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There is absolutely no reason anybody should be able to buy information about order flow. High freq traders like to pretend that they make money because they a

by hristov 16y ago

There is absolutely no reason anybody should be able to buy information about order flow. High freq traders like to pretend that they make money because they are so smart and so fast, but the real reason they make money is because the exchanges are willing to sell them information about somebody else's orders before those orders are executed. That of course is highly unfair to the person whose orders are being sold. Selling order flows is basically an act of greed by the exchanges which screws over most of the stock trading/investing population in favour of the high freq traders and also dramatically destabilises the markets. This is terrible because it is the ordinary investors that perform the function that the market was created for (providing capital to business) and this high frequency trading stuff appears simply as a huge tax on ordinary investment. Congress should simply ban the exchanges from selling any information about incoming orders. If I order to buy or sell a stock the only thing I want from the exchange is to buy or sell the stock for me. I do not want the exchange to tell somebody else about my order before it is executed so that other person can screw me over. If the high freq traders are really smart they should figure out how to make money without getting the order flow info.

lrm242 16y ago
You don't know what you're talking about, unfortunately. No one buys order flow. The only time your order won't receive price time priority on the US equities markets is when your broker internalizes the order and matches or improves the price as compared to the NBBO. And if you're thinking flash orders then you're also wrong. Not only is the practice not used anymore, but even if you're order is flashed it will only match if the price is improved.
- beagle3 16y ago
  Why do you think flash orders are not practiced anymore? The SEC hasn't banned them, and AFAIK some brokers still flash their clients orders before executing them. > but even if you're order is flashed it will only match if the price is improved. I don't think you understand how flash orders work -- flash orders tell some 3rd party what YOU will be doing in the next second, enough time for that 3rd party to snatch all offers at that price, raising the price for you. Of course if you had a limit order it wouldn't match; but now, if you still want to buy those shares (which most flashed clients do, for whatever reasons), you have to pay a higher price. Incidentally, it's almost always that 3rd party which offers those shares to you -- guaranteeing their profit.
  - yummyfajitas 16y ago
    I don't think you understand how flash orders work. Flash orders give some 3rd party the opportunity to fill your order. An example: if the best price is $50.00 on INET and $50.01 on ARCA, INET gives some flash trader the opportunity to fill your order at $50.01. In this case, INET receives the commission. If they decline, your order is routed to ARCA where it is filled at $50.01 (and ARCA receives the commission), and you pay a routing fee. If you really don't want to be flashed, you can always turn on the "no flash" flag in your orders. But then you run a higher risk of paying routing fees.
    - beagle3 16y ago
      There's a difference between the stated purpose of flashing, and how it is used in practice. > Flash orders give some 3rd party the opportunity to fill your order. Alternative way to look at it: Flashing advertises your order to several parties, and gives them one full second to front run you at ARCA, where the best price currently is. (Oh, and they have the option to fill it directly at ARCAs price immediately). > If they decline, your order is routed to ARCA where it is filled at $50.01 (and ARCA receives the commission), and you pay a routing fee. Except, one of the guys the order was flashed to, (who declined) has already bought that 50.01 at ARCA, so now the NBBO price is 50.02; incidentally, by a pure coincidence, it's being sold by the same guy who just bought it 50.01. I've played the HFT game for the last 10 years. Don't believe a single word of the official propaganda about why something is employed; It's all there to generate more traffic for the exchanges; e.g., in the case described above, ARCA gets two transaction fees instead of one, and the broker gets their routing fee AND some kickback from the flashee.
      - yummyfajitas 16y ago
        First of all, flashing gives one party a user-configurable time period (typically 30ms) to fill your order. A full second is nonsense. Also, the person placing the order can turn it off. Second, the motives in your hypothetical don't make sense. Direct Edge is the venue allowing flash orders. ARCA gets two commissions, but DE gets nothing. Why would DE want to give commissions to their competitors? And if this happened to any significant degree, why would customers continue to set their "please flash me" flag to True? Lastly, front running based on flash trading is illegal, not to mention pretty easy to prove in court. And it's pretty easy to find people doing it based solely on an electronic search of the tapes. If it happened to any significant degree, how come the SEC didn't find it?

by hristov 16y ago

lrm242 16y ago

You don't know what you're talking about, unfortunately. No one buys order flow. The only time your order won't receive price time priority on the US equities markets is when your broker internalizes the order and matches or improves the price as compared to the NBBO. And if you're thinking flash orders then you're also wrong. Not only is the practice not used anymore, but even if you're order is flashed it will only match if the price is improved.

beagle3 16y ago
Why do you think flash orders are not practiced anymore? The SEC hasn't banned them, and AFAIK some brokers still flash their clients orders before executing them. > but even if you're order is flashed it will only match if the price is improved. I don't think you understand how flash orders work -- flash orders tell some 3rd party what YOU will be doing in the next second, enough time for that 3rd party to snatch all offers at that price, raising the price for you. Of course if you had a limit order it wouldn't match; but now, if you still want to buy those shares (which most flashed clients do, for whatever reasons), you have to pay a higher price. Incidentally, it's almost always that 3rd party which offers those shares to you -- guaranteeing their profit.
- yummyfajitas 16y ago
  I don't think you understand how flash orders work. Flash orders give some 3rd party the opportunity to fill your order. An example: if the best price is $50.00 on INET and $50.01 on ARCA, INET gives some flash trader the opportunity to fill your order at $50.01. In this case, INET receives the commission. If they decline, your order is routed to ARCA where it is filled at $50.01 (and ARCA receives the commission), and you pay a routing fee. If you really don't want to be flashed, you can always turn on the "no flash" flag in your orders. But then you run a higher risk of paying routing fees.
  - beagle3 16y ago
    There's a difference between the stated purpose of flashing, and how it is used in practice. > Flash orders give some 3rd party the opportunity to fill your order. Alternative way to look at it: Flashing advertises your order to several parties, and gives them one full second to front run you at ARCA, where the best price currently is. (Oh, and they have the option to fill it directly at ARCAs price immediately). > If they decline, your order is routed to ARCA where it is filled at $50.01 (and ARCA receives the commission), and you pay a routing fee. Except, one of the guys the order was flashed to, (who declined) has already bought that 50.01 at ARCA, so now the NBBO price is 50.02; incidentally, by a pure coincidence, it's being sold by the same guy who just bought it 50.01. I've played the HFT game for the last 10 years. Don't believe a single word of the official propaganda about why something is employed; It's all there to generate more traffic for the exchanges; e.g., in the case described above, ARCA gets two transaction fees instead of one, and the broker gets their routing fee AND some kickback from the flashee.
    - yummyfajitas 16y ago
      First of all, flashing gives one party a user-configurable time period (typically 30ms) to fill your order. A full second is nonsense. Also, the person placing the order can turn it off. Second, the motives in your hypothetical don't make sense. Direct Edge is the venue allowing flash orders. ARCA gets two commissions, but DE gets nothing. Why would DE want to give commissions to their competitors? And if this happened to any significant degree, why would customers continue to set their "please flash me" flag to True? Lastly, front running based on flash trading is illegal, not to mention pretty easy to prove in court. And it's pretty easy to find people doing it based solely on an electronic search of the tapes. If it happened to any significant degree, how come the SEC didn't find it?