Have We Hit Peak HFT?

CowboyRobot writes "There was a time when people wanted the fastest networks so that they could trade at lightning speeds. They deployed the smartest formulas at trading venues where no one could know who was asking for that big block of stocks on the other end of the deal. It was a wild time and people made a lot of money along with some very unwise decisions. Wall Street seems to be acting out the lyrics to a Don Henley song. The party's over, the hangover is raging and no one really knows what happened the night before. The number of shares traded via high-frequency trading are down and politicians want to roll out a tax to serve as a speed bump. Iowa Senator Tom Harkin and Oregon Representative Peter DeFazio want a .03 percent tax on nearly every trade in nearly every market in the U.S. Some are wondering if microsecond dealings are poised to fade away. As the founder of HFT firm Tower Research Capital Mark Gorton puts it, 'The easy money's gone. We're doing more things better than ever before and making less money doing it.'"

Comments

Good

[clickclickdrone]

HFT is a symptom of a deeply broken system. We need to really start to recognise that profit isn't all and long term stewardship of our instituitions and systems is key to our long term quality of live. For everyone.

Re:Good

[Anonymous Coward]

It's 0.03% on everything, not just HFTs, so it has to be small. The intent is to tax people who make money on trade volume rather than on trade value, which is a larger issue than just the speed at which trades are executed.

Re:Good

[gd2shoe]

HFT is a symptom of a deeply broken system. We need to really start to recognise that profit isn't all and long term stewardship of our instituitions and systems is key to our long term quality of live. For everyone.

Mostly true, but simplistic.

HFT is a symptom of a deeply broken system. It brings liquidity, which is good, but it has tended to move the market in unreasonable (and sometimes dangerous) ways. So many trades today are HFT versus HFT that it obscures the real markets. We've seen several clear instances where computers are terrible at predicting the real market values when the primary data they're competing against are the actions of other computers. HFT doesn't lead to good price discovery, it obscures it.

When talking about long-term stewardship of institutions, we really need to move away from unreasonable earnings expectations every quarter. When the focus of the market is on ever narrowing periods of time, corporations simply cannot properly invest in the future. Yes, some corporations are lead by unusual people who can leave market panic behind them and truly lead... but most companies are run by very smart idiots.

Ultimately, stock/commodity/bond markets are about profit. There is nothing inherently wrong with that. The question for the rest of us is: what is the social value? Wall Street has some social value, but it also has considerable social expense. Sometimes we forget that. We also tend to forget that "the markets" are still based upon similar principles that brought us the great depression. Yeah, they're more sophisticated now. Yes, there are "regulations" (occasionally enforced). But the market CANNOT bring prosperity by ignoring it, and letting it run on its own.

Stock/commodity/bond markets are not capitalism. They are merely outgrowths of one particular variation on capitalism. They're finicky, hard to properly balance, and break if you try to exert too much control.

Re:Good

[SlashV]

then why not tax per volume traded?

It *is* taxed per volume. 0.03%, which it nothing for a normal transaction. But for someone who buys and sells the same stock a hundred times per day, just to profit from tiny fluctuations in the stock value, it's 3%. This will kill the ridiculous business of racing for fastest connection and smartest trading algo, which is *good* because it is a ridiculous and useless business.

Re:Good

[StripedCow]

Ah, but you didn't consider the effect this will have.
The result will be that share prices become normalized in a certain sense. Not too large to allow trading, not too small to allow reasonable trade taxes.

Re:Good

[peragrin]

Something like 60% of the active volume of trades are HFT that is lasting less than a second. That isn't investing in a company that is gambling.

The other problem is the economy is growing at maybe 1% a year and the entire stock market is doing 10-15% Sure some companies are growing that way but there is a major disconnect between how wall street is growing and the rest of the world. If Wall street is supposed to be about individual company profits how can it be growing so far beyond the companies that are represented in it?

Re:Good

[StripedCow]

Anyway, the tax should of course be on short-term investments.
The shorter an asset is kept, the higher the tax should be.

If this is too difficult to implement, then perhaps a tax per transaction will do, indeed.
If a HFT trader makes a profit of 0.03% per transaction then this tax will make HFT trading unprofitable, while leaving long-term investments mostly untouched.

