4 ms·

If you offer something for sale at a certain price and someone says "I'll buy it!" you have a contract at that moment. I don't fully understand the conditions

If you offer something for sale at a certain price and someone says "I'll buy it!" you have a contract at that moment. I don't fully understand the conditions under which you can cancel an order but it seems all the cancellations happened on exchanges where no orders had yet been fulfilled so I assume this means that the order had not yet arrived. This seems ethically just about OK to me but a sign that there is not one single stockmarket and that the system could be far better designed. There is the single front-running trade which is suspicious but it seems plausible (unless it happens every time) that it was just a small random trade that happened to coincide with the timing of the big trade. It should be monitored though. My conclusions: 1. There is not one single market with a number of available shares but a number of linked markets. Send your trade to a single exchange (first at least) with enough offered shares that it should execute before offers can be cancelled. Wait, repeat. 2. Much of the liquidity supposedly offered by HFT is illusory and disappears if you try to use it. I think that the market could probably be improved if cancellation weren't free or at least weren't instant. If cancellations took a second (maybe 100ms or 10ms would be enough) to process and the offers could still be accepted in that period the offers made would be more serious and although the spread might be slightly larger it would more honestly reflect reality.

bmelton 12y ago
Plucking from throwaway's example. You have 20,000 copies of a book you just wrote. You put half of them on Amazon, and the other half on eBay, so Amazon has 10,000 and ebay has 10,000 of them. You see an order come in for 5,000 of them on Amazon. You think "Hot dog, these books are popular. I must be selling them too cheaply!" You immediately raise the price of all the books by 25 cents to capitalize on this. The books you sold on Amazon are sold, so they're gone. The remaining books on Amazon are slightly more expensive. The guy who bought the books on Amazon also bought the same number of books on eBay, but the order hadn't arrived there yet, so between when he hit the buy button and the time the order arrived, the price had changed, so those orders aren't filled.
- laichzeit0 12y ago
  Yeah, and if this happened at, let's say, 10 hour intervals, I'm sure the average layman would have no problem with the "fairness" of this. People are getting their panties in knot because it's somehow "unfair" that this can happen at the millisecond level. I personally don't have a problem with this type of trading activity. A few guys are making easy money. So what?
  - kasey_junk 12y ago
    Actually it's not easy money at all. It is very risky money done on razor thin margins.
    - josephlord 12y ago
      I don't think that makes the case for allowing it any stronger. What I do wonder is if these market reactions are so automatic and predictable whether there is a way to game them (I'm sure people already do this). It is probably a deterrent to front running on a large scale.
      - kasey_junk 12y ago
        A) Repeat after me. There is no front running in these scenarios. Front running happens between a client and his intermediary that has a fiduciary duty to him. Other market participants do not have that duty. B) Yes, market making HFT are routinely fighting against other HFT that are designed to predict their behavior and make money from them. The case for allowing it is simple. How do you disallow it without having even worse outcomes. There is quite a bit of evidence that suggests that for the average market participant HFT market makers are a positive not a negative.
        josephlord 12y ago
        A) I wasn't saying that there was front running in the scenario, just that the exploitability of front running by deliberately trying to trigger it was probably a deterrent. Not convinced about that statement about average market participants, also define average market participant and explain where the HFT's profits come from if not other participants. How do you disallow it? My initial suggestion was to slow down cancellations so that they take substantially longer than a new trade does to pass through the system. My perception is that it might reduce the visible liquidity/availability but not the real liquidity as much of the visible liquidity disappears when someone tries to trade against it. Another suggestion would be to move to a single exchange
kasey_junk 12y ago
Cancellations aren't free and they aren't instant. Every (reputable) exchange out there requires you maintain a fill ratio or you will be fined. That is, you have to maintain a minimum number of quotes that get filled before they are cancelled.
- josephlord 12y ago
  I don't know how "fill ratio" is defined. I don't see a problem in unfilled orders at prices that are never reached but if you pull out from the market as soon as someone offers the other side to your trade that doesn't sit well with me. I wouldn't mind companies offering small quantities at the current price and other quantities at progressively higher prices and cancellations/adjustments being made after a particular trade had been processed which would be a transparent way to handle it What do you mean that the cancellations aren't instant? If they can outrun a bid to accept them that is instant as far as I'm concerned.
  - kasey_junk 12y ago
    Well "fill ratios" are defined differently by each different exchange, but the simplest definition is the number of orders entered divided by the number of orders traded must be above a certain threshold or you will have negative consequences (fees, trade bans, etc). Your description of how companies are pricing orders is exactly what's happening. On a given exchange no cancel can outrun a bid to accept a resting order. In fact, you don't have any idea that the bid has arrived until after a trade has happened. What is being described in the article is that a trader is viewing an aggregate of all exchanges as if they were one exchange (either due to ignorance, naivety, bad tools, or due to misrepresentation). The trader then takes out an entire price level at one exchange (none of those orders are cancelled) before trying to do the same thing at the other exchanges. The participants who just got filled at exchange A, then cancel their orders at exchange B. To the trader who was viewing multiple exchanges as a single entity this seemed like it happened all at once, but to the traders who were viewing the exchanges, correctly, as different entities there is a timeline that is observable and public (in fact nanex describes it).

