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Some great insights on High Frequency Trading

April 8, 2014

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Discussion
15 Comments
    Apr 08, 2014 08:14 AM

    Rick, I just don’t get this. If my bid on a thousand shares is already in then how can the HFT crowd front run me and buy up the shares that I want before selling back to me for a profit? I mean….I am already bidding. I was in the lineup first. My order should get filled first. Or is it that they buy much smaller batches of stock that are not getting filled by my 1000 share order? EG…they pickup up two three or ten here and there and then turn around once they batch together what I want and complete the order.

      Apr 08, 2014 08:52 AM

      OK…maybe my question is dumb. I don’t know much about how HFT or algos function. I just want to know how these guys get my order before the exchange gets it. Is my trade being sent to them first? Everybody is talking about this in broad strokes but I am trying to get to the bottom of the actual mechanics. How exactly am I being cheated?
      Does anybody here know?

        b
        Apr 08, 2014 08:51 PM

        Bird. I don’t remember precisely but, (some of the exchanges/funds/brokers are paid for the info that you put In an order) OK, you make your order for 1000 shares, the company that now knows your going to buy uses a faster line than you do, they buy and sell to you at say .0001 cent more, it happens in milliseconds and hundreds if not thousand of times a day. thus high frequency. I probably didn’t explain well but maybe enough to give you the idea as to how it works.

        There is a broker that is using “coiled cables to counteract this. I saw the guy on tv again but they flashed his name so fast I couldn’t get it.
        I would think finding this new broker would be to anyones advantage that trades a lot.

          b
          Apr 08, 2014 08:54 PM

          You may of heard that some companies are moving their offices close to exchanges, they spend millions to do that. Its just to shave of a millisecond or two for their tradeing.

            b
            Apr 08, 2014 08:56 PM

            wonder when people are going to get the idea that the markets are just too crooked to deal with?

            My guess, just at the moment I fianlly buy the stock that’s going “to the moon”

          Apr 09, 2014 09:40 AM

          So you are saying my broker is selling my trade data to these guys ahead of the fill to allow the front-running to take place? That stinks. Is that actually how it works? Are all the human traders just fodder for the algo machine and getting sold down the river? Seems to me that is a big breech of trust.

            b
            Apr 09, 2014 09:13 AM

            Well, I obviously cant say your broker is selling or paying for the info, but it is definatly happening. I guess that new book shows some pretty good detail about it. I havnt read it but that’s what Im hearing. The fellow was on the “daily show” John Stewart.

            I guess they provide liquidity is one way to look at it as well.
            I don’t know what they do with “batches”

            Maybe I am so small I never noticed, but when I put in an order say for 5 cents, I either get it at 5 cents or I don’t get it.
            Liquidity, I check out before I buy, a few million traded a day and I don’t mind buying 100,000 etc
            Maybe this skimming doesn’t happen if you trade yourself?

            There is a guy starting an exchange that is “countering” this hft, I would think that’s where to do your trading, I would also think it might be an idea to own shares in it.

        Apr 08, 2014 08:59 PM

        Yes and listen tomorrow.

          Apr 09, 2014 09:35 AM

          So they do provide liquidity then. Sometimes you put an order in that does not get filled all at once or at the same price because trading is too thin or your order is an inconvenient size. Then these guys make it so your price is matched in a single trade and not a bunch of batches? Is that basically it?

    Apr 08, 2014 08:22 AM

    I place limit orders in small dollar amounts personally, but may still be affected. thank you rick for the interview, I was looking forward to your ta though!?

      Apr 08, 2014 08:01 PM

      Bob Moriarty will be so us tomorrow.

    jj
    Apr 08, 2014 08:24 AM

    The market makers those that provide the constant bid and offers have ALWAYS front run the action and always will just as every order a corporate leaves with a banker trading anything, they use it and abuse it….its been going on forever!

    Joe
    Apr 08, 2014 08:27 PM

    Everyone is worried about front running by the market makers , when in fact our politicians front run with there legislation that they can then hedge there bet by acting on it in there favor but not ours . Many a politicians have feathered there hats with money by knowing what the outcome of the bills they support and have benefitted greatly by buying securities of those industries that have bribed them for favors. I suggest we be more concern about what are so called protectors our doing behind our backs

    Apr 08, 2014 08:23 PM

    Not an expert but I see two ways to front run, the first is to sub-penny the order and the other is to see your order on one exchange and beat the order to the counter-party on another exchange.

      Apr 09, 2014 09:05 AM

      I have seen my small order filled but with no change in volume. Then, later in the day a block trade probably from another exchange will go through often at a lower price than what I paid. If I bought 1000 shares the block might be for 10 or 20,000 shares. Liquidity, yes but also it is subterfuge as the bid/ask volumes and overall volume is continuously skewed. Advantage is to the skewers of course because they make the decisions and take their cut first.