The effect will be that the frequency of trading will go down. The question is whether that will be sufficient. (Holding on to a stock for a day instead of a few milliseconds is not going to be a huge improvement in terms of long-term investment and long-term vision).

Re:Good

[Too Much Noise]

HFT is a symptom of a deeply broken system. It brings liquidity, which is good, but it has tended to move the market in unreasonable (and sometimes dangerous) ways.

That is a bit simplistic as well. First, stepping in front of a trade because you can (1) see it before the other guy (due to having lower latencies in talking to the exchange or having priority 'fast' data feeds) and (2) quote using fraction of a penny increments as opposed to pennies for the 'regular' guys is not adding liquidity. In fact, from the way flash crashes happen you can see exactly how HFT does not add liquidity with a stock/future going bidless and crashing. Properly supplying liquidity would not allow for something like that to happen.

When talking about long-term stewardship of institutions, we really need to move away from unreasonable earnings expectations every quarter.

Who is we? The short-termism here is the market speaking. The idea of markets setting the 'right' price is highly dependent on your definition of 'right'. As the saying goes, markets can remain irrational longer than one can remain solvent (and bet on rationality). Nevermind the fact that people in the market have different types of interests which are not always aligned to long-term value. See corporate raiders, LBO, and so on - case in point, Icahn.

When the focus of the market is on ever narrowing periods of time, corporations simply cannot properly invest in the future.

That's not entirely the problem. When the upper echelons of the corporations receive stock options with short vesting periods (no, 5 years is not long term compared to typical investment horizons, and 5 years are not really that frequent) the motivation to invest in the long-term future is basically absent. Also, there are industries where that is simply not possible, as the prevailing conditions fluctuate too much.

Ultimately, stock/commodity/bond markets are about profit. There is nothing inherently wrong with that. The question for the rest of us is: what is the social value?

Indeed, profit is the key word. Social value is incidental, if at all.

Re:Good

[sjames]

Jim has an apple. He calls out, who will give me 50 cents for this lovely apple. Jon likes apples so he heads over. Just as he raises his hand to call out, flash the wonder trader bumps him into the gutter and buys the apple from Jim (even though he hates apples). He then offers it to Jon for $51 cents.

Not only is that rude, but eventually you'll get popped in the nose for it.

Re:Good

[TheDarkMaster]

Is good. HFT distorts the purpose of a stock exchange, the idea of having shares in a company to help it to capitalize, make it succeed and you earn a share of the profits in return. A company needs partners (the shareholders), not parasites.

Re:Good

[gbjbaanb]

there was an example of the broken financial system on the news last night.

Basically Guinea (IIRC) has some mountains that are 60% pure iron, so the (allegedly corrupt) dictator of Guinea gave the mining rights to an (allegedly dodgy) mining company.

Said company then didn't bother to mine the iron, instead it used the backing of having a huge iron asset to make trades on the markets and made a load of cash that way. Meanwhile the people of Guinea are dirt poor with no hope of even getting jobs digging said iron out of the ground for 10p a day, let alone seeing the extraction of the iron benefit the country's economy.

This is one way of seeing why a financial market that does nothing but deal within itself is a bad thing. If we changed focus so stock markets were tied to something in the real world (eg Microsoft profits, or Apple growth) no matter how tenuous, that you held for some time because of that real-world item's worth wrt the stock then we'd see stock markets become more investment based and less trade based.

We might as well base the stock market on TV shows - you could trade on the love life of some TV character without any difference with how financial companies trade today.

Re:Good

[sjames]

If you're just going to throw chaff, I'll say that flash prevented Geoff from buying the apple from Jim for a dollar and giving it to Jon just because.

The simple fact is that if you put two people in a room who want to make a transaction, they will do so if both are reasonable. Both lose if someone inserts themselves into the deal and bleeds a few cents out. The HFT make money somehow, and since they DO play a zero sum game, that means they make it by causing others not to.

Re:Good

[dywolf]

buying 100 million shares in london and immediately selling the same in tokyo to exploit a 1 ms diffrence in ping that causes the price to be 0.01 different in both locations to eek out a tiny bit of profit that was NOT DUE TO ANY ACTUAL CHANGE IN STOCK VALUE BUT DUE TO PING TIME.

buying a few thousand shares at a time and immediately canceling the buy order in order to fish out normal trader's sell limits (which are hidden and theoreatically secret from the buyer) in order to remove them from the market

multiple HFT caused viscious cycles that cause the market to be extremely volatile and nearly crash...

seriously, if you need it explained in this day and age, you're just a troll or a shill for an HFT company.

