60 minutes on high frequency trading

[Poindexter]

This is ridiculous. I have no interest or knowledge whatsoever of the stock market but how much is being stolen from stock market investors?

60 minute report (http://www.cbsnews.com/news/is-the-us-stock-market-rigged/)

[PhantomOnTour]

Amazing piece, and quite scary.
Guy is starting his own stock exchange...wow, that's thinking big.

[thaskalos]

There are some really bright, really conscientious people in this world...and I wish them all the best. The crooks have had it their way for long enough.

[JustRalph]

There are some really bright, really conscientious people in this world...and I wish them all the best. The crooks have had it their way for long enough.

2nd the motion. And that young guy is awesome!

[PaceAdvantage]

Here's the one question I need answered.

Is what these high frequency traders doing unethical (we've already heard it is legal), or are they exploiting a legitimate edge they have created for themselves via innovative thinking?

There has always been a speed disadvantage in the markets for some people. Some people have slow connections. Some people use slower computers. How is this so different? Just taking a speed advantage to the next level.

I sense something isn't quite right here, but I don't totally understand it, even after watching the 60 minutes piece.

If it's not illegal (and the author states that it is not), then aren't we simply punishing these guys for being smarter and faster than the rest?

[Poindexter]

Here's the one question I need answered.

Is what these high frequency traders doing unethical (we've already heard it is legal), or are they exploiting a legitimate edge they have created for themselves via innovative thinking?

There has always been a speed disadvantage in the markets for some people. Some people have slow connections. Some people use slower computers. How is this so different? Just taking a speed advantage to the next level.

I sense something isn't quite right here, but I don't totally understand it, even after watching the 60 minutes piece.

If it's not illegal (and the author states that it is not), then aren't we simply punishing these guys for being smarter and faster than the rest?

Like I said, I know nothing about the stock market. My understanding from the report is that somehow their faster internet connections are able to peak into the orders of everyone else, beat them to the move and then resell to the person placing the order. So if I want to buy 10,000 shares of xyz, at $40 a share, their algorithm will see my order buy the 10,000 shares before me and then resell it to me at a higher price. I assume that they sell some back at $40 a share to avoid suspicion and then sell more back at the next price point whatever that may be. This all takes place in fraction of a second. It sounds like they are doing this all day long basically just stealing money out of the market. The report indicates to the tune of 10s of billions of dollars. Why it is legal, is beyond any comprehension.

I don't get it. If a group of thugs break into a walmart and empty it out..what animals. These guys steal billions and it is a minor story. :bang:

Anyhow that was my interpretation of the report.

[thaskalos]

Here's the one question I need answered.

Is what these high frequency traders doing unethical (we've already heard it is legal), or are they exploiting a legitimate edge they have created for themselves via innovative thinking?

There has always been a speed disadvantage in the markets for some people. Some people have slow connections. Some people use slower computers. How is this so different? Just taking a speed advantage to the next level.

I sense something isn't quite right here, but I don't totally understand it, even after watching the 60 minutes piece.

If it's not illegal (and the author states that it is not), then aren't we simply punishing these guys for being smarter and faster than the rest?

It's a scam...whether it's considered "legal" or not. The exchanges invested $300,000,000 in order to secure a "speed advantage" and be able to read the minds of their customers...and then they LEASED this speed advantage to the high-frequency traders -- at $10,000,000 a pop. The high-frequency traders were then able to identify the intentions of the other investors...and would secure the shares that these investors wanted to buy, BEFORE they could buy them...and the traders would then proceed to sell those shares back to the investors -- at a higher price...and with no risk whatsoever.

If the high-frequency traders had been able to do all this by themselves...then you could argue that they were just being "smarter and faster" than the rest. But with the exchanges initiating this, and then bringing in the high-frequency traders after the fact...this becomes collusion with the intent to defraud -- which should be illegal...no matter WHAT the "law" says.

The "law" can be inconsistent at times...you know.

For instance:

Insider trading is considered to be illegal for all...but the politicians. :rolleyes:

[lamboguy]

OF COURSE ITS A SCAM



any type of gambling is about getting value for your money. equity markets are no different. when you have information that someone else doesn't have you have an edge. to relate that to horse racing, we all know who the jockey that rides the horse in the afternoon by reading the program. but knowing who the exercise rider is means about 100 times more. the majority of the public doesn't know.

anyone that has information before it becomes public knowledge in equity markets have a huge edge.

i have always been shocked how some very smart people think they can win trading these markets. i have watched the very brightest people get cleaned out trading these markets.

[barn32]

Maybe this is what Billy Walters was talking about.

[Robert Goren]

Old news. We even had threads on them starting at least far back as 2009. It was big news when there was a "flash drop" in a few stocks a couple years that was I believe was incorrectly blamed on them. CNBC has had several pieces on them.

[incoming]

Like Robert said old news, if you are a retail investor I wouldn't loss any sleep over this news. A much bigger problem exist with the dealing desk at your broker.

[fast4522]

Nothing to do with the people your talking about but . . . . . .

Billionaire Warns: The Next Bust 'Will Be Unlike Any Other'

http://www.moneynews.com/MKTNews/economic-Janet-Yellen-stock-bust/2014/03/26/id/561923/?promo_code=16F3C-1&utm_source=taboola&utm_medium=referral

[badcompany]

Old news. We even had threads on them starting at least far back as 2009. It was big news when there was a "flash drop" in a few stocks a couple years that was I believe was incorrectly blamed on them. CNBC has had several pieces on them.

It's old news in that it goes back more than 100 years.

The way the game is set up is that, at the center, you have Market Makers, which essentially are the big banks. These Market Makers are akin to used stock dealers.

What does a dealer do? He maintains an inventory of goods for sale. Now, if he buys these goods for more than he sells them, he's not gonna stay in business for very long, is he?

In the past, you had a Specialist who could see the orders coming in and would act accordingly. Now, it's done via algos which spot discrepancies between supply and demand and act accordingly viz. maximize profits for Market Makers.

[Clocker]

Is what these high frequency traders doing unethical (we've already heard it is legal), or are they exploiting a legitimate edge they have created for themselves via innovative thinking?

As I understand it, it is not unethical. The HFT is using information that is available to the public, but he is able to access it sooner because he has a better information gathering system. He (i.e., his computer) sees the order, knows that demand is going up, buys the stock (which also minutely increases demand, and therefore price), and sells the stock to the buyer before anyone else can. The HFT has no monopoly on the stock, nor on the access to the buyer. He just acts faster. The HFT is engaging in arbitrage, buying in one market and selling in another. The two markets are the market for the stock right now, and the market for the stock a fraction of a second from now. The HFT's actions help create the difference between the two markets.

[lansdale]

The damage done to the economy by high-frequency trading has been a subject of discussion for at least the last few years, by figures as diverse as Paul Wilmott and Paul Krugman.

Krugman dealt with the issue in a 2009 column:

'But speculation based on information not available to the public at large is a very different matter. As the U.C.L.A. economist Jack Hirshleifer showed back in 1971, such speculation often combines “private profitability” with “social uselessness.”

It’s hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But it’s hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.'

'And there’s a good case that such activities are actually harmful. For example, high-frequency trading probably degrades the stock market’s function, because it’s a kind of tax on investors who lack access to those superfast computers — which means that the money Goldman spends on those computers has a negative effect on national wealth. As the great Stanford economist Kenneth Arrow put it in 1973, speculation based on private information imposes a “double social loss”: it uses up resources and undermines markets.'


http://www.nytimes.com/2009/08/03/opinion/03krugman.html?_r=1


For those unfamiliar with Michael Lewis, the author who is quoted in the '60 Minutes' piece, and whose forthcoming 'Flash Boys' is the likely motive for its existence, he also wrote 'Moneyball', about the influence of the new metastats on baseball, and 'Liar's Poker', about his experience working for Salomon Brothers in the '80s. This book will be widely read, and hopefully be responsible for a large number of people pulling their money out of the market.

BTW, if Paul Krugman and Just Ralph agree about this, does that mean End of Days is near?

lansdale

[Poindexter]

Old news, new news. Whats the difference? Why is billions of dollars be stolen out of the markets legal or acceptable?. You guys cry in every thread about how Obama wants wealth redistributed from the wealthy to the poor(not that I disagree with your sentiment), but isn't this just wealth being redistributed from everyone to the extremely wealthy. This is okay?

Since IEX seems to have a way to combat this, is there a reason why anyone should not use them? If for no other reason then to reward them for doing the right thing, since nobody else seems to care.

[whodoyoulike]

Here's the one question I need answered.

