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MadMarketScientist

Has High Frequency Trading Ruined The Stock Market For The Rest Of Us?

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There will be many that disagree with me but having 20 plus years of pit trading and 10 years of electronic have taught me to understand the dynamics of both systems. I was all for electronic trading and in the beginning many professional traders like myself flourished without these market manipulators. When the exchanges allowed them unlimited and biased access to our markets.....well sadly most traders careers have crashed.

true but you guys along with MM's and spec used to horsewhip the public and laugh about it on the elevators home everyday. see it is now harder for you guys to beat the sh$t out of the public. it is now a more level playing field. datek used to really piss off the MM's. had to create island..etc.

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interesting discussion. As long as the rules of the game are the same for all players I would have no problems with HFT. But are the rules the same for everyone? What about flash quotes and fractional quotes. I can not buy MSFT at 25.10001$

 

Maybe someone can comment on this? How can it be justified that some players can see my order coming and then having the possibility to front run it? Since this is basically what they can do with flash quotes and fractional quotes, right?

 

Myself I trade only futures, so there are no fractional quotes here (to my knowledge) but I have to admit I find it increasingly difficult to make money.

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>What about flash quotes and fractional quotes. I can not buy MSFT at 25.10001$

 

Of course you can. You just need the right broker. I use IB and in the US I can't buy fractional prices. However, in Europe I sure can. I can actually buy a stock at 25.0001. Kinda silly IMO, but hey it is what it is.

 

I don't think that HFT is worth it. Sure you see the profit they make, the volume they drive, but there are huge costs as well. I used to work at an investment bank and I was in the same department as the HFT MM folks (my work was OTC). It sounds exciting to do HFT, but it is quite a bit of tedious menial work that is completely non-glamors.

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interesting discussion. As long as the rules of the game are the same for all players I would have no problems with HFT. But are the rules the same for everyone? What about flash quotes and fractional quotes. I can not buy MSFT at 25.10001$

 

Maybe someone can comment on this? How can it be justified that some players can see my order coming and then having the possibility to front run it? Since this is basically what they can do with flash quotes and fractional quotes, right?

 

Myself I trade only futures, so there are no fractional quotes here (to my knowledge) but I have to admit I find it increasingly difficult to make money.

well like i said it may affect extreme scalping so you may have to adapt and not scalp. remember when stocks were 25 1/4 etc...we used to get taken by spec and MM back then. they generally always made the spread...when decimal system came the spread became smaller but it is still the same game. exchanges still take most of the public. i used to piss off spec when i caught them in a mistake such ...as ...when they opened the spread to much and i would jump in and take a slice out between the spread. that was money right out of his pocket. the spread is just less nowdays. same ole game just faster at nano level and computers have to do it but it doesn't really affect trading that isn't extreme scalping.

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Well I totally agree with a majority of the folks here. I am going back on all that Bull!@#$ I said earlier. Yep all that crap about algos being insignificant. I think the best thing for every one to do right now is first off do not panic. Second quickly and quietly go and make a phone call to whatever brokerage you use and tell then to completely liquidate all funds and have them sent by check to your residence. And then finally join the community on the newly established forum "Former Traders Laboratory."

 

This is new community where former traders go to talk about the good ole days before the algos came along and ruined it for everyone. You can go there and let your old trading forum buddies know how the job search is going. You can let everyone there know about the extra overtime you got at the warehouse you work at. You can even let everyone know how you just got on the company's 401k. Instead of talking about trading you can talk about that gardening project you started in your backyard. Share recipes and that kind of stuff. I look forward to seeing you all there.

 

 

 

 

 

o.O? Still here? Yea me to. Time to quit complaining and time to get back to work. Time to quit feeling sorry for yourselves and trying to relive the old days and get back to work. QQ some moar on the other forum. If you think its unfair or you think its not for you anymore. YOU ARE RIGHT!!!! Its not fair and its not for you anymore.