Re:Good

[um... Lucas]

It seems far from a "the rich are too rich" type of tax. It would apply evenly to a hedge fund manager or a 20 year old making their first IRA contibution. A 0.03% tax would go unfelt by that 20 year old and it would also go mostly unnoticed by a Warren Buffett. Heck it would go unnoticed by a trader sitting at home. The rules would be the same across the board, but someone executing a hundred trades per second would be the only one who would feel an impact.

Re:Good

[um... Lucas]

a 0.03% isn't a tax per share it's a tax on the dollar value of the final trade when executed - whether it's one share at $100,000 per share or 100,000 shares at $1 per share, the tax would be the same. There'd be no incentive by anyone to favor more expensive shares over cheaper ones.

Re:Good

[dpilot]

I like what you've said, but let's phrase this in a simpler, more basic way.

Once upon a time, I thought that the stock market was supposed to be a mechanism for investing in companies - a way for them to generate money to fund their real-world growth. I suspect that some of that is still happening, but from what I can see the stock market has largely turned into something else.

To me, these days the stock market looks more like a sanctioned gambling parlor. Even IPOs, which one would think of as the ultimate in funding growth of a new company, are at least partially viewed as a way for the founders to cash in. (or out)

Re:Good

[dywolf]

http://en.wikipedia.org/wiki/2010_Flash_Crash

The joint report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral," that a large mutual fund firm "chose to sell a big number of futures contracts using a computer program that essentially ended up wiping out available buyers in the market," that as a result high-frequency firms "were also aggressively selling the E-mini contracts," contributing to rapid price declines.[12]

The joint report also noted "'HFTs began to quickly buy and then resell contracts to each other — generating a 'hot-potato' volume effect as the same positions were passed rapidly back and forth.'"[12]

The combined sales by Waddell and high-frequency firms quickly drove "the E-mini price down 3% in just four minutes."[12] As prices in the futures market fell, there was a spillover into the equities markets where "the liquidity in the market evaporated because the automated systems used by most firms to keep pace with the market paused" and scaled back their trading or withdrew from the markets altogether.[12]

The joint report then noted that "Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling."[40] As computerized high-frequency traders exited the stock market, the resulting lack of liquidity "...caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as a penny or as high as $100,000."[40]

While some firms exited the market, high-frequency firms that remained in the market exacerbated price declines because they "'escalated their aggressive selling' during the downdraft.
--
Boom. Headshot.

Re:Good

[um... Lucas]

High frequency traders like to say that they are helping the markets by providing liquidity. THat's false - it's fake liquidity. They're not market makers who must post bids and asks at all times, it's fake liquidity that's only there when its convienenty. As soon as there's a spike or crash, that liquidity vaporizes. Same with your bids and asks that you're pointing out - a HUGE percentage of HFT orders are cancelled within microseconds of being placed - those bids and asks might look like they're there, but most of the time, they're not there at all.

High frequency trading is one of the few activities out there that trully provides zero benefit for society, and in fact creates expenses that the rest of us have to pay for. Exchanges need to beef up their computer systems in order to handle all the volume that could be unleashed by the HFT crowd; that's an expense that's getting passed on to all of us, not just them. The extra liquidity promises are false. And the whole system can fall apart and wreak havoc, either on the markets as a whole or to participants, just due to shoddy programming (think flash crash, think Knight Capital). Meanwhile, it prevents real price discovery from occuring, no one can discerne which bids are real bids by interested investors versus which ones might disappear the second you try to fill them.

I'm sorry. I'll defend derivatitves, hedge funds, mortgage backed securities and nearly anything else in the capital markets, but high frequency trading is not anywhere on that list.

Re:Good

[ebno-10db]

There is certainly an argument as to whether market makers are really required but, in practice, if they're not there, then I can't see how there can be any more trust in the stock markets than there is trading in ebay. It's essential that when I buy I know that the stocks will be delivered and when I sell I know that I'll be paid.

That has nothing to do with market makers. The safeguard is the clearing house.

