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Indeed, this isn't a comment on your summary (which I have no reason to not believe to be accurate). I'm commenting on the ideas behind the article itself. Sti

by tomp 7y ago

Indeed, this isn't a comment on your summary (which I have no reason to not believe to be accurate). I'm commenting on the ideas behind the article itself. Still, I disagree. Even a large order won't "move" the market by itself (unless you're the Fed). At best, it might trigger a flash crash (we've seen a few of these in the past few years), where liquidity temporarily dries up (HFT market makers remove their passive orders, until they figure out what the hell is going on, precisely because they already predict cases like this) but comes back as soon as human traders figure out that nothing is going on (and the price has no reason to move). More likely, a large order might blow through a few layers of the order book, which is good for market makers - instead of selling it at $100.01 (which is the "best", i.e. "lowest" price), you're selling it at $100.02 (i.e. you're making more money than your fellow market makers). In general, if you're an "institutional" (or otherwise big & slow) trader trading "large" orders (relative to the standard market volume), you're trying hard to disguise your intents. If HFTs know that you will buy the next 100 shares, they'll just sell it to you for $100.09 or more!

H8crilA 7y ago
This is not Japan, the FED is not trading equities. And continuous movement of price in one direction is bad for market makers. Read the linked article, it explains why.
toast0 7y ago
> Even a large order won't "move" the market by itself Certainly, the market moves when two parties agree on a price, so one order doesn't move the market by itself; however, a large order in combination with normal market behaviors will result in the market moving higher. When you buy the book, the market makers are going to replace their sell limit orders at higher prices. If you have a lot more shares to buy, you're going to buy out those too. If you've done a fair bit of buying this way, and market makers had been selling short, they're going to want to buy to cover, which adds to or sustains the price increase. This price movement isn't great for the institution or the market makers. Market makers would rather trade against retail investors -- they don't make a lot of large trades, so they don't move the markets very much, and there's not the same risk of getting run over. Institutional investors would rather trade in ways they can get a fair price without influencing the price -- if they can find counterparties to trade with on a volume weighted average price basis, they prefer that -- or they try to structure their orders to avoid hitting the market all at once.
simula67 7y ago
Does Robinhood sell data on various order types like limit, stop-loss, etc to High-Frequency Traders? That would allow the HFTs to extract profits out of Robinhood's users since this information does not appear to be non-public and hence can be used for front-running.

by tomp 7y ago

H8crilA 7y ago

This is not Japan, the FED is not trading equities. And continuous movement of price in one direction is bad for market makers. Read the linked article, it explains why.

toast0 7y ago

> Even a large order won't "move" the market by itself Certainly, the market moves when two parties agree on a price, so one order doesn't move the market by itself; however, a large order in combination with normal market behaviors will result in the market moving higher. When you buy the book, the market makers are going to replace their sell limit orders at higher prices. If you have a lot more shares to buy, you're going to buy out those too. If you've done a fair bit of buying this way, and market makers had been selling short, they're going to want to buy to cover, which adds to or sustains the price increase. This price movement isn't great for the institution or the market makers. Market makers would rather trade against retail investors -- they don't make a lot of large trades, so they don't move the markets very much, and there's not the same risk of getting run over. Institutional investors would rather trade in ways they can get a fair price without influencing the price -- if they can find counterparties to trade with on a volume weighted average price basis, they prefer that -- or they try to structure their orders to avoid hitting the market all at once.

simula67 7y ago

Does Robinhood sell data on various order types like limit, stop-loss, etc to High-Frequency Traders? That would allow the HFTs to extract profits out of Robinhood's users since this information does not appear to be non-public and hence can be used for front-running.