Is what these high frequency traders doing unethical (we've already heard it is legal), or are they exploiting a legitimate edge they have created for themselves via innovative thinking? ...

I think it's very unethical and somebody should investigate whether this should also be made illegal.

It sorta makes a case for using limit trading orders.

[lamboguy]

it makes you wounder what these high frequency guys do in the pari mutuel pools all over north america these days.

[whodoyoulike]

I think it's very unethical and somebody should investigate whether this should also be made illegal.

It sorta makes a case for using limit trading orders.

Just thought of something else, how is this different from insider trading in principle? Instead of minutes, hours or days they process their orders in milliseconds in the direction of the optimal trade. Resulting in those who follow to lose $.

Someone should provide info on how much congressmen and senators have lost because of this unethical trading.

[lamboguy]

before HFT was SOS trading. originally the market market maker had to put up a price on 1000 shares at a time. back in those days around 1994 internet connections were slow, but there were places with T4 lines hooked up to instanet that could beat the market maker's to the punch. there might have been only about 5 or 6 different locations throughout the country that had the pipes with the fast connections. one of those places was in Waltham, Ma. right in the heart of the tech belt on route 128. i had a friend that opened up an office with 30 terminals and all the connections. every seat was full for about 3 years until the market makers said uncle, they lowered their hazard to 100 shares at a time and got rid of the SOS.

you have to remember that before SOS the spreads on equity's were 1/8ths and 1/4's. today they are only one penny for the most part. so even with the HFT methods a customer is still better off than in the old days.

the thing about this deal today is that the exchange gets paid from the high frequency traders. if they get rid of HFT they will bring back higher spreads.

always remember, THE JOB OF THE MARKET IS TO TAKE THE MOST AMOUNT OF MONEY AWAY FROM THE MOST AMOUNT OF PEOPLE IN THE SHORTEST AMOUNT OF TIME.

[thaskalos]

it makes you wounder what these high frequency guys do in the pari mutuel pools all over north america these days.
Given the archaic computer system used by the racing industry to handle the wagers...the high-frequency guys have probably figured out a way to place their bets about a minute or so after the start.

Why take risks...when you don't have to. :rolleyes:

[Poindexter]

it makes you wounder what these high frequency guys do in the pari mutuel pools all over north america these days.

It certainly makes me wonder. I would imagine these guys have up to the second data on every pool as the horses are half way loaded in the gate , while everybody else is looking at the odds from a minute and half ago minus a half a dozen feeds or whatever the tote board may be missing. Why would the racetracks care, they are beholden to these guys and everybody else is there to donate for entertainment?

[lamboguy]

Given the archaic computer system used by the racing industry to handle the wagers...the high-frequency guys have probably figured out a way to place their bets about a minute or so after the start.

Why take risks...when you don't have to. :rolleyes:they claim that those guys are not getting into the pools after the race starts, but who really knows what to believe these days.

[lamboguy]

It certainly makes me wonder. I would imagine these guys have up to the second data on every pool as the horses are half way loaded in the gate , while everybody else is looking at the odds from a minute and half ago minus a half a dozen feeds or whatever the tote board may be missing. Why would the racetracks care, they are beholden to these guys and everybody else is there to donate for entertainment?those guys have all the blind pool data that we don't have. those guys don't belong in pari-mutuel pools even if they don't get in after the race starts.

[Saratoga_Mike]

before HFT was SOS trading. originally the market market maker had to put up a price on 1000 shares at a time. back in those days around 1994 internet connections were slow, but there were places with T4 lines hooked up to instanet that could beat the market maker's to the punch. there might have been only about 5 or 6 different locations throughout the country that had the pipes with the fast connections. one of those places was in Waltham, Ma. right in the heart of the tech belt on route 128. i had a friend that opened up an office with 30 terminals and all the connections. every seat was full for about 3 years until the market makers said uncle, they lowered their hazard to 100 shares at a time and got rid of the SOS.

you have to remember that before SOS the spreads on equity's were 1/8ths and 1/4's. today they are only one penny for the most part. so even with the HFT methods a customer is still better off than in the old days.

the thing about this deal today is that the exchange gets paid from the high frequency traders. if they get rid of HFT they will bring back higher spreads.

always remember, THE JOB OF THE MARKET IS TO TAKE THE MOST AMOUNT OF MONEY AWAY FROM THE MOST AMOUNT OF PEOPLE IN THE SHORTEST AMOUNT OF TIME.

Good stroll down memory lane here Lambo - remember the SOS (small order execution system) bandits? Harvey Hotkin? The market moved to decimalization b/c of an academic paper published in the mid-90s (Prof Bill Christie and some professor from Ohio State, I believe) that showed a dearth of odd-eighth quotes, which led many to believe there was implicit collusion among mkt makers --with no odd-eighth quotes, you always make a 25 cent spread as a market maker.

[thaskalos]

they claim that those guys are not getting into the pools after the race starts, but who really knows what to believe these days.
I don't believe ANYBODY in this game.

Those guys who pulled the scam at the Arlington Park Breeders Cup in 2002 would have NEVER been caught if they weren't totally stupid...and there is no way of telling how many more "intelligent" thieves are still operating out there, even now.

It takes 22nd-century ingenuity to properly safeguard the wagering pools...and our game is stuck in the 19th century.

[lamboguy]

Good stroll down memory lane here Lambo - remember the SOS (small order execution system) bandits? Harvey Hotkin? The market moved to decimalization b/c of an academic paper published in the mid-90s (Prof Bill Christie and some professor from Ohio State, I believe) that showed a dearth of odd-eighth quotes, which led many to believe there was implicit collusion among mkt makers --with no odd-eighth quotes, you always make a 25 cent spread as a market maker.
President Bill Clinton's greatest line was always 'THE INFORMATION HIGHWAY".

with the technical fortitude that some people have, they can exploit almost anything. i wish i was that smart...

the only time i ever beat the system good was for 3 years betting on NHL games. i had the guy that had the lineup cards for all the hockey games every day. his job was to give them to Western Union so they would go out on the wires back then. i would get the starting goal keepers for every game. when a second stringer was in, i ran around the dessert and bet out. but everything came to an end, the sports books stopped taking big money on those games.

[Tape Reader]

For those of you, who don’t trade on a daily basis, try this experiment:

Google any product. Then go to Amazon and hover over it for a few minutes (check the price). Come back later and you may see the price a bit higher. Front running!

IMO, volume adds liquidly to a market; a traders friend. Anyone that thinks that nano-second speed, trumps proper timing, shouldn’t be trading.

More government BS to demonize Wall St., banks… fill in the blanks.

[highnote]

. Why would the racetracks care, they are beholden to these guys and everybody else is there to donate for entertainment?

Some racetracks bet into the pools, too. They are not as beholden as you think. Plus they get lower takeout rates than everyone else.

[lamboguy]

For those of you, who don’t trade on a daily basis, try this experiment:

Google any product. Then go to Amazon and hover over it for a few minutes (check the price). Come back later and you may see the price a bit higher. Front running!

IMO, volume adds liquidly to a market; a traders friend. Anyone that thinks that nano-second speed, trumps proper timing, shouldn’t be trading.

More government BS to demonize Wall St., banks… fill in the blanks.i am not going to disagree with you on this one because the amount that the high frequency traders steal might be 2 tenths of a penny per share and that is a lot better than the way it was years ago with the very wide spreads. but those small amounts do matter to the boys sitting in THE KINGDOM OF SAUDI ARABIA, unless they are doing this themselves and other large trading rooms all over the world. those people aren't betting chicken feed.

[highnote]

This is ridiculous. I have no interest or knowledge whatsoever of the stock market but how much is being stolen from stock market investors?

60 minute report (http://www.cbsnews.com/news/is-the-us-stock-market-rigged/)

I haven't seen the 60 minutes piece, but I'm a big fan of Michael Lewis and I'm sure I'll buy his book since I've bought all his other ones.

My two cents:

If you invest in companies with good products and good management and hold for the long term then the effect HFT has on you is negligible.

The market exists as place for companies to raise money to fund their operations and to return a share of the profit to investors.

It is not supposed to function like a casino.

If you are a trader then you are likely getting hurt more than an investor.

[incoming]

[QUOTE=Poindexter]Old news, new news. Whats the difference? Why is billions of dollars be stolen out of the markets legal or acceptable?. You guys cry in every thread about how Obama wants wealth redistributed from the wealthy to the poor(not that I disagree with your sentiment), but isn't this just wealth being redistributed from everyone to the extremely wealthy. This is okay?