Re:Good

[garyebickford]

Wanna bet? :D Without speculative currency trading, the apparent value of a currency becomes disconnected from the actual value. Thus you see in countries with currency controls (e.g. Venezuela) the 'black market' value of a US dollar is several times that of the 'official' price. Speculative currency trading is what allows the liquids in different buckets to flow to their equilibrium levels. And HFT trading just makes that happen faster. I responded in more length about HFT to an earlier comment, which IMHO makes the case for HFT (now that the tech bubble aspect is over) as a useful, even essential part of everyday market equilibration.

IOW without speculative currency trading, when you go to the country next door you will have no idea what the price of goods is. (And as the Euro debacle demonstrates, sovereign countries need to have their own currency in order to have a way to balance their economies. Devaluing a currency is akin to a 'store-wide sale' for a country. To a good first approximation, a currency _is_ sovereignty.)

Re:Good

[garyebickford]

Front-running is a separate issue, which can happen and has happened at every trading rate. It's esentially analogous to insider information about trades, and it's illegal. It has nothing per se to do with HFT. HFT is only responding to apparent differences between value and price at a higher rate than regular trading, and using volumes to make up for the relatively small differences involved. The result of HFT (now that the bubble has burst) is just to smooth out the ripples - the 'quantum noise', if you will. I'm not sure we're down to that level of detail yet - but the minimum price difference in a given currency, e.g. 1 cent in US trading, amounts to the 'quantum of money', so there is likely to be a continuous random fluctuation of +/- 1 cent, and a bit less fluctuation of +/- 2 cents, and so on. 'Quantum of Money' would make a great book title. :)

Re:Good

[ax_42]

Jim is standing over there, and shouts out "50c to buy this apple". Flash the wonder asshole stands close to Jim, so he hears this first. He then runs to Jon at the speed of light (which is faster than sound) and asks Jon "Would you buy an apple for 51c?". Jon says "why yes, that sounds reasonable". Note, Jon would, by definition, also be happy to pay 50c for the apple. But Flash is a fast fucker, and the sound of Jim's call hasn't reached Jon yet, so Flash buys the apple and runs to Jon and sells it to Jon at the higher price.

In economic terms, Flash has pocketed the surplus 1c, which would otherwise would have accrued to Jon (as he would have paid 1c less than his maximum). Sounds great so far, Flash is benefiting from his l33t running skills, Jim got his price (50c) and Jon paid what he was prepared to pay (51c).

Except it's not that simple, or rosy.......
First of all, Flash is running between willing participants in a market, adding no value to anyone but himself (arguably he is destroying value by forcing the exchanges to put in more and more expensive infrastructure, which everyone in the market is paying for). The fact that Jim sells his apple a microsecond faster is not relevant to a normal market participant.

Second, and much worse, Flash is not actually asking Jim "would you like to buy an apple for 51c". He's asking "would you like to buy for 51.05c", ah, no, "how about 51.049", no? how about "51.048" and so on (creating and cancelling orders all the time, massively loading up the system). Simultaneously there are two possible ways he's trying to figure out Jim's minimum price -- he's either asking Jim "sell for 49.99?", "49.991?", "49.992" ....until Jim says "yes" or, if he's a real scumbat, saying "I'll give you 50.5" and when Jim says "OK", say "Hah, made you look, order is cancelled, how about 50.45" and because he is so quick, he can cancel before the order fills.

Oh yes, and if you screw up, you go plead to the market to get your positions reversed. And because you pay so much to the market in fees (stock exchanges are companies, which charge traders to participate in the market), the market turns a blind eye.

And that, kids, is why HFT is fucking antisocial scum -- they manipulate the markets for their own ends, squeezing out surplus for only their own benefit. They add no value to anyone but themselves (increased liquidity is a trope -- no normal investor needs microsecond delivery). They've corrupted their system of oversight (the exchanges) to be dependent on the fees they pay.

One solution: ticked trading, bids and offers get queued and matched at a fixed interval (say every 0.5s), this would kill HFTs immediately as you can no longer run between Jim and Jon faster they can communicate themselves.

Alternative solution involves tar, feathers, a rail and a town.

Re:Good

[tjb]

No, the alternative is what existed before HFT - If Jim wants to sell an apple, and Bob wants to buy an apple, Jim must sell it to someone with a seat on the exchange who will extract 12.5 cents per share on each side of the trade.

