Comments on: Two years after the Flash Crash – Spreads are Narrower and Liquidity Deeper than Ever Before? Guess Again.

By: Lee

Lee — Mon, 16 Jul 2012 11:41:27 +0000

What is also taking place, under the high letancy radar is low letancy order flow by hyper active co-located HFT robots. These HFT robots see the orders before most of us and execute flash orders before we even know they sent the order. So all we see is time and sales, never seeing the robot orders at all. It’s like an invisible robot market able see and react before the data ever reaches our computer screen. This practice also front runs the large visible orders that you’ve displayed the depth of. The robots search out large orders like this, so there’s no question they were all over FB. Almost 80% of volume today is automated (robot generated) bringing the average hold time of a stock today below 22 seconds.Nice PostJohn ]]>

By: Lhie

Lhie — Mon, 16 Jul 2012 11:40:34 +0000

, the orders are being made plbiuc before others have a chance, that’s one thing. The controversy as I understand it about HFT is that the orders are NOT always made plbiuc but the super computers the large firms are using can discover price and volume of orders faster than others. Here is how it works: I put in an order to buy 100,000 shares of Google at up to $508.50/share but let’s assume that this order is not revealed to the market. Still, the order is sitting there on my server. Goldman’s supercomputer puts out an order to sell 100 shares at $508.25 (current market price as of this writing) and my server eats it.Goldman’s computer says, “Gee, that was easy” and puts in another order to sell another 100 shares at $508.26 and my server again takes it.Then Goldman’s computer tries $508.27 and is successful again.Goldman’s computer keeps firing out orders to sell 100 shares incrementally higher until it tries $508.51 and my server does not accept it. So now, Goldman knows my order is at $508.50 and starts firing off sell orders continually until the remainder of my 100,000 share order is filled. Goldman knows that it can buy these shares at the current market of $508.25 and make the spread of $0.25 per share which might not seem like a lot, but x 100,000, that’s $25,000 and their computers are doing this for hundreds or thousands of stocks all day. And remember this all occurs in a fraction of a second, which makes it nice work if you can get it The only thing Goldman has to worry about is if Morgan’s computers which are trying to do the same thing are able to do the trade faster. This is why these companies are spending so much money on progamming whizzes and the fastest IT resources they can get. This is a technology cold war on whose computers are fastest. One millisecond can make all the difference. This is why companies like Goldman must locate their computing power right AT the exchange in NY and the exchange leases server space for this purpose. They also pay $3,500/mo. for data which is a lot for us, but nothing for them. The reason is that to locate a trading server even 100 miles from Wall St. means 1-2 milliseconds of delay due to simply the speed of light and data transfer, resistance of wires, etc. That can mean the difference between them scooping trades or someone else scooping them. Congress is reluctant to try to stop this because, technically, there is nothing illegal about what they are doing, but they do have a clear advantage over retail customers. We can never compete with HFT, but we can still make money in longer-term (in this case, >1 second) trading.===I look forward to reading any feedback to this. ]]>

By: Dennis Dick

Dennis Dick — Mon, 07 May 2012 22:34:34 +0000

Wow Eric. This is great. Thanks for the charts. I’ll add a link to this in the article as well. ]]>

By: JSW

JSW — Mon, 07 May 2012 22:25:52 +0000

Ok, I realize you’ve had enough. But for what it’s worth, any market maker in today’s microstructure who is not by default HFT is not worth their weight in salt. ]]>

By: DavidC

DavidC — Mon, 07 May 2012 22:14:12 +0000

Sorry, second paragraph should read;

The use of HFTs is going up. If spreads are narrower and liquidity is deeper the HFTs are working. As spreads AREN’T narrower (they’re not – see Nanex’s research) and liquidity ISN’T deeper (it’s not, given the point of Dennis’s piece), HFTs aren’t working.

DavidC

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By: DavidC

DavidC — Mon, 07 May 2012 22:10:49 +0000

JSW,
OK, my final word. The article is NOT talking about ENTITLEMENT, it’s talking about supposed benefits of HFTs.

HFTs are NOT the same as a market maker – read Nanex’s research and buy “Broken Markets” when it comes out at the beginning of June.

No more from me.
DavidC

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By: JSW

JSW — Mon, 07 May 2012 22:04:10 +0000

And yes, David, I do trade. ]]>

By: JSW

JSW — Mon, 07 May 2012 22:02:59 +0000

David, the underlying tone of the article was enough to give away the general belief of entitlement in regards to liquidity premiums. The Nanex/Themis research is more of the same – watching market makers as they balance supply and demand in their various issues.

From the perspective of a market maker, Tom, what is the benefit to Tom in providing tight spreads on the open of a stock where he, by definition, has no clue which direction the market will go? Is Tom required to provide this service to the retail trader to the detriment of his own book, his own firm, and his own livelihood? Tom needs time to properly gauge supply and demand in order to properly firm up the book and eventually provide his full level of liquidity.

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By: DavidC

DavidC — Mon, 07 May 2012 22:02:58 +0000

JSW,
Errm, no.

Levels of obesity are going up. If more people are dieting then diets aren’t working.

The use of HFTs is going up. If spreads are narrower (they’re not – see Nanex’s research) and liquidity is deeper (it’s not, given the point of Dennis’s piece) the HFTs aren’t working.

I’m not talking about the existence of varying liquidity through the day, I AM talking about the purported effect(s) of HFT.

No more from me so you may respond as you wish.

DavidC

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By: nanexllc

nanexllc — Mon, 07 May 2012 21:53:20 +0000

Dennis,

We posted a few more charts that go with your excellent article.

http://www.nanex.net/aqck/3018.html

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