wants to sell at that price can offer to sell in a subsequent market.

If the retail investor (buyer) leaves his order open until filled (i.e. keeps resubmitting the unfilled buy-offers in subsequent auctions every second), it will be filled literally the second that another seller offers to sell at or below his buy-offer.

Mpowell July 11, 2013 at 6:26 pm

It is certainly the case that a lot of shenanigans result for the way that bids are handled. My understanding is that there are well known problems with many of the current major exchanges but for various network/reputational reasons they continue as market leaders and choose not to implement known possible improvements because there are specific parties benefiting. There is probably some low hanging fruit to be had here if you can find the right way to bring pressure on these exchanges. Then we can talk about single second batch orders (with hidden orders) if there is still a problem. That’s my take anyways.

Also, I think you observe in this discussion the difference between HFT’s relationship with other traders, which does not impact the large market and then also the way they can collectively pull money from the wider market. Some people assume the latter is not happening, but I don’t buy it.

Eric Falkenstein July 11, 2013 at 9:39 am

Many assume the good old days before computers were better, but spreads and commissions and trade impact were an order of magnitude higher pre-2000, before high frequency trading. That’s a fact. Painting HFT as bad guys is like many who lament the nature of businesses who act merely parochially, as if it would be much preferred for all actors to not only do the right thing for the right reason, which is some consistent general welfare function that everyone understands and agrees with. Mises and Hayek wrote a lot about that.

But if high-speed is deemed a huge problem, the best solutions I’ve heard to fix it include the following:
1) add a 0-20ish millisecond randomizer to any incoming order. Thus, if you know you are getting randomized, the marginal value of 1 millisecond is much smaller to the innovator.
2) make a rule that those who receive fees (liquidity providers) must have such orders exist for at least 1 second. That would get rid of a lot of flash quotes that merely add noise to the channel.

Mo July 11, 2013 at 11:49 am

Hard to seperate out things like decimalization, the NASDAQ price fixing scandal, bog standard program trading, etc. Or do you also think that rock music quality determines oil production?

http://www.overthinkingit.com/wp-content/uploads/2008/09/rs-500-us-oil-production1.jpg

Beefcake the Mighty July 21, 2013 at 8:13 pm

Nice strawman: opponents of HFT must be Neanderthals who want to go back to horse and buggy days, etc. You seem to always stand ready to offer specious defenses of the finance establishment.

dead serious July 11, 2013 at 10:07 am

“Many assume the good old days before computers were better, but spreads and commissions and trade impact were an order of magnitude higher pre-2000, before high frequency trading.”

You are conflating lower commissions with HFT but in fact that’s not at all why commissions and spreads are lower since the days before computers. They’re lower because of internet-based trading, period.

Rusty Synapses July 11, 2013 at 11:22 am

I’m no expert on HFT, but only occasionally do I see references to what I think (from my albeit superficial understanding) is the biggest abuse – it’s not the high frequency or latency advantages, it’s that they use these bizarre conditional orders that seem designed to facilitate a small advantage to normal investors, that the high frequency and low latency multiply.

KevinH July 11, 2013 at 12:24 pm

interesting perspective and I’m glad he shared his thoughts. However, I remained unconvinced. It seems the two problems he identifies with batching are easy fixes. The only public information should the successful trades. This means there is no ‘indicative price’ and no snooping on submitted bids by others before the deadline. Done right there is 0 added vulnerability to a world broken up into discrete second long increments, rather than the discrete nano-second increments that the NYSE’s servers are running on right now.

KevinH July 11, 2013 at 12:32 pm

To follow up, the only real question we should be asking yourself is ‘how quickly does the world really change?’ That is roughly the rate that information will be generated, and therefore represents the upper limit on the speed with which the market will represent real information. We often get our information about the change of the world in very short discrete bursts, but the underlying structure of the world is changing much less rapidly than even second-by-second. I think hourly or even daily batches would provide 99% of the usefulness of the market with probably 90% less of the BS.

Pshrnk July 11, 2013 at 1:36 pm

The world changes chronon by chronon.

Beefcake the Mighty July 21, 2013 at 5:40 pm

Butt-plug say what?

Bob McGrew July 11, 2013 at 12:49 pm

In theory, you could test this out by setting up parallel clearing mechanisms and seeing where the trades migrate to. In a sufficiently deep market, you’d expect it to be where the bid-ask spreads are minimized and prices are most accurate.

BTW, I second Bryce’s point that private bids would mitigate the effects that are discussed in the post.

mdv1959 July 11, 2013 at 4:50 pm

Why are the HFT’s (or anyone) allowed to cancel orders to begin with? If every placed order had to be completed wouldn’t it put an end to the high frequency trading?

Electricity Market Participant July 11, 2013 at 11:25 pm

Say the market price for a stock is $20, and I play a sell order at $20.50. But then the stock doesn’t rise up to $20.50 in the next several hours. If there’s new news in that time, it makes sense that I shouldn’t necessarily still be held to that order. What if new news comes out that means the stock will be way more valuable?

So I think maybe a stronger version of your suggestion would be to disallow cancelling of orders within a certain timeframe, i.e. all orders cannot be cancelled within a single second. I think another commenter above suggested this.

John July 12, 2013 at 11:22 am

Seems to me this whole discussion begs a key question: What are our capital markets suppose to be providing?

The answer is (a – it’s not the only pricing mechanism in use and it’s only pricing some productive capital, and a special form of capital as well) price discover of capital in production activities. These prices are no influenced in milli, mcrro or nano seconds – or even minutes. They are impacted by events that occur over significant time periods but may become effective at some point in time.

Virtually all the activity related to HFT and co-location of servers has to with an ability to front-run the market. Yes, there will always be some differential advantages that exist but typically they would be institutionalized in a way the promote something of a level playing field for consumers of brokerage and trading services. The HFT and co-location attempt to institutionalize a differential advantage.

Shane M July 16, 2013 at 11:08 am

UNKNOWN, repost from above in case you come back to this thread. (posting down here as I was afraid the question was lost in the midst of above conversation). I appreciate if you have time insight into this. thanks,

REPOST:
====================
UNKNOWN, I have a question I was wanting to post to someone who may know. Can HFT firms see my order coming before it gets there?

I’ve had several cases that make me suspicious as I’ve had cases where a security will be sitting at a stable bid-ask spread for a while, and I’ll go to place my order – and then it seems as soon as I hit the bid with my order to sell (or the ask with a buy) then the spread will change and my order never executes.

One time in particular that made me curious was an after-hours trade in MSFT – where a large block bid sat out there for maybe 15 minutes with very little to no volume/activity – and immediately when I placed my sell order at the bid price the buyer disappeared. Is it coincidence that this happens, or can HFT traders see my order coming before it gets there and respond appropriately before it hits the market? than
- See more at: http://marginalrevolution.com/marginalrevolution/2013/07/from-the-comments-on-high-frequency-trading.html#comments

Comments on this entry are closed.

Previous post:

Next post: