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Flash Crash Analysis of May 6 Stock Market Plunge
Jamie found an interesting site that has many charts and graphs about the strange May 6 stock market plunge and rebound. There's a lot of information to consume over there, but it does a pretty good job of showing high-frequency trading is getting to be a real problem.
Not to be a conspiracy theorist, but I work with a bunch of math PhDs who specialize in stochastic processes. Two of them used to work in the financial sector before the crash. Everyone around here including me has come to the conclusion that someone planned a really big "oops" to make his friends very rich and get a few kickbacks. Sell it short, baby!
The problem with this is that since it has happened once, it *is* going to happen again in a slightly different way. Software glitches, fat fingering the keyboard, etc. are convenient excuses.
...right here. One commenter had some interesting things to say about "quote stuffing":
So it might not be the big advantage that Nanex sees it as.
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The real problem isn't trading frequency. It's the basis for the market. Since most stocks have stopped paying significant dividends, there's very little basis for any one stock's value. The stock market today is solely based on betting whether an individual can accurately predict what the rest of the market will do in the future. Stock prices don't have anything to do, whatsoever, with the inherent financial value of the underlying company.
If I'm going to gamble, I'm going to Vegas. At least there, you get free drinks as you piss your money away.
I don't respond to AC's.
High Frequency Trading is _beneficial_ to the public markets at large, and why powerful interests keep blaming and attacking electronic trading as the root of all financial evils that befall us: http://www.tradersmagazine.com/news/high-frequency-trading-benefits-105365-1.html?zkPrintable=true
High frequency trading is not beneficial when it shaves pennies and acts as an intermediary between a buy & a sell that would have executed anyways.
Your article discusses exactly that in the section called "Accelerating Price Discovery Benefits All Investors"
And they have the nerve to try and make it sound like a good thing. From your FA:
Some critics, however, still maintain that, while greater liquidity is valuable in theory, market participants with large orders (and the individual investors they often are representing) are nevertheless harmed by high frequency trading. In simple terms, these critics assert that when, for example, they try to purchase a large quantity of IBM shares, high frequency traders detect the buying interest and cause the price of IBM to rise before they can finish purchasing all the shares they desire.
The problem with their counter-argument is that it ignores the fact that the HFT is buying up all the shares you could have bought and then selling them to you for a higher price.
You, the original buyer get screwed and they, the original sellers, gain no benefit.
Then they try to stretch their asinine argument about trades that take milliseconds to execute,
into the realm of land sales which often take days if not weeks to arrange and execute.
Intellectual dishonesty at its finest.
[Fuck Beta]
o0t!
All this HFT stuff is zero-sum, if someone makes $10 on HFT, someone else loses $10.
HFT is a market parasite at this point and, IMO, ALL quotes should have a randomly induced delay between 0 and 1 second (with the delay being DIFFERENT to different participants), to eliminate the advantage of high frequency trading.
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As the FA points out, you are arguing in favor of inefficient markets. You want to be able to buy up all the shares without anybody being aware of the increased demand. HFT buys and sells in microseconds, at most minute time-frames - reducing the spread in the process.
I guess that depends on your definition of "inefficient."
Lets say you're at the supermarket.
You reach out your hand to take [product] off the shelf,
by the time you reach out to take another [product], the shelf is empty!
A HFT saw your first signal and then swept the shelf clean,
bought all of [product], and is offering to sell [product] to you at a markup.
Oh, and the HFT has done the same thing at every other supermarket you would visit.
Has the market been made more efficient?
Or is the HFT behaving like an anti-social asshole?
I'd say the answer to both questions is "yes,"
but that the needs of society outweighs the needs of the market,
which is why we have farking regulations in the first place.
You want us to believe that a few microseconds later your buy/sell opportunity at a few cents difference has vanished.
Uhhh... that's exactly what HFTers do.
That's exactly what the parent's article argues is a good thing.
Or do you have another explanation for why they need ultra low ping connections?
[Fuck Beta]
o0t!