4 ms·
The OP provides a good technical explanation. Unfortunately he fails to mention another closely related term to high frequency which is what makes this type of
by drubio 14y ago
The OP provides a good technical explanation. Unfortunately he fails to mention another closely related term to high frequency which is what makes this type of trading highly lucrative: 'Front running'. See http://en.wikipedia.org/wiki/Front_running http://en.wikipedia.org/wiki/Front_running .
Front running is illegal, but if you look for successful cases of high frequency trading they are generally tied-to/accused-of front running. And as you might imagine, in order to do front running you need to be high-up on the food chain (i.e. be a market maker)
The missing key about front running in the article is the 'anonymous' bid-ask: "The matching engine takes his order and displays it (anonymized) to all other traders with a data feed." and "She places her orders, and it is again displayed to the world (anonymously) and stored.".
If you have forehand knowledge of the bid-ask (i.e. non-anonymous) the market maker can front-run and with high-frequency make a considerable profit.
- tptacek 14y agoFrontrunners have knowledge of specific trades that are about to occur. You frontrun a specific block trade. The definition you imply here suggests that all market makers are "frontrunners".
- anonDataUser 14y agoHFT is not front running. Search comments for my remarks on latency arb - that may seem like front running, but it's entirely different. Latency arb involves information that is publicly available. Front running does not.
- scott_s 14y agoMy understanding is that front running has been around as long as there have been market makers - and there have been market makers as long as there have been markets.
- ChristianMarks 14y agoThe practice of placing a large order and canceling milliseconds later to induce an exploitable price movement accomplishes this, sanctimonious protest to the contrary notwithstanding.