Most people who are just "in the market" don't understand high-frequency trading (HFT) and dark pools.
My knowledge of HFT and dark pools dates back to the late 1990s, when I was trying to figure out how to get better executions on the large trades my hedge fund was generating. I consider myself a bit of an expert.
So, for all of you who want to know more, I’m going to share some of that expertise…
high frequency trading
Dark Pools Pervade Wall Street
Dark pools - private markets unavailable to the public - and high-frequency trading (HFT) are manipulative schemes run amok.
Late yesterday, New York State Attorney General Eric Schneiderman charged Barclays Plc. with fraud over how it markets its dark pool, in addition to accusing Barclays of operating its dark pool to favor high-frequency traders.But that's not all Barclays did. Keep reading...
How the SEC Profits from High-Frequency Trading
"The markets are not rigged."
That's what U.S. Securities and Exchange Commission Chairwoman Mary Jo White told a House of Representatives panel on Tuesday.
She went on to say, "The U.S. markets are the strongest and most reliable in the world."
Of course she's right. The U.S. markets are the strongest and most reliable in the world.But she's either blind or deluded if she doesn't know they are also rigged...
How High-Frequency Traders Use Dark Pools to Cheat Investors
High-frequency trading (HFT) has an evil cousin: dark pools.
While dark pools are not inherently bad, the abuse of dark pools by the high-frequency traders has created a whole series of problems that can harm both large and small investors.
Large investors are already starting to take steps to protect themselves, but most small investors have no idea of the harm these activities pose to them.You're either the predator or the prey...
Why You Need to Read Michael Lewis' New Exposé
No doubt you've heard about Michael Lewis' new book, "Flash Boys."
And, no doubt you've been hearing more than ever before about the subject of Lewis' book, high-frequency trading (HFT).
I ran to Barnes & Noble to buy the book the second I heard about it last week. They didn't have any copies. So, I ordered it online, which was cheaper anyway.And now he has a confession to make...
High-Frequency Trading: Game the System and Get Rich in Just 8 Simple Steps
I don't know about you, but I'm ordering Michael Lewis' new book "Flash Boys: A Wall Street Revolt" - and I'm ordering it today.
Of course, Michael Lewis is the author of two of the biggest-selling books ever written about Wall Street: "Liar's Poker" (1990), an autobiographical portrait of excessively greedy bond traders during the 1980s, and "The Big Short: Inside the Doomsday Machine" (2010), which chronicles the housing bubble that led to the Great Recession in 2007.To continue reading, please click here...
- IEX Exchange Short-Circuits Wall Street's HFT Cheaters High-frequency trading has plagued the markets for years, giving Wall Street's elite an unfair advantage over everyone else. Now a new stock exchange is throwing a wrench in the works. And the Big Banks are reacting in a most peculiar way...
What High-Frequency Traders Actually Do
High-frequency trading is fundamentally based on how market participants (for this discussion I'm talking about stock markets) place their orders to buy and sell shares and how HFT players act on those orders.
For every stock that's traded there is always (or at least it used to be "always") a "bid" and an "ask" price. Sometimes you'll hear the term "offer" or "offered" price, those terms are interchangeable with the term "ask" or "asking price."To continue reading, please click here...
Why the Twitter Flash Crash Should Make You Angry
The Twitter flash crash on Tuesday that very briefly shaved 140 points off the Dow Jones Industrial Average should be of great concern to retail investors.
That short and sudden dip in the markets, caused by a false Tweet on a hacked Associated Press account that suggested President Obama had been injured in a bombing at the White House, was yet another reminder of the risks that high-frequency trading (HFT) poses to the markets, and to retail investors in particular.
Simply put, HFT is the practice of using supercomputers to execute trades in milliseconds.
Because high-frequency trading accounts for at least half of the market, any hiccup in the system can have an instant and dramatic impact, as we saw with the now-infamous flash crash in May 2010 that sliced 1,000 points off the Dow in 10 minutes.
As if that weren't already treacherous enough, HFT firms increasingly have added social media inputs, like Facebook (Nasdaq: FB) and Twitter, to the mix, to scour their feeds for news that could affect stocks.
So now even something as absurd as a fake Tweet can move markets.
"Algorithms used to trade off news headlines, now they trade off tweets. That's very dodgy, very shaky ground," Oli Freeling-Wilkinson, chief executive officer of the London-based analytics firm Knowsis, told Reuters.Read More...
