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[lamboguy]

Originally Posted by barn32

I just finished a very good book by Scott Patterson called Dark Pools. Got it at the library. It kind of ends where Flash Boys begins. (Another good read.) He goes into great detail about the geniuses behind all of these Algos and how it all got started. There's also alot of discussion about the "SOES bandits" in the 80s.

Yesterday is a good example of high speed manipulation. JNJ (Johnson & Johnson) reported some very bad news about asbestos in their baby powder. The stock opened about down 8-10 points and ended up down around 14.

I tried shorting JNJ three different times with 40¢ stops and got stopped out every time. Watching the stock on the ladder, or the level 2 you could see JNJ whipping around all over the place. I figured it was going lower and wanted to get short, but I kept getting whipped out. (I finally did get off one good trade in JNJ, but I had to take off my hard stop in order for it to work out.)

High frequency traders were having a field day in this stock. Since they trade in milliseconds (millionths of a second), and if they aren't currently trading in nanoseconds-billionths of a second, "they will be soon." There was even talk in Patterson's book of picoseconds trillionths of a second.

The HFT traders (and their ALGOS) can step in front of every trade, front run everyone from pennies to quarters and do it thousands of times a day.

JNJ was the perfect vehicle for HFT traders yesterday. With the stock whipping all over the place like that you know they were front running everybody. But they do it in all stocks everyday. Sure it may only be pennies at a time, but it adds up to millions at the end of the year.

There is a trading firm referred to in Dark Pools that never had a losing day.

i spent some time in a trading room back in the mid 80's, Block Trading, if i remember right. the room had about 25 traders, most were soes bandits but some guys were playing breakouts. at that time you could trade 1000 shares at a time on instanet and the specialist on the other side of you had to book the action.. many times you could find eight of a point spreads between the market makers. they charged $25 per trade back then.

at the end the rules changed and the market maker didn't have to put up 1000 shares. the traders in that room became gamblers, some took trades overnight and lost big on gap ups and gap downs. the room closed up about a year later.