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Well I totally agree with a majority of the folks here. I am going back on all that Bull!@#$ I said earlier. Yep all that crap about algos being insignificant. I think the best thing for every one to do right now is first off do not panic. Second quickly and quietly go and make a phone call to whatever brokerage you use and tell then to completely liquidate all funds and have them sent by check to your residence. And then finally join the community on the newly established forum "Former Traders Laboratory."

 

This is new community where former traders go to talk about the good ole days before the algos came along and ruined it for everyone. You can go there and let your old trading forum buddies know how the job search is going. You can let everyone there know about the extra overtime you got at the warehouse you work at. You can even let everyone know how you just got on the company's 401k. Instead of talking about trading you can talk about that gardening project you started in your backyard. Share recipes and that kind of stuff. I look forward to seeing you all there.

 

 

 

 

 

o.O? Still here? Yea me to. Time to quit complaining and time to get back to work. Time to quit feeling sorry for yourselves and trying to relive the old days and get back to work. QQ some moar on the other forum. If you think its unfair or you think its not for you anymore. YOU ARE RIGHT!!!! Its not fair and its not for you anymore.

 

Hi Colonel BS,

 

You have me on 'ignore', I figure, so it doesn't matter what I call you . . .

 

Unfortunately 'positive thinking' won't help you much when you come up against the cold, hard facts of the algo-dominated reality the daytrader must inhabit. I know it's an asset in pretty much every other vocation, but not this one. Doesn't matter how much positive energy you have, if you go one way and the market repeatedly goes the other you're screwed . . .

 

Write down all your trades this month. Now add the value of two ticks per trade to your net profit (that's $25 per round trip in the ES). Does that look any better? That's what your profits would look like if you didn't have to keep paying the spread because you could know when you'll get filled on a limit and when a market order is the only way to get set.

 

Traders with decent winning strategies systematically underestimate the impact of spread and commission on their performance (post #50).

 

BlueHorseshoe

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Damn dumb computers. I wish they would do all trading with algos and hft. I may not be as fast as they are but me is smarter than those suckerbills. Me can respond to new situations and inputs they can't see or respond to cause they dumb machines that can only do over and over what somebody programmed them to do. Granted it is evolving and one day they may be smarter but that won't be in my lifetime. Only the other humans are hard to analize. Pres of a company could get pissed at his wife dump her 100 thousand share causing the market to drop just to make her lose $..see what i mean. Puter has no emotion. Emotion hardest thing to get a handle on....

 

Please we need more and more algos and computers so we can beat the horseshit out of them. No offense to mr algo writer on this thread....

 

Don't you feel better taking money from puters account instead of peoples account and put in your account? Do not have to feel so guilty...it is but a dumb machine.

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no one did address flash quotes yet. The people in favor of HFT's I hope are also in favor for the markets to be an equal playing field. Compared to say 10 or 15 years ago a lot has improved also for retail investors. I can run a fully automated system now on futures (and stocks if I wanted to) but as is mentioned by one of the posters a lot of the quotes you see appear on your screen are just false quotes. When they see your order coming some players can remove their orders or place an order just in front of you before your order hits the exchange. This is not a level playing field. Folks like me obviously can not compete on the same level as these folks.

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I am seeing the average daily volume of ES dropping for the most part of the past 12-18 months.

 

I am not sure if it was because of HFT but I would argue that at some breaking point the HFT would not be able to find enough trading profits if the volume of ES is low enough?

 

That is, if there are enough HFT going on, wouldn't they trade against each other and eventually they would find no real edges / not enough profits in their systems? :2c: As such, the ever decreasing daily volume is a sign of this? :2c:

 

HFTs have always traded against one another, I think, but a drop in volume would certainly be difficult for them, as you suggest. While they could adapt to pretty much any other type of change in the behaviour of a market's participants, if there's nobody there to trade with then it's got to affect their performance.

 

Discussing HFT in relation to the ES is a little tricky - due to the nature of the CME order book it's not immediately obvious how any substantial advantage could be gained through speed. Or not obvious to me.