Unless We Act, High-Frequency Trading Will Crash the Markets
High-frequency trading isn't illegal. But the way it is practiced today, it should be.
That's because high-frequency trading, or HFT, doesn't add to market liquidity, stability or efficiency -- but it could cause a catastrophic market crash.
Here's what's wrong with allowing high-frequency trading, what HFT practitioners say they're doing that's good for the market (which is rubbish), what could happen based on what has already happened, and what to do to fix this black hole.
The problem is HFT is based on a lie.
High-frequency traders send out tens of millions, if not billions, of orders to exchanges that are never meant to be executed. They are fake orders designed to dump manipulative information onto the nation's exchanges.
And while other market participants are not actually forced to adjust their bids and offers or engage in any of these trades, allowing access to the exchanges to manipulate anybody in any way is something that ought to be outlawed.
Exploiting an Unfair AdvantageIn the HFT world it's all about speed. Without it, HFT wouldn't be possible.
There's nothing wrong with employing external innovations that speed up computers or the time it takes for information to get from one server to another. But HFT takes it to an entirely different level.
As I write this, chains of fixed microwave towers are being erected to send market data and orders between New York and Chicago because electromagnetic radiation travels only 2/3 as fast in glass fibers as it does through the air. The towers were designed and are being built by a pair of HFT entrepreneurs who already have HFT customers lined up.
And as soon as this winter passes, Hibernia Atlantic's Project Express will be dropping a more direct new generation transmission cable across the Atlantic so data and trade executions can travel faster between New York and London.
The new cable will reduce the 30 milliseconds travel time it takes now by only a few milliseconds, but space has already been leased to the only takers, the HFT crowd.
It may be unfair that some players are able to pay for a speed advantage by employing new technologies, but it's certainly not illegal.
What should be illegal, and is an abomination, is that the SEC allows exchanges to serve high frequency traders by leasing them co-location space next to the exchange's servers.
Not everyone can afford that access. But because it can be bought, HFT players have a significant speed advantage over everybody else who expects the SEC and the nation's regulated exchanges to guarantee equal access to get data and place trades.
Trust Me, It's Not About LiquidityThe HFT crowd argues that they act as market-makers and add liquidity wherever they practice their trades and both markets and investors are better served by their activity.
That's absolute nonsense.
To continue reading, please click here... Read More...
The Truth About High Frequency Trading and The Coming Market Crash
According to high-frequency traders and their backers, the super-fast, computer-driven stock trading desks that employ HFT are a benefit to investors and exchanges here in the U.S. and wherever they ply their trades.
But that's not true.
In fact, if you know exactly what high-frequency traders actually do and how they do it, you'll know what the SEC hasn't figured out, namely what caused the May 2010 Flash Crash.
You'll also realize that it's only a matter of time before these market manipulators cause a real catastrophic market crash.
Today I'll talk about what HFT players do and how they do it. And tomorrow I'll tell you how HFT could destroy our markets and economy.
What High-Frequency Traders Actually DoHigh-frequency trading is fundamentally based on how market participants (for this discussion I'm talking about stock markets) place their orders to buy and sell shares and how HFT players act on those orders.
For every stock that's traded there is always (or at least it used to be "always") a "bid" and an "ask" price. Sometimes you'll hear the term "offer" or "offered" price, those terms are interchangeable with the term "ask" or "asking price."
The bid price is the price which someone is "bidding," or willing to pay to own shares. The ask price is the price which someone is willing to sell shares, or is "offering" or "asking" to sell at.
Bids and offers each come with the quantity of shares that the buyer or seller want to trade. There are millions of bids and offers made all day long, every trading day.
In fact, for every stock there are many bids and offers at several different prices.
The best bid, the highest price someone is willing to pay and how many shares they are willing to buy, and the best offered price, the lowest price at which someone is willing to sell their shares, constitutes a stock's current "quote."
In the U.S. we call that quote the NBBO, or national best bid and offer. But there are almost always other bids at lower prices and other offers at higher prices for all stocks.
High frequency traders employ pattern recognition algorithms that look deeply at bids and offers on stocks to determine if the movement on the bid quotes or offered quotes implies a directional tendency.
Computer-driven algorithms are "reading" the quotes, the intentions of buyers and sellers as they put down their orders in real-time, to make a trade that the HFT player expects to profit from if the directional bias their computers pick up is correct.
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High-Frequency Trading is a Scam That is Crippling the Markets
Let me make this perfectly simple...