HFT effectively put the traditional market-makers out of business by providing liquidity at fractional pennies per share rather than taking 1/8th of a point per share on each end, but people bitch about how unfair it is because microseconds or something.

If the policy makers astually traded

[ebonum]

They would know that people who execute a lot of trades get big discounts. HUGE discounts. If you are doing more than 20,000 or 100,000 trades a month, you start to trade at a fraction of the cost of a normal investor.
http://www.interactivebrokers.com/en/index.php?f=commission&p=futures3

With this fee structure, a HFT can get in and out and make money. A normal trader would lose money on the exact same trade. For the average guy, the trade might be profitable, but the trade commission is greater than the profit. Exchanges give a lot of incentives to traders who bring big volume.

I have a major issue with a system where two different traders make the exact same trade, but one loses money while the other makes a profit.
I'm not suggesting eliminating the lower fees for more active traders. I would like to see the gap between the highest commission and the lowest commission close. This simple change would work wonders to level the playing field. If the highest commission was limited to 130% of the lowest commission, the high frequency traders would lose most of their advantage.

The profits have been competed away

[Bruce66423]

As economic theory would predict, the money that was being made by HFT isn't any more because more and more people are getting to play the same game. The virtue of HFT is the liquidity that it brings to the markets, but at the cost of possible software caused chaos, as we've seen on a few occasions. On the whole it's probably worth tolerating, because the alternative is likely to see 'regulation arbitrage' as players go round any new rules.

Re:The profits have been competed away

[gd2shoe]

I believe we do need to address this somehow with regulations... but carefully. "Regulation arbitrage" is a very good term for the real complication here.

Re:The profits have been competed away

[wvmarle]

Indeed HFT trades with HFT, there is no money in that. Or at least not much, as they all chase the same fractions of a cent.

The flash crashes as I understand are partly caused by all HFT systems using essentially the same algorithm, and as a result movements amplify really quickly. If there would be several radically different decision making algorithms in the market this shouldn't be much of a problem, as wrong decisions by one are taken advantage of by another, so the other can make a profit (directly punishing the bad decision of the one algorithm), and such market movements are smoothed out.

It's only natural.

[Anonymous Coward]

If HFT is the latest shtick in "providing liquidity", then it really is arbitrage. And by its very nature, do enough of that and the opportunities exhaust themselves. In fact, the infrastructure built to support HFT improves access for other traders, too.

I think taxes may not be necessary, and probably would do more damage than good anyway. The big trouble with HFT isn't the trade volume, but the "probing" volume, offers made then withdrawn so quickly nobody can take'em.

I'm with the NANEX bunch on this; simply require that offers be good for a minimum timespan so that completely fake offers are unaffordable, for someone might take the offer. That saves the cost and administrative overhead of another senseless tax that hits far wider than the problem it purports to solve, but then doesn't.

Front Running

[ka9dgx]

The main reason for HFT is to "front run" the market, to game the traditional customers of the price discovery mechanism, and make a risk-less profit. This dis-incentivises the market for everyone else, who see it as corruption and move their money elsewhere.

The big picture though is one of a big liquidity event, in which the velocity of money is rapidly falling as everyone tries to save up enough cash to ride out the oncoming greater depression. The rapid printing of money is showing up in the 17% growth of the M3 Money Supply, but is getting hoarded up by banks and corporations as rapidly as it's getting created. This is the only thing keeping inflation from at bay, for now.

Once the Tsunami of dollars starts to find its way to main street, and chasing goods and services, an inflationary wave will hit us all, and we'll learn to get used to $10/gallon gasoline, and they start to remember it fondly not much later.

Fix 'delayed prices' scam

[Anonymous Coward]

The share tax in France and Italy doesn't affect us investors much. But if you're in to make a 30% return, you don't care about the 0.03%+0.03% buy and sell taxes anyway. It's only the traders, and they add nothing to the investment market, they're just skimming off some of the margin between buyer and seller.

IMHO, the biggest problem with the stock markets is delayed quotes. The big guys have the real time prices, the small guys have a fake price, from 20 minutes ago. This is a big problem with European stock exchanges. How can you have a market if you're lying to people about the current prices?!

That's what I'd like to see ended. The two tier price quote system.