 

BlueHorseshoe

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I do not think HFT has ruined anything......has it made it tougher?? Hell yes.....impossible....No. Remember when decimalization came out and everyone said "well that's the end of intraday trading" Yet people still made money. Remember when the algos really took over the market and everyone said " Oh well so much for day trading" Yet people are still making money,

 

There is always something new coming out that people will point at and say " oh well , thats the end of day trading"

 

I am not saying has not made it more difficult because it has but it is by no means impossible.

 

If you know what to look for you can profit from it. This is where tape reading and order flow come into play.........algos can throw up whatever they want on the bid/ask but the Tape does not lie. If I see 1000 lot order on the bid on the 6b and it comes and goes but never prints ...thats and algo or a spoof.

 

Thats the problem with trading off charts alone....a Chart cannot show you any of that.

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Sadly, there is no answer to be found. While you state day trading is not impossible, the facts just don't back you up. Retail trading is virtually dead, CME volumes continue to shrink, not as fast because most traders have vanished. You can't read a tape, by the time you see the volume trade it's too late to act on it. Technicals can still work for traders on a longer time horizon but the true scalper is finished. If you are making money, it is not from buying halves and selling 60's. If you are a 1%-er, great but oh how we long for the days when everyone had the same info and speed was measured in seconds.

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One HFT insider stated that the real advantage of HFT was in using special order types that front run institutions such as "hide not slide" which can be used to jump queue position during market locking conditions. It is not just the speed advantage in equities. The effect has been to force many professionals out of the business, particulary vertical proprietary firms that relied on speed advantage -- have shifted to HFT strategies.

 

Blue, I imagine there are many types of HFT algorithms running in the futures market. A large class are of which are likely execution algorithms which blast in market orders at certain opportune times. Suspect a good portion of it is actually institutional trading. What the HFT traders do is blast in these market orders in front of resting limit orders.. My software allows me to see this activity on a regular basis. Just as an aside, if there are plenty of orders resting on the offer and you want to go long then there is no reason to submit a market order until/unless the depth drops. While its true that icebergs are present, the depth will always drop before the market moves.

 

Another algorithm involves placing bids out and cancelling them to try to always stay an optimal distance off market based on market conditions. This is a very good indicator actually that I use for trading and that my software also presents clearly. I am not sure how they get around the cancellation ratios. They may even layer multipe orders within a level and then cancel them in such a way as to try to only get filled when the market doesn't trade through. Perhaps, these are liquidity providers who aren't subject to those rules(?)

 

I imagine the major negatives to this activity is that it discourages institutions to leave as many orders out, faster V-spike movements, and the market doesn't respect support/resistance levels as well.

 

So, there isn't as much time for traders to wonder about if a new high or low is good because these bots will slam them so fast. What this does is encourage others to also go to market instead of trying to get filled which slams the market down several ticks.

---

Curtis

Home - OrderFlowDashPro

Edited by Predictor

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To have a look at the other side of the argument i.e. against hft the new book Flash Boys by Michael Lewis might be an interesting read for some.

 

I saw his interview on 60 minutes. Very interesting

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If you ask me, the media and Mr. Lewis may be just interested in getting a bigger audience / selling more books.

 

If I can assume the most media outlets have not really looked into this until after Mr. Lewis publish a book, I doubt what we hear on CNBC, Bloomberg, NY Times, etc. is fair and can help level the playing field for all and protect market liquidity. CNBC today have resort to asking IEX's CEO to answer the simple question of whether the stock market is rigged on camera. :angry: See: Katsuyama vs. O'Brien - who won the fight?

 

Where as in reality we small discretionary traders probably have no idea HFT is - but I did bookmark these earlier for my own research purposes - I thought these two articles by Credit Suisse is a better illustration of what HFT is as when you read these articles, you do not have to go to Amazon and pay money to buy a book first :

1. https://edge.credit-suisse.com/edge/Public/Bulletin/Servefile.aspx?FileID=23284&m=1815212669

2. CS HFT DETECTION

 

All I can say is, get the word out. At least don't let people bash it and let the regulators do a good job in figuring how to regulate it. :)

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