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The bigger story of HFT is that it enables the big banks to manipulate the stock market. Because they know all market orders before they are executed, they are
by jamieabe 13y ago
The bigger story of HFT is that it enables the big banks to manipulate the stock market. Because they know all market orders before they are executed, they are able to cancel all bids and offers before it is possible for anyone to hit or take them. They can also put up huge orders on the bid or offer to make a stock look weak or strong in the short run, knowing there is no risk of being executed. If they see another order come in they can just cancel their order.
The most criminal advantage HFT gives them is that they can front run orders. Let's say for example that Fidelity calls Goldman Sachs and says they want to buy 1 million shares of Tesla. This information is priceless as Tesla stock is guaranteed to fly higher on this trade. Acting on this information is the most blatant form of insider trading that exists. However, somehow the big banks can create programs that do exactly this. Whenever they see a huge influx of buy or sell volume they can quickly jump in front and close out the transaction a few seconds later for a huge profit.
- AndrewBissell 13y agoWhat you describe above would be highly illegal.
- jamieabe 13y agoThat's the whole point...Michael Lewis said he can't believe it hasn't been made illegal....5 years ago, during the financial crisis there was a good story on it in the New York Time and one of the Senators said they were outraged and he was going to change it, etc, and of course nothing ever happened.
- AndrewBissell 13y agoAre you saying that Goldman Sachs's brokerage division is transmitting information about its customers' orders to the GS prop trading desks before submitting them to the market?
- jamieabe 13y agoNo, I'm saying Goldman Sachs has computers located at the stock exchange that are programmed to trade based on order flow information.
- sseveran 13y agoSo just like dozens of other firms?
- caoilte 13y agoWhy wouldn't they be? They have an obligation to make money and the profits would be far greater than the fines even if they weren't running a revolving door with their regulators.
- yummyfajitas 13y agoHow does the HFT know Fidelity called Goldman Sachs? Are they tapping the phones? Whenever they see a huge influx of buy or sell volume they can quickly jump in front... Could you tell me what FIX/OUCH command is used to do this?
- jamieabe 13y agoI was drawing a real life comparison to how HFT works...it gives the big banks order information before it is executed. As for actual commands, sorry I am not a programmer, just a former trader.
- sseveran 13y agoSo you were involved in illegal activity? Maybe you should call the SEC and pickup the whistleblower percentage?
- crdoconnor 13y ago>Whenever they see a huge influx of buy or sell volume they can quickly jump in front... > >Could you tell me what FIX/OUCH command is used to do this? Uh, buy and sell. Could you tell me which part of FIX/OUCH makes quote stuffing impossible?
- yummyfajitas 13y agoBuy != "jump in front".
- sseveran 13y agoCan you point me to the order type or flag that allows me to jump? How can they front run? Do you even know what front running is?
- jamieabe 13y agoThey can front run because they receive all of the order flow decimals of a second before the orders are executed. Let's say for example you saw (or your computer told you) that X market orders for Y shares to buy a stock just entered the market...your program tells you this is a lot of volume for this stock and it should push up the stock. Before any of the orders are executed your algorithm jumps in front and buys the stock and sells it a second later for a nice profit. This is a very simplistic example.
- sseveran 13y agoshakes head If you send a martketable order the first any colocated participant (HFT or not) will see is your order crossing a number of order on the other side of the order book. If you send a market order direct to NASDAQ for GOOG then you will cross with the best price with best time priority shares of GOOG. You are probably referring to internalization which is a function of your broker.