No one stole anything, nothing unethical was done and not one law was broken. Somebody thought of a way to get their product to market faster than everyone else. Someone else realized they were getting their lunch taken right out of their mouth. Did they file a law suit...nope, did they run to a politician and try to get special laws passed...nope. He sit down with his team and thought of a better way. Started his own business with a better product. That is how it was done not to long ago.

Now, we wait for the Government to steal from people like this and give me my fair share. Now, where did I put that GameBoy? :sleeping:

[Poindexter]

For those of you, who don’t trade on a daily basis, try this experiment:

Google any product. Then go to Amazon and hover over it for a few minutes (check the price). Come back later and you may see the price a bit higher. Front running!

IMO, volume adds liquidly to a market; a traders friend. Anyone that thinks that nano-second speed, trumps proper timing, shouldn’t be trading.

More government BS to demonize Wall St., banks… fill in the blanks.

I am really trying to understand this. I don't have a horse in this race, but imo people stealing money (and it can really be called nothing else whether considered legal or illegal) of this magnitude can only have huge negative consequences not to mention it is morally reprehensible (as if the people doing it really care). How is beating a trade by reading it and making it first and then reselling it back to the person that was going to make a trade a positive thing in any way? It is adding to number of trades made, but it is only duplicating a trade that was being made anyhow. How can investors soaking up billions of dollars risk free out of a market a good thing? Also what exactly is the Government bs? The only government bs in my book is the SEC allowing this to happen. Enlighten me.

Incoming I do not get your post at all. I agree it is legal, though I cant fathom how or why. It certainly is unethical. It is basically frontrunning which is supposed to be illegal and as mentioned above by someone else very similar in nature and principal to insider trading.

[Poindexter]

Some racetracks bet into the pools, too. They are not as beholden as you think. Plus they get lower takeout rates than everyone else.

I assume they are betting after the race is over thus not having to worry about any takeout.

[DJofSD]

http://online.wsj.com/news/articles/SB10001424052702304886904579473874181722310?mg=ren o64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB1000 1424052702304886904579473874181722310.html

The Federal Bureau of Investigation is probing whether high-speed trading firms are engaging in insider trading by taking advantage of fast-moving market information unavailable to other investors.

[Tape Reader]

. How is beating a trade by reading it and making it first and then reselling it back to the person that was going to make a trade a positive thing in any way? Enlighten me.


Old joke: Broker tells client to buy xyz because…

Client buys xyz.

Price is up and Broker tells client to buy more.

Client buys more.

Price is up and broker tells client to buy more.

Client buys more.

Price is up. Client tells broker to sell.

Broker: to whom?

[Clocker]

No one stole anything, nothing unethical was done and not one law was broken. Somebody thought of a way to get their product to market faster than everyone else.

I agree. When the order is put into the system, it is public information. Some people have figured out how to get that information faster than other people.

Suppose someone posts a listing on the internet saying he is looking for a rare book. Somebody else has a listing offering to sell that book. If I see those listings before those two guys find each other, there is nothing unethical about me buying the book from the second guy and selling it at a profit to the first guy. If I can do that because I have better access to the internet or better computer skills or spend more time looking for such deals, I am not stealing anything from anyone. I am engaged in voluntary transactions between consenting adults.

[PaceAdvantage]

I think it's very unethical and somebody should investigate whether this should also be made illegal.

It sorta makes a case for using limit trading orders.Using limit orders is the FIRST thing you're taught. This was beaten into my head 10+ years ago...

You still won't get filled though...

And David Einhorn is an investor in IEX, so why was he being featured in this 60 minutes piece? He certainly isn't some objective observer of all of this...of course he's going to tout how evil this is and how we should all gravitate to IEX...

In fact, were there any objective observers interviewed for this 60 minutes piece? We have the guy who is writing a book about how bad this is...the guy who "discovered" this and now owns and operates a rival exchange, and a guy who has invested in this rival exchange....

How come there weren't any comments from the other side of the coin?

[PaceAdvantage]

http://online.wsj.com/news/articles/SB10001424052702304886904579473874181722310?mg=ren o64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB1000 1424052702304886904579473874181722310.htmlThere is a LOT of information not available to the general public.

Like the guy in his mother's basement that has discovered an algorithm that actually beats the market. Yes, he is out there. And no, you and the rest of the public will NEVER learn of it...

That's NOT inside information. And quite frankly, a SPEED ADVANTAGE, which is all this basically is, isn't inside information either, no matter how much someone wants it to be.

[Poindexter]

I agree. When the order is put into the system, it is public information. Some people have figured out how to get that information faster than other people.

Suppose someone posts a listing on the internet saying he is looking for a rare book. Somebody else has a listing offering to sell that book. If I see those listings before those two guys find each other, there is nothing unethical about me buying the book from the second guy and selling it at a profit to the first guy. If I can do that because I have better access to the internet or better computer skills or spend more time looking for such deals, I am not stealing anything from anyone. I am engaged in voluntary transactions between consenting adults.

This should not be public information. If I put a buy in for 10,000 shares of xyz company, this should be an agreement between me and exchange to give me 10,000 shares at the lowest price available. Not for them to share this information with an hft so they can upsell me. Why would it or should it be any other way?

[PaceAdvantage]

It sounds to me that what these HFT are doing is simply becoming new market makers on a sub-atomic level.

They are the equivalent to the NYSE market makers who did/do the exact same thing. They see the order flow coming and trade appropriately around it to make a guaranteed profit. Their reward for being market makers.

How are the HFT any different when you get down to the nuts and bolts of it?

I could be totally wrong, and if so, I expect to be told so shortly... :lol:

[Clocker]

This should not be public information. If I put a buy in for 10,000 shares of xyz company, this should be an agreement between me and exchange to give me 10,000 shares at the lowest price available. Not for them to share this information with an hft so they can upsell me. Why would it or should it be any other way?

It is not public information in the sense of being available to anyone in the world. It is public information in the sense of being an open order to purchase stock that is seen by all legitimate traders and exchanges on the network. And the HFTs are legitimate members of that network.

And the HFT is not upselling you, they are selling you shares at the market if you put in an order at the market, instead of at a limit. But by buying the shares before selling them to you, the market price goes up a tiny amount, and they make money on that.

[Clocker]

In fact, were there any objective observers interviewed for this 60 minutes piece? We have the guy who is writing a book about how bad this is...the guy who "discovered" this and now owns and operates a rival exchange, and a guy who has invested in this rival exchange....


The language used on the show, and by Lewis, was biased toward sensationalizing the story. There is nothing "rigged" and there is no "stealing" going on. There are inefficiencies and inequalities in all markets, and there are always some smart guys that can take advantage of them. And the "good guys" on the 60 Minutes piece have discovered an inefficiency and now they are taking advantage of it. And the market evolves and other inefficiencies develop. Technology changes, and someone finds a way to legally take advantage of it before the rest of the world catches up. It's called the free market.

[highnote]

Using limit orders is the FIRST thing you're taught. This was beaten into my head 10+ years ago...

You still won't get filled though...

And David Einhorn is an investor in IEX, so why was he being featured in this 60 minutes piece? He certainly isn't some objective observer of all of this...of course he's going to tout how evil this is and how we should all gravitate to IEX...

In fact, were there any objective observers interviewed for this 60 minutes piece? We have the guy who is writing a book about how bad this is...the guy who "discovered" this and now owns and operates a rival exchange, and a guy who has invested in this rival exchange....

How come there weren't any comments from the other side of the coin?

The 60 minutes piece seemed like a promo for Lewis' new book.

[highnote]

The language used on the show, and by Lewis, was biased toward sensationalizing the story. There is nothing "rigged" and there is no "stealing" going on. There are inefficiencies and inequalities in all markets, and there are always some smart guys that can take advantage of them. And the "good guys" on the 60 Minutes piece have discovered an inefficiency and now they are taking advantage of it. And the market evolves and other inefficiencies develop. Technology changes, and someone finds a way to legally take advantage of it before the rest of the world catches up. It's called the free market.


An inefficient market being exploited sounds correct to me.

Maybe IEX will make things more efficient?

[Poindexter]

It is not public information in the sense of being available to anyone in the world. It is public information in the sense of being an open order to purchase stock that is seen by all legitimate traders and exchanges on the network. And the HFTs are legitimate members of that network.

And the HFT is not upselling you, they are selling you shares at the market if you put in an order at the market, instead of at a limit. But by buying the shares before selling them to you, the market price goes up a tiny amount, and they make money on that.