bmelton 12y ago

Plucking from throwaway's example. You have 20,000 copies of a book you just wrote. You put half of them on Amazon, and the other half on eBay, so Amazon has 10,000 and ebay has 10,000 of them. You see an order come in for 5,000 of them on Amazon. You think "Hot dog, these books are popular. I must be selling them too cheaply!" You immediately raise the price of all the books by 25 cents to capitalize on this. The books you sold on Amazon are sold, so they're gone. The remaining books on Amazon are slightly more expensive. The guy who bought the books on Amazon also bought the same number of books on eBay, but the order hadn't arrived there yet, so between when he hit the buy button and the time the order arrived, the price had changed, so those orders aren't filled.

laichzeit0 12y ago
Yeah, and if this happened at, let's say, 10 hour intervals, I'm sure the average layman would have no problem with the "fairness" of this. People are getting their panties in knot because it's somehow "unfair" that this can happen at the millisecond level. I personally don't have a problem with this type of trading activity. A few guys are making easy money. So what?
- kasey_junk 12y ago
  Actually it's not easy money at all. It is very risky money done on razor thin margins.
  - josephlord 12y ago
    I don't think that makes the case for allowing it any stronger. What I do wonder is if these market reactions are so automatic and predictable whether there is a way to game them (I'm sure people already do this). It is probably a deterrent to front running on a large scale.
    - kasey_junk 12y ago
      A) Repeat after me. There is no front running in these scenarios. Front running happens between a client and his intermediary that has a fiduciary duty to him. Other market participants do not have that duty. B) Yes, market making HFT are routinely fighting against other HFT that are designed to predict their behavior and make money from them. The case for allowing it is simple. How do you disallow it without having even worse outcomes. There is quite a bit of evidence that suggests that for the average market participant HFT market makers are a positive not a negative.
      - josephlord 12y ago
        A) I wasn't saying that there was front running in the scenario, just that the exploitability of front running by deliberately trying to trigger it was probably a deterrent. Not convinced about that statement about average market participants, also define average market participant and explain where the HFT's profits come from if not other participants. How do you disallow it? My initial suggestion was to slow down cancellations so that they take substantially longer than a new trade does to pass through the system. My perception is that it might reduce the visible liquidity/availability but not the real liquidity as much of the visible liquidity disappears when someone tries to trade against it. Another suggestion would be to move to a single exchange

kasey_junk 12y ago

Cancellations aren't free and they aren't instant. Every (reputable) exchange out there requires you maintain a fill ratio or you will be fined. That is, you have to maintain a minimum number of quotes that get filled before they are cancelled.

josephlord 12y ago
I don't know how "fill ratio" is defined. I don't see a problem in unfilled orders at prices that are never reached but if you pull out from the market as soon as someone offers the other side to your trade that doesn't sit well with me. I wouldn't mind companies offering small quantities at the current price and other quantities at progressively higher prices and cancellations/adjustments being made after a particular trade had been processed which would be a transparent way to handle it What do you mean that the cancellations aren't instant? If they can outrun a bid to accept them that is instant as far as I'm concerned.
- kasey_junk 12y ago
  Well "fill ratios" are defined differently by each different exchange, but the simplest definition is the number of orders entered divided by the number of orders traded must be above a certain threshold or you will have negative consequences (fees, trade bans, etc). Your description of how companies are pricing orders is exactly what's happening. On a given exchange no cancel can outrun a bid to accept a resting order. In fact, you don't have any idea that the bid has arrived until after a trade has happened. What is being described in the article is that a trader is viewing an aggregate of all exchanges as if they were one exchange (either due to ignorance, naivety, bad tools, or due to misrepresentation). The trader then takes out an entire price level at one exchange (none of those orders are cancelled) before trying to do the same thing at the other exchanges. The participants who just got filled at exchange A, then cancel their orders at exchange B. To the trader who was viewing multiple exchanges as a single entity this seemed like it happened all at once, but to the traders who were viewing the exchanges, correctly, as different entities there is a timeline that is observable and public (in fact nanex describes it).