3 ms·

Imagine you place a limit order at $101. The HFT sees the stock dropping to $100. The HFT then has the option to buy the stock at 100 and sell to you for 101, m

Imagine you place a limit order at $101. The HFT sees the stock dropping to $100. The HFT then has the option to buy the stock at 100 and sell to you for 101, making $1/stock profit. On the other hand, imagine the stock is currently trading at 105. The limit order will hang there, waiting for the price to drop below the limit you specified (and either never gets executed, or then becomes the flow above). Rinse and repeat. Note they don't need to make money in every transaction, but the bigger the order flow, the more opportunities they have to make profit on top of traders.

refurb 8y ago
Hopefully someone who knows more than me will come along, but can you front run a limit order? Say the price of the stock is $101. You place a limit order for $100. HFT sees that but can’t do anything since the stock price is above the limit. Stock price drops to $99.5. Your order is the executed by the exchange before the HFT can buy at $99.5 and sell to you at $100.
- OldHand2018 8y ago
  The exchange is where the orders are executed, but the exchange doesn't execute the orders. The market makers do that job. Look at the companies listed in the disclosures. Citadel appears to have the largest share in all of the examples listed. Their website [1] claims that: > We act as a specialist or market maker in more than 3,000 U.S. listed-options names, representing 99% of traded volume, and rank as a top liquidity provider on the major U.S. options exchanges, executing approximately 39% of all U.S.-listed retail volume, making us the industry’s top wholesale market maker. Citadel is paying Robinhood to put your limit order into their system at the NYSE or NASDAQ or whatever other exchange and then they handle the execution of it. Also, I don't believe that this article is claiming that Citadel et al are the high frequency traders, but that the high frequency traders are connected to their platforms and profiting (in some unspecified manner) from the orders that come in. [1] https://www.citadelsecurities.com/products/equities-and-options/ https://www.citadelsecurities.com/products/equities-and-opti...
  - nostrademons 8y ago
    It's been over a decade (2007) since I dealt with order books, but when I was looking at this (writing a product to detect trade-throughs), it was a Reg NMS violation to execute an order for a price worse than the best listed on an exchange at the time. ...OTOH, what that product revealed was that Reg NMS violations were pretty rampant and the SEC wasn't interested in doing anything about it. You may have difficulty enforcing this.
    - rapsey 8y ago
      > it was a Reg NMS violation to execute an order for a price worse than the best listed on an exchange at the time. Orders take time to process. HFT guys are fast enough to react and make money from it.

refurb 8y ago

Hopefully someone who knows more than me will come along, but can you front run a limit order? Say the price of the stock is $101. You place a limit order for $100. HFT sees that but can’t do anything since the stock price is above the limit. Stock price drops to $99.5. Your order is the executed by the exchange before the HFT can buy at $99.5 and sell to you at $100.

OldHand2018 8y ago
The exchange is where the orders are executed, but the exchange doesn't execute the orders. The market makers do that job. Look at the companies listed in the disclosures. Citadel appears to have the largest share in all of the examples listed. Their website [1] claims that: > We act as a specialist or market maker in more than 3,000 U.S. listed-options names, representing 99% of traded volume, and rank as a top liquidity provider on the major U.S. options exchanges, executing approximately 39% of all U.S.-listed retail volume, making us the industry’s top wholesale market maker. Citadel is paying Robinhood to put your limit order into their system at the NYSE or NASDAQ or whatever other exchange and then they handle the execution of it. Also, I don't believe that this article is claiming that Citadel et al are the high frequency traders, but that the high frequency traders are connected to their platforms and profiting (in some unspecified manner) from the orders that come in. [1] https://www.citadelsecurities.com/products/equities-and-options/ https://www.citadelsecurities.com/products/equities-and-opti...
- nostrademons 8y ago
  It's been over a decade (2007) since I dealt with order books, but when I was looking at this (writing a product to detect trade-throughs), it was a Reg NMS violation to execute an order for a price worse than the best listed on an exchange at the time. ...OTOH, what that product revealed was that Reg NMS violations were pretty rampant and the SEC wasn't interested in doing anything about it. You may have difficulty enforcing this.
  - rapsey 8y ago
    > it was a Reg NMS violation to execute an order for a price worse than the best listed on an exchange at the time. Orders take time to process. HFT guys are fast enough to react and make money from it.