High-frequency trading is a scam. It should be outlawed.
Regulators, namely the pimps and panderers at the Securities and Exchange Commission, and the exchanges, all of them, are in on the game.
The game, known as HFT, isn't arbitrage, isn't fair, isn't consistent with the keeping of "fair and orderly markets," and so should be illegal.
In case you don't know, here are the rules of the game...
- Pay the exchanges to "co-locate" your servers next to their servers, at the locations where they house them (and rent space to you for that explicit purpose).
- Get access to quote information (what stocks are being "bid" for at what price and for how many shares, and what is the "ask" price and number of shares that sellers are trying to unload), and be able to place your own bid and ask quotes as fast as technologically possible.
- Get yourself a bunch of money to trade with. You'll need millions, so maybe form a partnership to raise money or partner with some banks that don't already have their own HFT desks, you know, the ones that want to hide what they do.
- Get yourself a few nuclear physicists, rocket scientists, and computer wizards to write algorithms that can read quotes on both sides of every stock to determine patterns, the depth of markets, and how many shares you can buy or sell and then sell or buy in a matter of less than one-hundredth or one-thousandth of a second.
The Truth Behind the Tragedy of High-Frequency Trading
It's no wonder the public is scared to invest in stocks. They believe the game is rigged.
It is, and I'm going to tell you who's behind it, what's really happening, when it started, where the sinkholes are, why they're there, how you can play in the short run, and how America can get back to investing in a successful long-term future.
The bad news is the problems infecting our capital markets are all systemic. The good news is that they can be eradicated one by one, if not all at once (which won't happen).
Today, we're going to look behind the curtain of high-frequency trading.
It's a nasty bug in the system and has long-term consequences, including the potential to kill the markets.
First of all, high-frequency trading isn't just what you think it is. It is much more than you know, and is in fact part of the fabric of the markets.
High-frequency trading (HFT) is known to be a game that specialized firms and trading desks play. Here's what most people think they know about high-frequency trading.
The HFT crowd uses super-fast computers to execute trades across different exchanges. There are 15 exchanges in the U.S. and more than forty "dark pools" (private trading venues that serve as de-facto exchanges) where shares can be traded.
Part of the problem is that there are so many trading venues trading the same stocks, but that's another story.
Here's what the high-frequency trading game is really about.
To continue reading, please click here.... Read More...
High-Frequency Trading Could Cause Another Flash Crash
The threat of another flash crash caused by high-frequency trading is as great as ever.
And the next flash crash could be much worse than the one that shocked investors in May 2010.
Although the Securities and Exchange Commission (SEC) has taken some steps to prevent another flash crash caused by high-frequency trading (HFT), some experts question whether the additional disclosure and "circuit-breakers" designed to prevent big, sudden price moves will make a difference.
"Those things won't prevent another flash crash - they can't," said Money Morning Capital Waves Strategist Shah Gilani. "All they will do is soften the move."
The real issue, Gilani said, lies with the computers that execute the trades - thousands of them in milliseconds.
HFT has changed the nature of the stock market since these trades now account for between 60% and 70% of the transactions on the U.S. stock exchanges.
"You can't stop a flash crash unless you stop the computers from doing what they're programmed to do. And that's not being addressed," Gilani said. "The SEC is looking at keeping the ship from sinking, not stopping it from hitting icebergs."
HFT's heavy volume and high speed made it the prime suspect in the flash crash of 2010, when the Dow Jones Industrial Average plunged more than 600 points in five minutes, before recovering almost as quickly.
Mini Flash CrashesSince then, the frequent occurrence of mini flash crashes - when a single stock or exchange-traded fund experiences a steep and rapid drop in price that quickly reverses - have served as nagging reminders of the vulnerability of the system to such events.
"It's like seeing cracks in a dam," James J. Angel, professor at the McDonough School of Business atGeorgetown University told The New York Times. "One day, I don't know when, there will be another earthquake."
To continue reading, please click here...
Thursday's Wild Stock Market Ride Spotlights 'High-Frequency Trading' as the Latest Worry For Investors
Back on April 14, U.S. stocks advanced for the fifth day in a row, causing the U.S. Standard & Poor's 500 Index to close above the 1,200 level for the first time in more than 18 months.
Traders said that a growing confidence in the strength of the U.S. rebound was a key rally catalyst.
But Money Morning's Shah Gilani was worried.