This is just semantics. Probably poorly worded by myself. But let's get back to the issue at hand. I am trying to understand what value there is in someone being able to read my order buy it before me to drive the price up and then sell it to me at the higher price. What function does that serve other than to make them very rich and them redistributing money from other investors to themselves? Why should it be allowed?

[PaceAdvantage]

Why should anyone be allowed to have an edge in the markets? That's essentially the question you are asking.

[Poindexter]

Why should anyone be allowed to have an edge in the markets? That's essentially the question you are asking.

No, I have nothing against anybody have an edge in markets. I have an issue with someone stealing other peoples buys by a fraction of a second, only to sell it back to them at a slightly higher price...stealing billions of dollars long run out of the market and other investors net worth. I can't believe anybody can feel any differently.

[Clocker]

I have an issue with someone stealing other peoples buys by a fraction of a second, only to sell it back to them at a slightly higher price...stealing billions of dollars long run out of the market and other investors net worth. I can't believe anybody can feel any differently.

How is it stealing if you say that you want to buy something and I buy that thing and sell it to you at a price you agreed to pay? That's what a market order is, an agreement to pay the going rate. That's how the market works. Everyone in the market should know that. It is not stealing if everyone is playing by the rules. Calling it stealing is a subjective reaction depending on who wins and who loses.

[Poindexter]

How is it stealing if you say that you want to buy something and I buy that thing and sell it to you at a price you agreed to pay? That's what a market order is, an agreement to pay the going rate. That's how the market works. Everyone in the market should know that. It is not stealing if everyone is playing by the rules. Calling it stealing is a subjective reaction depending on who wins and who loses.

However, when the rules are exploited to the point that a subgroup of investors are sucking billions of dollars from the investment pool because of an edge that a lot of people had/have no idea even exists, then the rules need to be changed. Isn't that the function of the SEC? Just like when too many tax loopholes are exploited the tax laws change. Most people when they put a buy in at $52.00 don't expect to pay $52.05 or whatever the next price point may be on a continual basis. You cannot tell me that the purpose of these markets are for a small group of investors to suck out billions of dollars from others risk free. That is a flaw that needs to be corrected. For whatever reason, it doesn't seem to get corrected. Regarding who wins and who loses, it is the HFT, that always wins and everybody else always loses or at least doesn't win.

Regarding limit orders, If I put a buy in for XYZ at $52.00 can't this be exploited by hft's as well. Stock drops to 51.90, instead of me getting it for $51.90, they buy it and sell it to me for more than $51.90.

[lamboguy]

we have to date back about 35 years ago and look at how trades were executed. i am going to use Microsoft as an example. the information that you had before placing the trade was the bid is 40.00 the ask is 40.25 and last trade was 40.125. if you wanted to make the trade this very second for the 1000 shares offered on the bid and asked by the specialist you either had to pay his price or sell at his price to guarantee the execution. if you didn't like his prices you could put an order in at the price you want. the specialist could either book the order himself or wait for another order to come in on the opposite side of your trade and make the transaction that way. once the order gets filled, the brokerage firm that handled it now charges you a commision between $300-$500 for the 1000 share trade.

today your bid and ask will look like this for Microsoft: bid 40.00 ask 40.01. the brokerage firm charge to make the trade is usually $10.00 or less. the system today makes for a more efficient system and more trader friendly.

[Poindexter]

we have to date back about 35 years ago and look at how trades were executed. i am going to use Microsoft as an example. the information that you had before placing the trade was the bid is 40.00 the ask is 40.25 and last trade was 40.125. if you wanted to make the trade this very second for the 1000 shares offered on the bid and asked by the specialist you either had to pay his price or sell at his price to guarantee the execution. if you didn't like his prices you could put an order in at the price you want. the specialist could either book the order himself or wait for another order to come in on the opposite side of your trade and make the transaction that way. once the order gets filled, the brokerage firm that handled it now charges you a commision between $300-$500 for the 1000 share trade.

today your bid and ask will look like this for Microsoft: bid 40.00 ask 40.01. the brokerage firm charge to make the trade is usually $10.00 or less. the system today makes for a more efficient system and more trader friendly.

But how does me jumping on a stock at $40.00 and somebody reading my order buying it before me and selling it back to me at even 40.01, contribute to this small differential between bid and ask? Isn't electronic trading(etrade, ameritrade,fidelity.....) and low trading costs the reason that the volume is up and the differentials between bid and ask are so low. Could the market not find another way without hft's in it to get to fairly small differentials. I mean somebody has a sell in at $40.05 and somebody has a buy in at $39.95. Wouldn't they eventually meet each other at 40.00 without the hft taking his cut? I just do not see how the hft contributes in this process by peeking at an order and jumping on it first. The argument for hft is that it provides liquidity. An article from Forbes in the following link is trying to indicate what some of you guys are saying, about the liquidity outweighing the money taken out at least for small investors. It still does not make sense to me. Not sure it ever will. My gut tells me that this cannot be good for the market and a better way of keeping the differentials small could be developed. Will be interesting to see how this all plays out.

Forbes articles (http://www.forbes.com/sites/timworstall/2014/03/31/michael-lewis-is-entirely-wrong-about-high-frequency-trading-hitting-the-little-guy/)

[Poindexter]

One other article(from 2012) from a former market maker doesn't speak very highly of hft's. Also claims that though they add volume they do not add liquidity. I like this article better. :)

link (http://moneymorning.com/2012/10/16/unless-we-act-high-frequency-trading-will-crash-the-markets/)

[pandy]

I worked on the floor of the NYSE in the mid 70's just at the end of a long bear market and I saw the beginning of the higher volume which was the result of "institutional trading," and there were arbitrage traders even back then. These guys have found a smarter way to arbitrage.

Based on the press this is getting (they're talking about it right now on CNBC), this high frequency trading looks bad to the public and it will be interesting to see if the market does something about it. As it is, the average american is skeptical about the stock market and something like this certainly doesn't help.

[pandy]

Michael Lewis is on the Today Show today.

[barn32]

I agree. When the order is put into the system, it is public information. Some people have figured out how to get that information faster than other people.

Suppose someone posts a listing on the internet saying he is looking for a rare book. Somebody else has a listing offering to sell that book. If I see those listings before those two guys find each other, there is nothing unethical about me buying the book from the second guy and selling it at a profit to the first guy. If I can do that because I have better access to the internet or better computer skills or spend more time looking for such deals, I am not stealing anything from anyone. I am engaged in voluntary transactions between consenting adults.You must be a Republican.

[vegasone]

Michael Lewis’s flawed new book

In his introduction to the book, Lewis writes this:

The average investor has no hope of knowing, of course, even the little he needs to know. He logs onto his TD Ameritrade or E*Trade or Schwab account, enters a ticker symbol of some stock, and clicks an icon that says “Buy”: Then what? He may think he knows what happens after he presses the key on his computer keyboard, but, trust me, he does not. If he did, he’d think twice before he pressed it.

This is silly. I’ll tell you what happens when the little guy presses that key: his order doesn’t go anywhere near any stock exchange, and no HFT shop is going to front-run it. Instead, he will receive exactly the number of shares he ordered, at exactly the best price in the market at the second he pressed the button, and he will do so in less time than it takes his web browser to refresh. Buying a small number of shares through an online brokerage account is the best guarantee of not getting front-run by HFT types. And there’s no reason whatsoever for the little guy to think twice before pressing the button.


http://blogs.reuters.com/felix-salmon/2014/03/31/michael-lewiss-flawed-new-book/

[Clocker]

You must be a Republican.

There are two major inefficiencies in the political market: the Democrats and the Republicans.

You throw out a jibe, but you don't explain what is immoral about my example of finding a buyer and a seller for something I don't own, buying from one and selling to the other, and making some money on the deal.

[Clocker]

Regarding limit orders, If I put a buy in for XYZ at $52.00 can't this be exploited by hft's as well. Stock drops to 51.90, instead of me getting it for $51.90, they buy it and sell it to me for more than $51.90.

You make an offer to buy a stock at 52, someone sells you the stock at 52, and they are stealing from you? So if Schwab sells you the stock for 52 that is honest and moral, but if an HET sells you the same stock for the same price, that is stealing? Why is it not immoral for Schwab to make a profit on your order?

[Robert Goren]

The ethics of trading stocks is the law. There is no fair or unfair in it. Certain people may stop trading because they think the high speed traders put them at a disadvantage. If the law is change, it will because of that. It is the best interest of everybody to keep as much money moving around as possible. The laws are ,at least in theory, designed to that. Of course, a lot money changes hands in order to keep or change things because the spender think that keeping or changing things will give him an edge. Unfortunately, a lot of time that money is well spent.
The liberal in me says it is sad that the brain power of the high speed trader was put to use doing something more productive for society. One of the weakness of capitalism is that often rewards things that aren't productive or even counter-productive. The argument (and it is generally a good one) is that we can't always tell what is a productive endeavor and what is not. But I drift here..... Back to the topic.

