To illustrate, let’s use an institutional algo order pegged to the NBBO with discretion to
pay up to $20.10. First, the predatory algo uses methods similar to the liquidity rebate
trader to spot this as an institutional algo order. Next, with a bid of $20.01, the predatory
algo goes on the attack. The institutional algo immediately goes to $20.01. Then, the
predatory algo goes $20.02, and the institutional algo follows. In similar fashion, the
predatory algo runs up the institutional algo to its $20.10 limit. At that point, the predatory
algo sells the stock short at $20.10 to the institutional algo, knowing it is highly likely that
the price of the stock will fall. When it does, the predatory algo covers.
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Cute:
To illustrate, let’s use an institutional algo order pegged to the NBBO with discretion to pay up to $20.10. First, the predatory algo uses methods similar to the liquidity rebate trader to spot this as an institutional algo order. Next, with a bid of $20.01, the predatory algo goes on the attack. The institutional algo immediately goes to $20.01. Then, the predatory algo goes $20.02, and the institutional algo follows. In similar fashion, the predatory algo runs up the institutional algo to its $20.10 limit. At that point, the predatory algo sells the stock short at $20.10 to the institutional algo, knowing it is highly likely that the price of the stock will fall. When it does, the predatory algo covers.