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> If I submit a buy order for 10 shares of GOOG with a limit of $1134 that order is going to show up in the data stream of HFTs only after it has become a valid

> If I submit a buy order for 10 shares of GOOG with a limit of $1134 that order is going to show up in the data stream of HFTs only after it has become a valid open order on the exchange, right? False. HFTs and other trading firms actually buy up the order flow from brokerages. In fact, retail investors making trades in their brokerage accounts are actually referred to as "dumb flow". Having access to the order flow and controlling the routing of it can allow them to jump in front of your trade. For example, they could see that your limit order of $1134 came in when the lowest ask price was $1133.90. They could buy that for $1133.90 and sell it back to you at $1134 for a 10 cent profit. It's not too much different than in the old days when the market makers would delay buy/sells calls to their pits to their own advantage in order to scrape a small profit on the spread.

foobarqux 13y ago
> For example, they could see that your limit order of $1134 came in when the lowest ask price was $1133.90. They could buy that for $1133.90 and sell it back to you at $1134 for a 10 cent profit. They cannot do that. They can't fill you at a worse price than NBBO.
- adambratt 13y ago
  In my example, they buy before the execute your trade, thus shoving the lowest ask price up to $1134 and fulfilling NBBO.
  - foobarqux 13y ago
    You said best offer was 1133.90. If buy order is placed at $1134 with HFT firm they must either fill the order at 1133.90 (the NBBO) or pass it on to an exchange that has NBBO. If you are arguing something else happens then you need to explain it clearly step by step in a timeline.
    - adambratt 13y ago
      1. You send a trade to your brokerage for GOOG 2. Trade gets routed to an HFT who will fill the trade 3. HFT notices a spike in GOOG interest over a few seconds and starts buying at 1133.90 driving the price up to 1134 4. HFT fills your limit order at the best price of 1134 which they themselves hold. Despite what the other commentators here have said, limit orders are less safe than market orders to market manipulation. HFT's will buy up all that dumb flow with limit orders and then essentially run the prices to the limit orders in their favor.
      - foobarqux 13y ago
        At the beginning of 3. does the HFT have your order or are you saying that the market moves before the HFT receives the order? As far as I know the first case is prohibited (actual front running). I don't see an obvious problem with the second case though there might be subtlety that I am missing.
fauigerzigerk 13y ago
>HFTs and other trading firms actually buy up the order flow from brokerages. That's interesting. This sounds like blatent front-running though. I wouldn't have thought this to be legal.
obiterdictum 13y ago
> HFTs and other trading firms actually buy up the order flow from brokerages. I'm going to ask for a citation on this one. I remember a similar incident at KRX in 2009, and it resulted in a criminal investigation [1], so that ought to be illegal. [1] http://www.traderdaily.com/07/koreas-elw-players-get-hfc-wake-up-call http://www.traderdaily.com/07/koreas-elw-players-get-hfc-wak...

foobarqux 13y ago

> For example, they could see that your limit order of $1134 came in when the lowest ask price was $1133.90. They could buy that for $1133.90 and sell it back to you at $1134 for a 10 cent profit. They cannot do that. They can't fill you at a worse price than NBBO.

adambratt 13y ago
In my example, they buy before the execute your trade, thus shoving the lowest ask price up to $1134 and fulfilling NBBO.
- foobarqux 13y ago
  You said best offer was 1133.90. If buy order is placed at $1134 with HFT firm they must either fill the order at 1133.90 (the NBBO) or pass it on to an exchange that has NBBO. If you are arguing something else happens then you need to explain it clearly step by step in a timeline.
  - adambratt 13y ago
    1. You send a trade to your brokerage for GOOG 2. Trade gets routed to an HFT who will fill the trade 3. HFT notices a spike in GOOG interest over a few seconds and starts buying at 1133.90 driving the price up to 1134 4. HFT fills your limit order at the best price of 1134 which they themselves hold. Despite what the other commentators here have said, limit orders are less safe than market orders to market manipulation. HFT's will buy up all that dumb flow with limit orders and then essentially run the prices to the limit orders in their favor.
    - foobarqux 13y ago
      At the beginning of 3. does the HFT have your order or are you saying that the market moves before the HFT receives the order? As far as I know the first case is prohibited (actual front running). I don't see an obvious problem with the second case though there might be subtlety that I am missing.

fauigerzigerk 13y ago

>HFTs and other trading firms actually buy up the order flow from brokerages. That's interesting. This sounds like blatent front-running though. I wouldn't have thought this to be legal.

obiterdictum 13y ago

> HFTs and other trading firms actually buy up the order flow from brokerages. I'm going to ask for a citation on this one. I remember a similar incident at KRX in 2009, and it resulted in a criminal investigation [1], so that ought to be illegal. [1] http://www.traderdaily.com/07/koreas-elw-players-get-hfc-wake-up-call http://www.traderdaily.com/07/koreas-elw-players-get-hfc-wak...