[highnote]

Good points. The productivity comes from the demand for faster and better computing power. Someone has to design and build those computers. Someone has to program them. Someone has to manage the operations.

The ethics of trading stocks is the law. There is no fair or unfair in it. Certain people may stop trading because they think the high speed traders put them at a disadvantage. If the law is change, it will because of that. It is the best interest of everybody to keep as much money moving around as possible. The laws are ,at least in theory, designed to that. Of course, a lot money changes hands in order to keep or change things because the spender think that keeping or changing things will give him an edge. Unfortunately, a lot of time that money is well spent.
The liberal in me says it is sad that the brain power of the high speed trader was put to use doing something more productive for society. One of the weakness of capitalism is that often rewards things that aren't productive or even counter-productive. The argument (and it is generally a good one) is that we can't always tell what is a productive endeavor and what is not. But I drift here..... Back to the topic.

[DJofSD]

http://www.cnbc.com/id/101541725

Most importantly of all: Let's open up Reg NMS, the rule that came into effect in 2007 and helped "cement" much of the current market structure. This is the rule that required traders honor the best price. This is the rule that established the routing requirements between all the exchanges. This is the rule that allowed stock exchanges to pay rebates to customers. This is the rule that created new exchanges (BATS, Direct Edge). This is the rule that spurred development of dark pools and was responsible for "speeding up" the markets.


I have little faith this suggestion will be acted upon, and, I have even less faith the SEC will do anything. Just look at REG SHO enforcement.

BTW, if I remember correctly, BATS is the exchange the HFT use to obtain the information about pending trades in order to front run them.

[Poindexter]

You make an offer to buy a stock at 52, someone sells you the stock at 52, and they are stealing from you? So if Schwab sells you the stock for 52 that is honest and moral, but if an HET sells you the same stock for the same price, that is stealing? Why is it not immoral for Schwab to make a profit on your order?

The way it should work is that when I place an order,whether it is a limit order or a market order(or if a big mutual fund who I have invested with does so on my behalf) it that on the Market order I get the best price available at the time I place and order and on a limit order the same thing. Thus if I have a limit order for $52.00 but the stock jumps $52.00 and goes to $51.90 I get if for $51.90, not $51.96 because somebody "frontruns" me or my mutual fund if this is only going on with larger trades". It is immoral for Schwab or anybody else to make profit on my order. The only profit anybody should be entitled to when I make a trade is fee for the trade. Why should it be any other way?

[Poindexter]

Michael Lewis’s flawed new book

In his introduction to the book, Lewis writes this:

The average investor has no hope of knowing, of course, even the little he needs to know. He logs onto his TD Ameritrade or E*Trade or Schwab account, enters a ticker symbol of some stock, and clicks an icon that says “Buy”: Then what? He may think he knows what happens after he presses the key on his computer keyboard, but, trust me, he does not. If he did, he’d think twice before he pressed it.

This is silly. I’ll tell you what happens when the little guy presses that key: his order doesn’t go anywhere near any stock exchange, and no HFT shop is going to front-run it. Instead, he will receive exactly the number of shares he ordered, at exactly the best price in the market at the second he pressed the button, and he will do so in less time than it takes his web browser to refresh. Buying a small number of shares through an online brokerage account is the best guarantee of not getting front-run by HFT types. And there’s no reason whatsoever for the little guy to think twice before pressing the button.


http://blogs.reuters.com/felix-salmon/2014/03/31/michael-lewiss-flawed-new-book/

I am not arguing your point, I have no clue. I am just curious why a HFT would not try to "frontrun" every order. It appears to be fair competitive game of sharks, wouldn't some go after the big fish while others go after the smalller ones?

[DJofSD]

After watching Power Lunch and the various exchanges amongst the guests, I've decided to buy the book.

Additionally, I see some parallels between the NSA meta-data situation and the current controversy.

[Poindexter]

I worked on the floor of the NYSE in the mid 70's just at the end of a long bear market and I saw the beginning of the higher volume which was the result of "institutional trading," and there were arbitrage traders even back then. These guys have found a smarter way to arbitrage.

Based on the press this is getting (they're talking about it right now on CNBC), this high frequency trading looks bad to the public and it will be interesting to see if the market does something about it. As it is, the average american is skeptical about the stock market and something like this certainly doesn't help.

I think this situation is a little analogous to the Peta situation. To the public it is shocking, to people who know how the system works, what is the big deal.

In the peta video some horseman are saying what cruelty? What's the big deal about using buzzer it hurts less than a whip. To others(especially the general public) they see Nehro as a horse that should be on a farm somewhere living the good life instead......Regarding Stevens and Lukas joking about the buzzers they used many years ago, to the general public they see a hall of fame jockey and hall of fame trainer joking about something illegal-the sport has no credibility.

My point on all this, when you are used to wrong being the way, your vision gets clouded or blurred. The more questionable behavior you see on a daily basis the less questionable it becomes. This is at least partly why morality in this country has gone down the toilet. People just see so much wrong their vision gets very blurred. I am not pointing the finger at anybody here, I just think that this is the world we live in today. When I grew up, people hit a parked car, they left a note. Today whether they hit a parked car or kill a pedestrian they drive off.

The point being the public is not going the see things the way an industry insider (or someone with strong knowledge of an industry) will. They haven't been desensitized on a daily or weekly basis. When stuff like this comes out an industry needs to change for the better.

[badcompany]

Putting on the Tinfoil Hat for a moment, I find it a bit too coincidental that this piece came out right after a sharp selloff, or, to put it another way, at a time when insiders are buying.

While it didn't show that much in the S&P, some very large, widely held companies took significant hits in March.

That Google dip translates to about 40 billion:

http://i95.photobucket.com/albums/l142/thinlizzy21/E622EC3B-99DA-467A-9A11-5F7B8385AD50-2628-00000205B38E7894_zpsce4fe081.jpg

[badcompany]

I am not arguing your point, I have no clue. I am just curious why a HFT would not try to "frontrun" every order. It appears to be fair competitive game of sharks, wouldn't some go after the big fish while others go after the smalller ones?

For the same reason a money manager won't handle account below ancertain level. It's not worth their time.

At this point, it's basically a professionals game. The retail "little guy" has his money in Mutual Funds.

The wealthy are being represented by Hedge Funds who are in a fight with each other for Alpha. This is where the meat is for HFTs.

To be fair, what the trader in the piece wanted was unrealistic, namely buying large blocks of stock without the price being affected. It's akin to a horseracing whale expecting his big bet not to affect the odds.

This is actually an advantage for a little guy, as can expect truer odds and prices.

[Robert Goren]

This story came out when it did to sell Lewis's book. It is not the first time 60 minutes has done a piece as a Lewis book is being released. I know they did one for The Big Short and pretty sure they did one for Blind Side.

[badcompany]

This story came out when it did to sell Lewis's book. It is not the first time 60 minutes has done a piece as a Lewis book is being released. I know they did one for The Big Short and pretty sure they did one for Blind Side.

I'm talking about the timing. What's Lewis' book gonna do? A few million?

The March selloff for this stock, alone was 20 BILLION.

http://i95.photobucket.com/albums/l142/thinlizzy21/5FEC3974-BCFB-4368-A6F8-3C248C5BE1C3-2628-0000020DCE94305C_zps1542141e.jpg

[Clocker]

The way it should work is that when I place an order,whether it is a limit order or a market order(or if a big mutual fund who I have invested with does so on my behalf) it that on the Market order I get the best price available at the time I place and order and on a limit order the same thing. Thus if I have a limit order for $52.00 but the stock jumps $52.00 and goes to $51.90 I get if for $51.90, not $51.96 because somebody "frontruns" me or my mutual fund if this is only going on with larger trades". It is immoral for Schwab or anybody else to make profit on my order. The only profit anybody should be entitled to when I make a trade is fee for the trade. Why should it be any other way?

So if Schwab bought the stock a month ago for $48, they should sell it to you out of their house account for $48, because making a profit is immoral?

You keep talking about morality. Who gets to define morality in the marketplace? If two people have different sets of morals, they cannot do business? A Christian can't do business with a Muslim because they have different morals? How is anyone's morality relevant if there is a contractual exchange between consenting adults? It is a virtual certainty that in any deal there is asymmetric knowledge between the parties. That's the real world.

