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Mysterious Algorithm Was 4% of Trading Activity Last Week
concealment sends this excerpt from CNBC:
"A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear. The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. ET Friday."
"What they are doing is consuming the service to the detriment of other users, and extracting a tax with their unfair advantage over other users, while contributing exactly nothing back."
Reply: In addition to competing to a fixed volume of trade time, it still seems possible that these bot traders may accidentally "collide" at some point producing a massive change in prices and cause huge artificial alteration of the market that has NOTHING to do with rational investing.
We usually call this gambling. Normal stock buyers at that point can be considered the sheep to be fleeced.
Bullshit. They skim the difference between what someone would be prepared to sell for and what someone is prepared to pay (ie an investor may be prepared to pay 1.25 for a share, but you are offering to sell for 1.20 -- instead of the investor paying only 1.20, the HFT jumps in, buys for 1.20 and sells for 1.25, pocketing the difference). This is not just HFTs screwing each other, it screws the normal investor (which includes, you know, funds investing your pension money).
How does the HFT magically know what you were willing to pay? It's really hard to have a reasoned debate when people are attributing ridiculous feats to HFT.
Plus one doesn't need to trade in the millisecond or faster range to exploit the spread. Most just do it by controlled the market that you actually trade on. Few traders actually trade on the stock exchanges. Usually they trade on someone's private market which may then trade on the regular stock exchange or on another private market to get the actual stock in question. And market makers (of which HFT is a subcategory) routinely do this sort of trading for centuries without drawing a lot of ire from the people they're generating liquidity for.
If you're willing to pay 1.25 for a stock, then you should be happy that you got the stock for the price you wanted. No one has the job of delivering a stock for less than what you are willing to pay for it. And if you didn't want to pay 1.25 for it, then don't. The market which you happen to be trading on might have some sort of obligation to give you a better deal than the deal you wanted, but nobody else does.