I build surveillance programs to look for activity such as spoofing and layering. It is not always as clear cut as these cases make it out to me.
Spoofers Tricked High-Speed Traders by Hitting Keys Fast
61–70 of 89 posts
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#62Earlier quoted context omitted.
95 percent of high-frequency trader orders are cancelled (so fast that nobody can take them). Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days. I don't buy the "providing liquidity" defense of HFT. http://blogs.wsj.com/moneybeat/2014/04/03/schwab-on-hft-grow...
>95 percent of high-frequency trader orders are cancelled So what. 99.9999999% of the pixels blatted onto your screen aren't looked at. Why do you care? Let's say I'm making a market in a derivative product (A), one where the price is 'derived' from the price of another product (B). By a simple equation. Let's say A = 2 * B. No one likes product A. No one trades it. Lots of people trade B. All day long B moves around…
But McDonald's makes a profit every time I buy a cheeseburger from them. It's like the know the true price in advance, and set their prices so that they always make a profit.
The cheeseburger market is rigged.
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#63Earlier quoted context omitted.
Here's an interesting proposal - you charge a small amount (e.g. 0.001 of a cent) for every single order placement and rebate the proceeds to all market participants in proportion to how much volume they actually traded. People who enter many quotes that they never trade on would be punished by this system (human traders and "flickering" high frequency traders alike) whereas people providing genuine liquidity, in the…
This is already done. There is an per-order fee and a per-trade fee. All your proposal would do is shift the balance slightly between these fees.
What markets is this done on? On most markets that I'm aware of, there is a fee for passive trades and a fee for aggressive trades. Sometimes the fee for a passive trade is negative (a rebate) which encourages liquidity provision, but I don't know of any market that actually charges per order, and then rebates that proportionally to the liquidity providers.
One proviso is that I've never worked on US equity markets, so if this rule is in place there then I wouldn't know about it.
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#64Earlier quoted context omitted.
Layering was illegal before there was HFT. Also, everyone who has any expertise in the way markets and especially electronic markets work, thinks that "Flash Boys" is a terrible book on the topic. You literally are worse off in understanding for reading it. Try "Dark Pools". Still sensational and occasionally wrong, but at least it gets close.
I can agree that Lewis was perhaps more focused on weaving a compelling story than focusing on the finer details of HFT. Nevertheless its a good primer on the subject and an interesting read. Thanks for the tip about Dark pools
The problem is that it is absolutely not a good primer on the subject, and the only way you could know this is if you have experience in electronic trading already.
If you are trying to learn about electronic / high frequency trading by reading "Flash Boys" you are actively working against yourself. You will literally be more incorrect after you have read this book.
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#65Earlier quoted context omitted.
This is already done. There is an per-order fee and a per-trade fee. All your proposal would do is shift the balance slightly between these fees.
What markets is this done on? On most markets that I'm aware of, there is a fee for passive trades and a fee for aggressive trades. Sometimes the fee for a passive trade is negative (a rebate) which encourages liquidity provision, but I don't know of any market that actually charges per order, and then rebates that proportionally to the liquidity providers. One proviso is that I've never worked on US equity markets,…
In US markets there is a (very small) per-order fee.
There are also rolling windows and disconnections for people who go crazy with quote spam or have low fill rates.
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#66Earlier quoted context omitted.
95 percent of high-frequency trader orders are cancelled (so fast that nobody can take them). Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days. I don't buy the "providing liquidity" defense of HFT. http://blogs.wsj.com/moneybeat/2014/04/03/schwab-on-hft-grow...
>95 percent of high-frequency trader orders are cancelled So what. 99.9999999% of the pixels blatted onto your screen aren't looked at. Why do you care? Let's say I'm making a market in a derivative product (A), one where the price is 'derived' from the price of another product (B). By a simple equation. Let's say A = 2 * B. No one likes product A. No one trades it. Lots of people trade B. All day long B moves around…
I don't have enough technical knowledge about HFT to refute your arguments.
However, thinking logically about the whole HFT business: As I understand it it's something like this:
Let's say I want to buy 100 apples at $1 a piece. A middle man comes and says: I see that you want to buy 100 apples. Let me buy them for you. Here they are (an apple is now $1.001)
Why do I need this middle man to steal from me? You will probably say that they are providing liquidity. It's still stealing and the markets had enough liquidity before the whole HFT gang came.
Maybe I'm wrong, if so please explain me why.
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#67The only reason why this is "illegal" and HFT is legal is that the HFT firms are paying customers of the exchange. It's really quite scary how complicit and front-runned the whole stocktrading business has become. I really recommend Flash Boys which is an interesting read on the topic http://www.amazon.com/Flash-Boys-Wall-Street-Revolt-ebook/dp...
Layering was illegal before there was HFT. Also, everyone who has any expertise in the way markets and especially electronic markets work, thinks that "Flash Boys" is a terrible book on the topic. You literally are worse off in understanding for reading it. Try "Dark Pools". Still sensational and occasionally wrong, but at least it gets close.
I've read both "Flash boys" and "Dark Pools". Do you have any other book recommendations on this subject?
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#68I quite liked the style of writing in this article. It's days like this that I wish news outlets like Bloomberg and IFR has RSS feeds for particular journalists.
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#69Earlier quoted context omitted.
>95 percent of high-frequency trader orders are cancelled So what. 99.9999999% of the pixels blatted onto your screen aren't looked at. Why do you care? Let's say I'm making a market in a derivative product (A), one where the price is 'derived' from the price of another product (B). By a simple equation. Let's say A = 2 * B. No one likes product A. No one trades it. Lots of people trade B. All day long B moves around…
I don't have enough technical knowledge about HFT to refute your arguments. However, thinking logically about the whole HFT business: As I understand it it's something like this: Let's say I want to buy 100 apples at $1 a piece. A middle man comes and says: I see that you want to buy 100 apples. Let me buy them for you. Here they are (an apple is now $1.001) Why do I need this middle man to steal from me? You will pr…
That is a common but completely incorrect analogy. In the real world, the middle man is the exchange. You pay a fee to sell in their market place (and they provide assumedly acceptable value for this service, as in the modern world there are many exchanges you can take your business to).
The HFT is your counter party. When you say you want to buy apples, you are buying them from the HFT. Like any reseller, they are hoping to have bought those apples at a cheaper price than what you want to buy them, because they are a profit making enterprise. Like any reseller, the service they are providing is being able to sell you those apples right now, when you want them. They have taken on the risk and expense of finding cheaper supplies of apples and held them for the appropriate time to sell them when the price was right.
Like any reseller, you do not have to buy directly from them and pay their mark up. You just need to invest the same energy and expense that they do on supply chain to be able to get apples at cheaper prices than people want to pay. Of course, you are probably not in the apple reselling business, so it might not make sense to do this.
Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast
#70Earlier quoted context omitted.
Layering was illegal before there was HFT. Also, everyone who has any expertise in the way markets and especially electronic markets work, thinks that "Flash Boys" is a terrible book on the topic. You literally are worse off in understanding for reading it. Try "Dark Pools". Still sensational and occasionally wrong, but at least it gets close.
I've read both "Flash boys" and "Dark Pools". Do you have any other book recommendations on this subject?
Those are the only ones I know of that do "narrative" non-fiction. If you are interested in technical books, Trading & Exchanges by Harris is good (if dated) and Algorithmic Trading & DMA by Johnson.