[Poindexter]

So if Schwab bought the stock a month ago for $48, they should sell it to you out of their house account for $48, because making a profit is immoral?

You keep talking about morality. Who gets to define morality in the marketplace? If two people have different sets of morals, they cannot do business? A Christian can't do business with a Muslim because they have different morals? How is anyone's morality relevant if there is a contractual exchange between consenting adults? It is a virtual certainty that in any deal there is asymmetric knowledge between the parties. That's the real world.

Schwab's duty is(or should be if it isn't) to sell to me at the market price. If the market price is $51.90 they should not see my limit order for $52.00 and say well he is willing to pay $52.00 for that stock, that is what he is going to get if for. The individual investor is powerless in the game. All he can do is go to etrade or wherever and click buy. What happens after that is out of his control. It is not like he is on the trading floor. saying who is offering a better price than $52.00? Oh clocker has it for $51.93, let me buy from him. This is why the system needs to protect the buyer. I do not know why so many disagree this concept. I understand(don't agree) if you feel there is a greater good that these hft's provide. I cannot understand why so many feel there is not a duty for the consumer to get the best price available at the time he clicks buy and for his trade to have the privacy(to not let someone look at his order, duplicate it and capitalize on it).

[thaskalos]

So if Schwab bought the stock a month ago for $48, they should sell it to you out of their house account for $48, because making a profit is immoral?

You keep talking about morality. Who gets to define morality in the marketplace? If two people have different sets of morals, they cannot do business? A Christian can't do business with a Muslim because they have different morals? How is anyone's morality relevant if there is a contractual exchange between consenting adults? It is a virtual certainty that in any deal there is asymmetric knowledge between the parties. That's the real world.

Let me ask you a question:

Let's say that you and I happen to frequent the same OTB...and I know for a fact that you are a winning horseplayer. Let's also say that I am friendly with the mutuel tellers in the place...and they inform me about all the wagers that you make -- so that I could piggyback on them. No big deal, mind you...but you receive, say, $8 on your winning horse -- instead of the $8.20 that you would have collected if I hadn't piggybacked along.

Would you give me credit for being "ingenious"...or would you call me "immoral"?

[Poindexter]

For the same reason a money manager won't handle account below ancertain level. It's not worth their time.

At this point, it's basically a professionals game. The retail "little guy" has his money in Mutual Funds.

The wealthy are being represented by Hedge Funds who are in a fight with each other for Alpha. This is where the meat is for HFTs.

To be fair, what the trader in the piece wanted was unrealistic, namely buying large blocks of stock without the price being affected. It's akin to a horseracing whale expecting his big bet not to affect the odds.

This is actually an advantage for a little guy, as can expect truer odds and prices.

However in the piece, he said that when he was able to get his full orders once he changed up the speeds of his internet connection and kept the HFT's out of the loop. I did not understand exactly how that worked(the connection arrived at different places simultaneously), so you will have to view the piece for a lot better explanation than i just gave you.

Also, I would assume that these traders know that there are 80,000 shares of xyz available when they put in the buy for 80,000 shares. Do they not?

[lamboguy]

the bottom line on this whole deal is that when someone puts in any order, limit or market, or stop loss, the order goes from the customer to the broker dealer and the broker dealer lets a high frequency trader take a peek at the order. whether there is something wrong or not is being left up to the FBI for investigation. as of right now, the exchanges have not pulled the switch.

i am waiting to hear what Rand Paul has to say about this. he is on a crusade about citizens losing their right to privacy. this might fall under the same category.

[JustRalph]

Let me ask you a question:

Let's say that you and I happen to frequent the same OTB...and I know for a fact that you are a winning horseplayer. Let's also say that I am friendly with the mutuel tellers in the place...and they inform me about all the wagers that you make -- so that I could piggyback on them. No big deal, mind you...but you receive, say, $8 on your winning horse -- instead of the $8.20 that you would have collected if I hadn't piggybacked along.

Would you give me credit for being "ingenious"...or would you call me "immoral"?

Great analogy

[Clocker]

Let me ask you a question:

Let's say that you and I happen to frequent the same OTB...and I know for a fact that you are a winning horseplayer. Let's also say that I am friendly with the mutuel tellers in the place...and they inform me about all the wagers that you make -- so that I could piggyback on them. No big deal, mind you...but you receive, say, $8 on your winning horse -- instead of the $8.20 that you would have collected if I hadn't piggybacked along.

Would you give me credit for being "ingenious"...or would you call me "immoral"?

I see no parallel between the situations.

In the case of the OTB, I think that the customers have an expectation of privacy, and that the teller who gives you information is violating a confidence. At the very least, the teller should be reprimanded. I would not say you were being immoral, but certainly slimy.

In the case of the HFT, that company is using information that it is legally and ethically entitled to have. It gets the information quicker than others that are equally entitled to it because it has more advanced infrastructure. The technology is available to others, but they have not put it into place.

The information about the order is equally available to all buyers and sellers in the financial market, just as the information in PPs is equally available to all horse players. If I use a more advanced technology than others, is that immoral?

[whodoyoulike]

It's a scam...whether it's considered "legal" or not. The exchanges invested $300,000,000 in order to secure a "speed advantage" and be able to read the minds of their customers...and then they LEASED this speed advantage to the high-frequency traders -- at $10,000,000 a pop. The high-frequency traders were then able to identify the intentions of the other investors...and would secure the shares that these investors wanted to buy, BEFORE they could buy them...and the traders would then proceed to sell those shares back to the investors -- at a higher price...and with no risk whatsoever.

If the high-frequency traders had been able to do all this by themselves...then you could argue that they were just being "smarter and faster" than the rest. But with the exchanges initiating this, and then bringing in the high-frequency traders after the fact...this becomes collusion with the intent to defraud -- which should be illegal...no matter WHAT the "law" says.

The "law" can be inconsistent at times...you know.

For instance:

Insider trading is considered to be illegal for all...but the politicians. :rolleyes:

As I understand it, intent to defraud has always been illegal subject to criminal penalties. And, I do recall these numbers being mentioned.

The language used on the show, and by Lewis, was biased toward sensationalizing the story. There is nothing "rigged" and there is no "stealing" going on. There are inefficiencies and inequalities in all markets, and there are always some smart guys that can take advantage of them. ...

When someone goes to the lengths of investing $300 million and allow a select few to see in advance transactions for $10 million "a pop" that is an indication to "rig" and "steal" IMO.


How is it stealing if you say that you want to buy something and I buy that thing and sell it to you at a price you agreed to pay? That's what a market order is, an agreement to pay the going rate. That's how the market works. Everyone in the market should know that. It is not stealing if everyone is playing by the rules. Calling it stealing is a subjective reaction depending on who wins and who loses.

The HFT's are stealing because they are not playing by the rules.

You make an offer to buy a stock at 52, someone sells you the stock at 52, and they are stealing from you? So if Schwab sells you the stock for 52 that is honest and moral, but if an HET sells you the same stock for the same price, that is stealing? Why is it not immoral for Schwab to make a profit on your order?

As a broker, they should make their profits from commissions and their book accounts previously held in their inventory not from my intentions to buy or sell stocks at a specific moment.

Clocker we disagree on so many points.

[thaskalos]

I see no parallel between the situations.

In the case of the OTB, I think that the customers have an expectation of privacy, and that the teller who gives you information is violating a confidence. At the very least, the teller should be reprimanded. I would not say you were being immoral, but certainly slimy.

In the case of the HFT, that company is using information that it is legally and ethically entitled to have. It gets the information quicker than others that are equally entitled to it because it has more advanced infrastructure. The technology is available to others, but they have not put it into place.

The information about the order is equally available to all buyers and sellers in the financial market, just as the information in PPs is equally available to all horse players. If I use a more advanced technology than others, is that immoral?

I am "slimy"...but not "immoral"? :)

Of course there is a parallel to the two situations. There is no illegality that could be connected to my action...and I exercised my ingenuity -- just as the HF trader did. His "battlefield" is the stock exchange, and mine is the OTB...and we both utilized our "connections" to increase our bottom lines. Capitalism at its finest.

I see plenty of "parallels"...

[Saratoga_Mike]

I am "slimy"...but not "immoral"? :)

Of course there is a parallel to the two situations. There is no illegality that could be connected to my action...and I exercised my ingenuity -- just as the HF trader did. His "battlefield" is the stock exchange, and mine is the OTB...and we both utilized our "connections" to increase our bottom lines. Capitalism at its finest.

I see plenty of "parallels"...

1) In your example, you did nothing wrong by shadowing the large player.

2) The small investor should just use a limit order. End of story.

