Not sure it still applies as I have been out the trading game for a little while now, but in the past the big HFT's had a 20 millisecond window where they were allowed to see the market orders before anyone else. Thus they could see say a big buy order coming in and pull their offers or even take out the offers themselves, knowing that the buyer would have to pay up. This has the effect of raising execution costs for the company trying to accumulate stock for their long term positions. Obviously the same techniques would apply to the long term investor trying to close a stock position by selling.
This was effectively legalised front running of the market, something that would normally get you sent to jail. In the name of liquidity, exchanges allowed this and of course they got paid big bucks by the big HFT firms.
The whole trading game is pretty corrupt. You would expect that given the amount of money sloshing around. For example we knew about market manipulation in LIBOR for many years. It was an open secret but now the regulators are "discovering" it because the political climate is such that fewer people are prepared to live with the big banks excesses.
Still there is plenty more ongoing manipulation going on in trading even as I write this. I am awaiting the day that the regulators will "discover" these. Some of the bond markets for example have proportional fill executions. So if you have the best price and are first in the queue, a big institution can come along and show an order in vast size, which they have no intention of trading, just to get a fill of the fraction they actually wanted. You of course are left high and dry with just about nothing of your order filled because proportionally it was tiny. It is an amazing sight to behold how these vast orders come along just as the market is about to move and then instantly disappear. It is clear to any trader that someone is working on inside information, but everyone (read: big money)is in on the secret so no one is telling.
>in the past the big HFT's had a 20 millisecond window where they were allowed to see the market orders before anyone else
As far as I know, flash trading was an optional feature, designed to be used by those who wished to shop around their order in a somewhat private network, before sending it to the wider market.
> This was effectively legalised front running of the market
If you say flash orders were abused, I'll take your word for it, but it wasn't designed to be a way to front-run. Its purpose was actually to help.
ah, thanks for the update - yes it was flash trading. The other manipulations mentioned in my updated comment are still occurring as I have contacts in trading that are driven to distraction by it.
Comments
Not sure it still applies as I have been out the trading game for a little while now, but in the past the big HFT's had a 20 millisecond window where they were allowed to see the market orders before anyone else. Thus they could see say a big buy order coming in and pull their offers or even take out the offers themselves, knowing that the buyer would have to pay up. This has the effect of raising execution costs for the company trying to accumulate stock for their long term positions. Obviously the same techniques would apply to the long term investor trying to close a stock position by selling.
This was effectively legalised front running of the market, something that would normally get you sent to jail. In the name of liquidity, exchanges allowed this and of course they got paid big bucks by the big HFT firms.
The whole trading game is pretty corrupt. You would expect that given the amount of money sloshing around. For example we knew about market manipulation in LIBOR for many years. It was an open secret but now the regulators are "discovering" it because the political climate is such that fewer people are prepared to live with the big banks excesses.
Still there is plenty more ongoing manipulation going on in trading even as I write this. I am awaiting the day that the regulators will "discover" these. Some of the bond markets for example have proportional fill executions. So if you have the best price and are first in the queue, a big institution can come along and show an order in vast size, which they have no intention of trading, just to get a fill of the fraction they actually wanted. You of course are left high and dry with just about nothing of your order filled because proportionally it was tiny. It is an amazing sight to behold how these vast orders come along just as the market is about to move and then instantly disappear. It is clear to any trader that someone is working on inside information, but everyone (read: big money)is in on the secret so no one is telling.
>in the past the big HFT's had a 20 millisecond window where they were allowed to see the market orders before anyone else
As far as I know, flash trading was an optional feature, designed to be used by those who wished to shop around their order in a somewhat private network, before sending it to the wider market.
> This was effectively legalised front running of the market
If you say flash orders were abused, I'll take your word for it, but it wasn't designed to be a way to front-run. Its purpose was actually to help.
If you say flash orders were abused, I'll take your word for it, but it wasn't designed to be a way to front-run. Its purpose was actually to help.
And at least 30-40% of the time, it did help. Anyone with a flash fill rate lower than that was kicked out of the ELP program.
You're referring to "flash orders". Those were discontinued in 2009.
ah, thanks for the update - yes it was flash trading. The other manipulations mentioned in my updated comment are still occurring as I have contacts in trading that are driven to distraction by it.