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Except, that isn't all high frequency traders do. They send in tens of thousands of requests a second, many of which they have no interest in ever being forfil

Except, that isn't all high frequency traders do. They send in tens of thousands of requests a second, many of which they have no interest in ever being forfilled, in the hope of partly fooling other people, who are sending around similar numbers of requests. Stock exchanges have turned into a high-frequency war-ground, which fortunately doesn't appear to spill out and effect the rest of us too often, at least as far as I understand.

ArchD 14y ago
Many exchanges have limits on the number of order cancellations you can make. You get penalized if you send too many cancels compared to the number of trades you get. Besides, most retail orders go through brokers, not directly to the exchange, and the brokers can provide their own layer of algorithmic sophistication to help the clients get a better price than if they were to place the orders on the exchange on their own directly. This can be done by internally matching orders on both sides, as well as placing orders at strategic times and prices, also using algorithms. So, this isn't really about "poor retail investor" against "evil predatory high-frequency trader".
kingcub 14y ago
>They send in tens of thousands of requests a second, many of which they have no interest in ever being forfilled, in the hope of partly fooling other people, who are sending around similar numbers of requests. That's called gaming, and is illegal.
crntaylor 14y ago
Most exchanges that I have experience of have a minimum trade-to-quote ratio, i.e. at least a certain proportion of your quotes have to turn into trades, or you'll be warned and eventually kicked off the exchange. In any case, to the 'end user' (a regular stock investor like you or me) the continual jockeying for position among HFTs doesn't matter - all we notice is that we pay smaller spreads and get our orders filled more quickly. Sometimes the trading games spill out into the 'real world' with unpleasant consequences, but those instances appear (so far) to be rare. I think there needs to be tight regulation on HFTs to limit behaviour like quote stuffing, spoofing and other forms of gaming, but I don't agree with the argument that they are a net bad thing.

ArchD 14y ago

Many exchanges have limits on the number of order cancellations you can make. You get penalized if you send too many cancels compared to the number of trades you get. Besides, most retail orders go through brokers, not directly to the exchange, and the brokers can provide their own layer of algorithmic sophistication to help the clients get a better price than if they were to place the orders on the exchange on their own directly. This can be done by internally matching orders on both sides, as well as placing orders at strategic times and prices, also using algorithms. So, this isn't really about "poor retail investor" against "evil predatory high-frequency trader".

kingcub 14y ago

>They send in tens of thousands of requests a second, many of which they have no interest in ever being forfilled, in the hope of partly fooling other people, who are sending around similar numbers of requests. That's called gaming, and is illegal.

crntaylor 14y ago

Most exchanges that I have experience of have a minimum trade-to-quote ratio, i.e. at least a certain proportion of your quotes have to turn into trades, or you'll be warned and eventually kicked off the exchange. In any case, to the 'end user' (a regular stock investor like you or me) the continual jockeying for position among HFTs doesn't matter - all we notice is that we pay smaller spreads and get our orders filled more quickly. Sometimes the trading games spill out into the 'real world' with unpleasant consequences, but those instances appear (so far) to be rare. I think there needs to be tight regulation on HFTs to limit behaviour like quote stuffing, spoofing and other forms of gaming, but I don't agree with the argument that they are a net bad thing.