High-Frequency Traders: Better, or Just Faster?

Twitter, despite its reputation for occasionally spreading fake stories, remains one of the best ways to keep tabs on the latest news, financial or otherwise. And this morning, a handful of tweets from “HFTAlert” on the latest high-frequency trading shenanigans caught our attention, retweeted via Stocktwits:

“@HFTAlert: spamming algo hitting $BAC again… this time 830,000 quotes in 34 seconds.”

“@HFTAlert: now they’re blasting $KEY, now 1.4 million quotes. $BAC”

“@HFTAlert: $KEY algo finally stopped… ran for 5 minutes. 1.6+ million quote changes…”

A more detailed breakdown of this morning’s quote-stuffing activity (along with some charts for perspective) can be found here. It’s likely to just be another blip in the radar, but these blips are starting to add up. We’ve seen calls for regulatory intervention from Congress, industry folks, and regulators, and there are even TED talks out about it. These blips might not be much to look at right now, but the TED talk, in particular, makes a good point towards the end of the video.

The speaker, Yan Ohayan, talks about Watson, the Jeopardy-playing computer program built by IBM. He points out that after Watson defeated the past human champions, they claimed that Watson’s advantage wasn’t that the computer knew more answers than the humans – it was that Watson could simply buzz in faster than they could.

In part, the same idea is what gives high-frequency traders their advantage – the machines aren’t actually “better” traders; they’re just faster traders. As long as the exchanges continue to allow or encourage practices like co-location and issuing tens of thousands of cancelled quotes per second, it will remain an advantage to trade milliseconds faster than other market participants.

Of course, high-frequency traders have other advantages that Watson lacks. They can “cheat” by putting in fake quotes to make someone move their price up or down, then cancel those quotes and take the other side of the trade. Sort of like if Watson could hit the buzzer 1000 times per second in Jeopardy to confuse the other players, and then hear their answers and jump ahead of them in line.

Ted talks are sometimes derided as an intellectual snob-fest, but Ohayan certainly makes us wonder – how many blips will it take before we see a real response to the HFT algos? Or will it take another flash crash to propel changes?

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  1. […] High-Frequency Traders: Better, or Just Faster? (managed-futures-blog.attaincapital.com) Share this:FacebookLinkedInStumbleUponPinterestTumblrTwitterDiggRedditGoogle +1Like this:LikeBe the first to like this. This entry was posted in Real-time order flow for nifty future and tagged Auction market theory, bid ask, high frequency trading, market profile, nifty, NSE, order flow analysis. Bookmark the permalink. ← Order flow analysis of morning session: 5 December […]

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The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

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