[Clocker]

The HFT's are stealing because they are not playing by the rules.



What rules are they violating? There was no such charge on the 60 Minutes show.

[lamboguy]

What rules are they violating? There was no such charge on the 60 Minutes show.every big broker dealer can sell your order flow. right now it is legal with what little i know. but if this proves to be front running, then it is 100% illegal today. front running is a crime right now.

by the way for those that think this is illegal, the way to make money is to short ICE. if a broker dealer is stopped from selling the order flow, the revenue for the exchange will fall hard.

[whodoyoulike]

1) In your example, you did nothing wrong by shadowing the large player.

2) The small investor should just use a limit order. End of story.

Sounds like you've never chased a stock price. I remember around 2006, I chased two stocks I liked. One almost $1.00 higher than I originally wanted and the other about $0.50 higher. I remember because it was on the same day. Every time I put my order in, it went a few cents higher. The one that went $1.00 higher dropped $0.80 the next day. If I was aware this type of activity could have been occurring, I wouldn't have chased (maybe).

I don't know when this HFT started because there has been many flash crashes over the years. Now, I'm kinda pissed.

[Clocker]

I am "slimy"...but not "immoral"? :)

Of course there is a parallel to the two situations. There is no illegality that could be connected to my action...and I exercised my ingenuity -- just as the HF trader did. His "battlefield" is the stock exchange, and mine is the OTB...and we both utilized our "connections" to increase our bottom lines. Capitalism at its finest.

I see plenty of "parallels"...

Your hypothetical alter-ego is hypothetically slimy. :p

I may have misunderstood your hypothetical. You are doing nothing illegal, but the OTB teller is in my opinion violating a professional confidence. But I reserve the right to personally consider your actions distasteful, on the assumption that you know that the teller is acting unethically.

The HFT is doing nothing illegal, and is not violating any professional confidences, rules, or ethics.

[Saratoga_Mike]

Sounds like you've never chased a stock price. I remember around 2006, I chased two stocks I liked. One almost $1.00 higher than I originally wanted and the other about $0.50 higher. I remember because it was on the same day. Every time I put my order in, it went a few cents higher. The one that went $1.00 higher dropped $0.80 the next day. If I was aware this type of activity could have been occurring, I wouldn't have chased (maybe).

I don't know when this HFT started because there has been many flash crashes over the years. Now, I'm kinda pissed.

No one forced you to chase said stock. If you had used a limit order (AND LEFT IT THERE), you would have owned at the price you wanted.

[whodoyoulike]

every big broker dealer can sell your order flow. right now it is legal with what little i know. but if this proves to be front running, then it is 100% illegal today. front running is a crime right now.

by the way for those that think this is illegal, the way to make money is to short ICE. if a broker dealer is stopped from selling the order flow, the revenue for the exchange will fall hard.


That's what I like about your posts, you're always thinking. Too bad I have an aversion to shorting. When you short you need to constantly be watching the markets.

Thanks again for your ideas.

[whodoyoulike]

No one forced you to chase said stock. If you had used a limit order (AND LEFT IT THERE), you would have owned at the price you wanted.

That's the point, the stock prices kept increasing a few cents every time I submitted my limit order which was for a few cents higher than the last available reported quote. If I had left it at my original bids I wouldn't have had it filled that day.

[Saratoga_Mike]

That's the point, the stock prices kept increasing a few cents every time I submitted my limit order which was for a few cents higher than the last available reported quote. If I had left it at my original bids I wouldn't have had it filled that day.

I know what you did (been there) - you wouldn't have been filled that day. You would have been filled the next day at that limit price or lower!

[lamboguy]

That's what I like about your posts, you're always thinking. Too bad I have an aversion to shorting. When you short you need to constantly be watching the markets.

Thanks again for your ideas.

my best recent call based on instinct was LOCK. i am tooting my horn, but when i heard the Affordable Care Website was not secure. the bell rang that there is now 50 million potential customers for identity theft. the leader in the industry was Lifelock. the stock traded at $15 and the company was smart, they hired Rudy Guiliani for their spokesman, there was no better man in America for the job. the stock went to $23 and topped out. i have used similar reasoning for other stocks in the past and have found some pretty decent winners. i have had some losers too though. when i bought that stock, i probably got a little front run, but it didn't bother me to much!

[Saratoga_Mike]

nice call on LOCK - Target breached helped too, I'd imagine

[barn32]

It sounds to me that what these HFT are doing is simply becoming new market makers on a sub-atomic level.HFTs are not market makers.

[barn32]

Let me ask you a question:

Let's say that you and I happen to frequent the same OTB...and I know for a fact that you are a winning horseplayer. Let's also say that I am friendly with the mutuel tellers in the place...and they inform me about all the wagers that you make -- so that I could piggyback on them. No big deal, mind you...but you receive, say, $8 on your winning horse -- instead of the $8.20 that you would have collected if I hadn't piggybacked along.

Would you give me credit for being "ingenious"...or would you call me "immoral"?Bad analogy. When you piggyback the "winning" horseplayer you are still gambling that he will win. The HFTs aren't gambling at all--they have a sure thing.

[badcompany]

HFTs are not market makers.

The two aren't mutually exclusive. You can be a Market Maker and do HFT. Do you really think Barclay's doesn't do HFT?

[badcompany]

However in the piece, he said that when he was able to get his full orders once he changed up the speeds of his internet connection and kept the HFT's out of the loop. I did not understand exactly how that worked(the connection arrived at different places simultaneously), so you will have to view the piece for a lot better explanation than i just gave you.

Also, I would assume that these traders know that there are 80,000 shares of xyz available when they put in the buy for 80,000 shares. Do they not?

I saw the piece and would take what he said with a grain of salt. The piece said he worked for a big Canadian bank and made millions as a trader. So, you can imagine the size of his orders. I don't believe he could get guaranteed prices on orders of that size unless he arranged a deal, privately.

[Saratoga_Mike]

The two aren't mutually exclusive. You can be a Market Maker and do HFT. Do you really think Barclay's doesn't do HFT?

Yes, does anyone think the humans (sans HFT techniques) at GS and JPM were/are the ones generating trading profits 59 out of 60 business days each qtr? Hah!!!

[thaskalos]

Bad analogy. When you piggyback the "winning" horseplayer you are still gambling that he will win. The HFTs aren't gambling at all--they have a sure thing.

I never said it was the perfect analogy...and I, myself, mentioned REPEATEDLY in this thread that this practice is a "scam"...because these "traders" were able to remove all the risk from their "trading transactions". When traders/gamblers find "sure things"...then it doesn't take a "Sherlock Holmes" to deduce that there is some sort of scam going on.

I used this analogy because "Clocker" questioned the application of the word "immoral", in the business of profit-making.

[whodoyoulike]

my best recent call based on instinct was LOCK. i am tooting my horn, but when i heard the Affordable Care Website was not secure. the bell rang that there is now 50 million potential customers for identity theft. the leader in the industry was Lifelock. the stock traded at $15 and the company was smart, they hired Rudy Guiliani for their spokesman, there was no better man in America for the job. the stock went to $23 and topped out. i have used similar reasoning for other stocks in the past and have found some pretty decent winners. i have had some losers too though. when i bought that stock, i probably got a little front run, but it didn't bother me to much!

I do remember you posting that you liked LOCK. I really enjoy your posts but, I get the feeling you're a hustler (in a good way no disrespect). Even as I post this, I've got my hand on my wallet.

[Clocker]

this practice is a "scam"...because these "traders" were able to remove all the risk from their "trading transactions".

How is it a scam if they are following all the rules? How is it risk free if there is more than one HFT operating, and they compete for the same orders?

[thaskalos]

How is it a scam if they are following all the rules? How is it risk free if there is more than one HFT operating, and they compete for the same orders?

It is yet to be determined whether or not they "followed all the rules".

And this operating method is "risky", you say...huh? Is that why the HFTs paid $10 million each for the privilege of utilizing it? :rolleyes:

[Clocker]

It is yet to be determined whether or not they "followed all the rules".

And this operating method is "risky", you say...huh? Is that why the HFTs paid $10 million each for the privilege of utilizing it? :rolleyes:

Which is to say that they have not been proven guilty of anything.

I don't have the answers either. But I saw and heard nothing on 60 Minutes to indicate that the HFTs are doing anything illegal or unethical. They appear to be exploiting inefficiencies in the market. I am fine with people who do that, because as we saw on 60 Minutes, other people in the private sector then work to remove those inefficiencies, and the market is better in the long run for all.