The stock markets make us little investors deliberately ignorant of the true price, they then sell that ignorance as 'real-time-quotes- to the big guys. They should be forced to charge one fee to everyone for the same quotes, and stop deliberately deceiving investors into the market.

Re:Fix 'delayed prices' scam

[ebno-10db]

The share tax in France and Italy doesn't affect us investors much. But if you're in to make a 30% return, you don't care about the 0.03%+0.03% buy and sell taxes anyway. It's only the traders, and they add nothing to the investment market, they're just skimming off some of the margin between buyer and seller.

Thank you! I was going to to mention that the British tax doesn't seem to have killed the London Stock Exchange, but I wasn't aware that the tax also existed in France and Italy. As often happens in economic discussions (e.g. about health care) some people endlessly pontificate about what should happen according to their simplistic pet theory, and ignore the empirical evidence.

HFT is organized theft

[Required Snark]

HFT divides the financial universe into insiders and outsiders. The resources required to compete are beyond the means of any but the most sophisticated and connected organizations. Any system that requires low millisecond access to the data stream is overtly biased towards the few. If you think you can participate by buying stock in companies that do this and share the profit you are showing gross stupidity. It's just like making hedge fund money; by definition, anyone below the top .1% is locked out.

Real world value does not change in millisecond increments, except for earthquakes and nuclear holocaust. Therefor the profit in HFT is extracted by decreasing value for non-HFC entities (that would be you). It's analogous to entropy.

The value extracted by the insiders disproportionately degrades the system for everyone else. It's equivalent to oil production in the Nigerian delta. The people who live there have a horribly destroyed environment, and people far away make huge profits.

HFT is vulnerable to mistakes and deliberate manipulation. Can you say Flash Crash? Remember, there is no real time way to tell the difference between a misbehaving algorithm and a deliberate market manipulation or a hostile attack. It's not even clear that you can differentiate after the event is over.

Anyone with a shred of self preservation should be scared shitless by this situation. For Wall Street HFT is a sacred institution, and any attempt to reign in the abuse is treated as an attempt to defile a holy site. They own the casino, and given the centrality of international banking institutions, everyone is forced to bet no matter what.

Wall Street types should be treated like meth freaks with rabies, because that's how they behave. They are actively dismantling the world economy for their own individual gain, and if they are not stopped there will be nothing left to save.

HFT doesn't matter to 'small' investors.

[ggraham412]

Critics of HFT say the smaller investors are out because they cannot compete against the HFT crowd even though most brokers offer their own flavors of high speed trade execution.

That's not true, unless by smaller "Mom and Pop" investors the author really means semi-professional, day-trading arbitrageurs. I am a small time investor trying to make retirement savings grow by hunting for safe stocks with high dividend yields. What matters much, much more to me is that I can't get a decent interest rate on CDs or money market because of pro-Wall Street and pro-big bank FED policies.

Why does HFT matter to me? It really doesn't. Sure, in theory some HFT algo is going to snap up bargains ahead of me, but they're also shorting the bogeys so I'm always going to get the fair price. Stop the FUD.

The Efficient Market Hypothesis

[the eric conspiracy]

Basically this holds that a large public market is information-efficient. That is the current market prices reflect all publicly available information.

There are a variety of variations on this theme which mostly reflect the strength of the adherence to the hypothesis.

My particular belief is that the semi-strong form of the hypothesis is probably the correct one. You may have temporary bubbles, and markets that have poor disclosure requirements can be inefficient; these disallow the strong form of the hypothesis.

The main reason for the semi-strong being correct is that even market insiders with the best analytical tools are unable to consistently outperform the market averages. Most mutual funds, hedge funds, pensions and endowments actually underperform the market when trading costs are compensated for. Those that do outperform cannot do it on a consistent basis. There is no correlation between good performance one year and the next.

The idea that the game is rigged and only insiders have a chance is provably wrong. An individual investor using minimum cost passive investing strategies and good diversification will consistently outperform professionally managed portfolios just because of the lower costs. Any advantages that deviations from EMH are too small to overcome the trading costs needed to take advantage of the inefficiency.

Now that HFC trading is mature, it is showing the same efficient market behavior. It just isn't worth the costs because the market has wrung out any advantages of this mode of trading.

http://en.wikipedia.org/wiki/Efficient-market_hypothesis