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On some stock exchanges, for example NASDAQ, you can pay a fee to be allowed access to market orders earlier than anyone else. Paired with colo services (litera

On some stock exchanges, for example NASDAQ, you can pay a fee to be allowed access to market orders earlier than anyone else. Paired with colo services (literally your servers are next door - nearly eliminating network latency) you have a massive time advantage. Sources: http://www.nytimes.com/2009/07/24/business/24trading.html http://www.nytimes.com/2009/07/24/business/24trading.html http://www.nytimes.com/2009/08/05/business/05flash.html http://www.nytimes.com/2009/08/05/business/05flash.html Note that the SEC has not banned flash trading; it only proposed to do so - as of so far they have not done anything. The second point - it is the core of how market makers work to provide liquidity, with the added advantage of being able to see orders first. Simple supply/demand dictates that selling stock will drive the market down, since existing sell orders are not filled and slowly pile up at lower and lower prices. Then beginning to buy shares will raise the stock price temporarily, at which point the cycle repeats. Being able to figure out the limits on the buy/sell orders is simply icing. --- It appears that NASDAQ probably discontinued market front running voluntarily in late '09; I wasn't aware of that. I will have to rethink my positions - HFT as such isn't wrong in my opinion, although being able to make a profit 97% of the time (and having 3 straight quarters of only profitable days) is ridiculous, as is profiting purely from having a connection that is faster than what everyone else has.

vecter 16y ago
You're point that market makers provide liquidity by flash orders is entirely false. You clearly have no understanding of how market makers actually go about their day to day business. Please don't pontificate as if you do, or if you plan to, acknowledge that you're only speculating based on marginal facts and poorly written articles (yes, even the NY Times has horribly inaccurate articles) you've gathered on the internet. In fact, that entire paragraph is pure specious reasoning. The main point that really drove it home for me was: Being able to figure out the limits on the buy/sell orders is simply icing. I can gather you have not actually tried to find a statistical trend in market prices. Simply put, it's difficult to do in practice.

vecter 16y ago

You're point that market makers provide liquidity by flash orders is entirely false. You clearly have no understanding of how market makers actually go about their day to day business. Please don't pontificate as if you do, or if you plan to, acknowledge that you're only speculating based on marginal facts and poorly written articles (yes, even the NY Times has horribly inaccurate articles) you've gathered on the internet. In fact, that entire paragraph is pure specious reasoning. The main point that really drove it home for me was: Being able to figure out the limits on the buy/sell orders is simply icing. I can gather you have not actually tried to find a statistical trend in market prices. Simply put, it's difficult to do in practice.