The alternative is to have people like Michael Lewis and 60 Minutes whining about the market being rigged and inviting a Congressional investigation and more government regulation. I see no evidence of HFTs having an unfair advantage. The "proof" I see people offer is unequal outcomes. I need more proof than that before I'm convinced that something wrong is going on.

[PaceAdvantage]

What the 60 minutes piece boils down to, and what they EXPLICITLY STATED, is that these HF Traders have a speed advantage...a few MILLISECONDS.

That's it...and they're able to transform that into millions upon millions of dollars in profit.

Pretty impressive if you ask me. Any one of us would probably be doing the same if we had the ability.

And don't forget they don't have to pay these commissions that you and I have to pay for every trade, since they are their own broker. The only thing they have to pay is exchange fees to have their trades settled. And they get a very benevolent rate on even that given their immense volume...

[pandy]

Although this looks bad and gives these traders an unfair advantage, it probably doesn't mean much to the average person who owns stock. When I worked on Wall St. in the 70's, the trades were in quarters. You might see a stock bid at 25 1/4 ask at 25 1/2. Today the prices are in pennies or hundredths so you're getting a much more accurate price than you used to anyway. Do the pennies that these guys are stealing add up? For high volume day traders I would think that they do. If I was doing some serious day trading I would not want someone stealing pennies from me on each trade. For the guy who buys and holds or has his money in mutual funds, I can't see how it could matter.

[incoming]

Although this looks bad and gives these traders an unfair advantage, it probably doesn't mean much to the average person who owns stock. When I worked on Wall St. in the 70's, the trades were in quarters. You might see a stock bid at 25 1/4 ask at 25 1/2. Today the prices are in pennies or hundredths so you're getting a much more accurate price than you used to anyway. Do the pennies that these guys are stealing add up? For high volume day traders I would think that they do. If I was doing some serious day trading I would not want someone stealing pennies from me on each trade. For the guy who buys and holds or has his money in mutual funds, I can't see how it could matter.

Pandy, I would call this kind of trading an arbitrage. With those kinds of spreads in the 70's surely some kind of arbitrage took place. Did it not?

[PaceAdvantage]

And don't forget they don't have to pay these commissions that you and I have to pay for every trade, since they are their own broker. The only thing they have to pay is exchange fees to have their trades settled. And they get a very benevolent rate on even that given their immense volume...BTW, I could be way off on the above, so feel free to correct any details if you can...

[barn32]

What the 60 minutes piece boils down to, and what they EXPLICITLY STATED, is that these HF Traders have a speed advantage...a few MILLISECONDS.

That's it...and they're able to transform that into millions upon millions of dollars in profit.

I agree. However, how do they get that speed?

Article (http://moneymorning.com/2012/10/16/unless-we-act-high-frequency-trading-will-crash-the-markets/)

"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. [My emphasis]

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."

[pandy]

Pandy, I would call this kind of trading an arbitrage. With those kinds of spreads in the 70's surely some kind of arbitrage took place. Did it not?


Absolutely. Arbitrage was alive and well even back then.

[incoming]

Thanks Pandy, I just hope the GOVERNMENT doesn't get involved and try to fix a non-problem.

[lamboguy]

CNBC is working overtime to defend High Frequency Trading. Charles Schwab is calling it a cancer.

who do you believe?

http://www.aboutschwab.com/press/issues/

[PaceAdvantage]

As usual, the truth lies somewhere in the middle.

[lansdale]

As usual, the truth lies somewhere in the middle.

The earth is round. The earth is flat.

[whodoyoulike]

In an earlier post, I thought it reminded me of insider trading activity. This article seems to indicate the same.

http://www.cnbc.com/id/101544486

excerpt:

Exchanges, now publicly-traded companies, have allowed for "special order types" that cater to the cast of characters at the expense of the real customers – the real asset managers. Order types that "read" incoming order flow then react by "stepping ahead" of that same institutional order allowing them to profit on information that is not yet publicly available. ...

I hope there are criminal charges brought up against the HFT's. Earlier there was mention that Barclay bank probably engages in HFT, I hope so, since I don't have any interaction with them and I think they have deep pockets.

They should all be put on trial. The ones who have shit in their pants are immediately considered guilty and those who haven't are probably constipated. (JMO)

[Tape Reader]

IMO, this is getting beyond stupid. Next they will be requiring bubble gum on the tires for fast Indy pit crews.

I have been trading for over fifty-years. Believe me; the conditions today for the big guy and the little guy have never been better: Point and click execution, penny spreads, zilch commissions, etc. Horseplayers should have it one tenth as good.

This is all about demonizing Wall St. and successful people in general. Sure, the government knows best. Sells well to the uneducated. Fines are the only growth industry that comes out of DC.

[barn32]

I have been trading for over fifty-years. Believe me; the conditions today for the big guy and the little guy have never been better: Point and click execution, penny spreads, zilch commissions, etc. Horseplayers should have it one tenth as good.
100% correct, but if the butcher puts his fingers on the scale...

[pandy]

Good points. My dad was a stock broker and he used to get 20% commissions on trades.

[lamboguy]

http://www.kitco.com/news/video/show/Reset/627/2014-04-03/Can-HFT-Spoof-Gold-Ahead-Of-Jobs---Vince-Lanci

[_______]

I'm reading the book and near the end Michael Lewis notes that the principals decided to rename the exchange they started IEX from Investors Exchange and states they'll be more on that later.

At the end of the chapter there's a footnote that they had wanted to preserve the full name but discovered a problem when they set out to create an Internet address.

To avoid investotsexchange.com, they created the current name.

Just thought that was funny.

[DJofSD]

I'm about half-way through the book.

At this point I have two thoughts.

First, my take away from understanding the process and how it came about is it violates the spirit of a fair market place. As outlined in the book, yes, there is a long history of front-running and arbitrage. However, Reg NMS and all of it's predecessor's came about because of activities which were deemed to be not in the best interest of keeping the market place fair and level.

Next, front running is not too far different than putting large wagers on a runner, drastically changing the odds then later cancelling the bet.

[lamboguy]

the thing that i don't understand is that the big broker dealers are selling the orders that i put into their platforms for big money. why don't they just do it themselves?

[lamboguy]

every big broker dealer can sell your order flow. right now it is legal with what little i know. but if this proves to be front running, then it is 100% illegal today. front running is a crime right now.

by the way for those that think this is illegal, the way to make money is to short ICE. if a broker dealer is stopped from selling the order flow, the revenue for the exchange will fall hard.

ICE was $220 now $189, this baby looks like it got $120 written all over it. this is why i pay attention to the Pace Advantage board you read it and make money, its that simple.

[badcompany]

the thing that i don't understand is that the big broker dealers are selling the orders that i put into their platforms for big money. why don't they just do it themselves?

I've wondered about this, myself.

When the Specialist system became the Designated Market Maker system, the DMMs gave up the "first look." Why did they do this?

My guess is that the big banks, facing competition from sophisticated HFTs, found it more profitable to sell the info than act on it.

[davew]

I don't trust brokers, and think many of the big dealers are front running then scalping many transactions - especially the ones offering deep discounts.

I remember watching a 60 minutes episode sometime 5-10 years ago when they tried to interview any of these computer high speed traders. They got one guy to talk while we was setting up a new shop / bigger place. He mentioned something like making a million a day.

[PaceAdvantage]

There is SO MUCH money floating around the trading business...all I want is a tiny slice... :lol:

[DJofSD]

The plot thickens: http://www.bloomberg.com/news/2014-04-13/cme-gave-high-frequency-traders-peek-at-market-lawsuit-claims.html

[DJofSD]

http://www.cnbc.com/id/101556565

[DJofSD]

http://www.bloomberg.com/news/2014-04-17/high-frequency-fightback-starts-in-foreign-exchange-currencies.html

I wonder if there will be fall out for the US markets akin to the move away from US based internet companies.

[whodoyoulike]

http://www.bloomberg.com/news/2014-04-17/high-frequency-fightback-starts-in-foreign-exchange-currencies.html

I wonder if there will be fall out for the US markets akin to the move away from US based internet companies.

I'm wondering if the NY AG and the FBI read PaceAdvantage.com?

This may be the pulse of the investing public. I believe someone in Congress once mentioned or made reference to this web site.

[DJofSD]

http://www.usatoday.com/story/money/business/2014/06/25/ny-ag-lawsuit-barclays/11365909/

[whodoyoulike]

I'm wondering if the NY AG and the FBI read PaceAdvantage.com?

This may be the pulse of the investing public. I believe someone in Congress once mentioned or made reference to this web site.

Now, I'm positive they read our posts!!