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They are doing this, but with some hesitation. Many "flash crashes" are caused deliberately to do just this, and the risk/reward of trying to game them is not w
by exelius 11y ago
They are doing this, but with some hesitation. Many "flash crashes" are caused deliberately to do just this, and the risk/reward of trying to game them is not worth it. In many cases, exchanges will roll back or invalidate any orders placed within 5 minutes of the flash crash, so the potential reward is not guaranteed. Any large orders placed immediately after the crash would be looked upon suspiciously.
Any company capable of exploiting a flash crash in the way you describe would need to be a timing arbitrage player -- and that's not a cheap business to be in. But exploiting short term dips in pricing is exactly what that type of HFT is designed for. It's incredibly profitable, but also zero-sum because there are only so many lucrative opportunities. So it's an arms race to have the fastest systems, the fastest connection to the exchanges so you can preempt orders, etc.
- lmm 11y agoIt's not really zero-sum in the sense that HFTs are usually criticized for; if it stabilizes the market for longer-term investors then that's a positive effect.
- exelius 11y agoMarket stabilization/liquidity is the effect that HFTs are supposed to have. If they didn't have a benefit they would have been banned long ago. And arbitrage is always zero-sum: when your purchase of an asset drives the price of that asset up, there is a finite maximum on the number of shares you can buy without driving the price up so high as to not be profitable. There is also a finite number of shares out for bid at any given time; if you buy all of them then there aren't any for anyone else to buy.