4 ms·

Manipulation definitely happens where traders will show non-bona fide interest on one side of the market to provoke other traders or algos to react. It's known

Manipulation definitely happens where traders will show non-bona fide interest on one side of the market to provoke other traders or algos to react. It's known as layering or spoofing and like any behavior where you're placing orders to influence others rather than out of an interest to trade, it's illegal. Most cases of this or similar behavior like stop running have involved human traders at loosely regulated click trading shops or smaller electronic firms that don't play by the rules: https://www.finra.org/Newsroom/NewsReleases/2012/P178687 https://www.finra.org/Newsroom/NewsReleases/2012/P178687 http://www.cftc.gov/PressRoom/PressReleases/pr6649-13 http://www.cftc.gov/PressRoom/PressReleases/pr6649-13 Aside from the regulatory risk, it doesn't fit the business model for most "HFT" firms, who generally are making many low-risk, low-reward trades with a small statistical edge based on proprietary models. Spoofing usually requires showing large false interest which entails considerable risk if you actually get elected. If you are fast enough to make markets or arb crude oil, you can make way more doing that than manipulating the DOM hoping to push algos into doing something stupid until they figure your tricks out. Predicting markets is hard. Predicting how thousands of heterogenous agents will react to your order is even harder, if not impossible.

rsync 12y ago
"Predicting markets is hard. Predicting how thousands of heterogenous agents will react to your order is even harder, if not impossible." My very small amount of knowledge on this topic leads me to believe that the idea that one algo would specifically target another algo is not at all farfetched. Who cares how the market responds to your weird trading if you're trying to create distortions for one, or a few, actors ?
- hft_throwaway 12y ago
  Because the market has many actors. If I try to push the market down to shake out stop losses, another trader may say, "Hey, this price move doesn't make sense considering recent activity, how the broad market is moving, etc., I'm going to buy more" and prevent me from doing so. Likewise if I'm shifting the depth with a big false order. I might induce some actors to do bad trades, but another actor might see my order as a great opportunity to trade in size and trade against it, so I'll take a loss. Liquid markets with a diverse set of actors are more resilient to manipulation attempts. It's hard to do unless you have more capital or are willing to take risk that other actors in aggregate are not.
  - dllthomas 12y ago
    '"Hey, this price move doesn't make sense considering recent activity, how the broad market is moving, etc., I'm going to buy more"' Betting you know more than the guy moving large size rarely a good move, though...

rsync 12y ago

"Predicting markets is hard. Predicting how thousands of heterogenous agents will react to your order is even harder, if not impossible." My very small amount of knowledge on this topic leads me to believe that the idea that one algo would specifically target another algo is not at all farfetched. Who cares how the market responds to your weird trading if you're trying to create distortions for one, or a few, actors ?

hft_throwaway 12y ago
Because the market has many actors. If I try to push the market down to shake out stop losses, another trader may say, "Hey, this price move doesn't make sense considering recent activity, how the broad market is moving, etc., I'm going to buy more" and prevent me from doing so. Likewise if I'm shifting the depth with a big false order. I might induce some actors to do bad trades, but another actor might see my order as a great opportunity to trade in size and trade against it, so I'll take a loss. Liquid markets with a diverse set of actors are more resilient to manipulation attempts. It's hard to do unless you have more capital or are willing to take risk that other actors in aggregate are not.
- dllthomas 12y ago
  '"Hey, this price move doesn't make sense considering recent activity, how the broad market is moving, etc., I'm going to buy more"' Betting you know more than the guy moving large size rarely a good move, though...