A Five Minute Example of HFT Shenanigans

Discussion in 'Stocks' started by short&naked, Dec 12, 2012.

  1. http://premarketinfo.com/2012/12/11...of-everything-that-is-wrong-with-our-markets/

    A Five Minute Example of HFT Shenanigans

    I was trying to buy 500 shares of a preferred stock this morning, Principal Financial Group Inc. series B (NYSE:pFG-B). It is such a challenge to trade any type of illiquid issue as the execution of orders is nearly impossible in this HFT world. Here is the sequence of events.

    At 09:39:08, the stock is offered on EDGX at $26.29.


    I place an order to lift the offer. The shares trade but I get filled on zero shares. Knowing that my bid will cause a bunch of HFT programs to penny-jump me (step ahead of my order by a penny - which they immediately do), I cancel the order. The HFT penny jumper cancels their order as well.


    At 09:39:29, the stock is offered on EDGX again at $26.32. I place an order to lift the offer. The stock trades at the exact same second. Again, I get filled on zero shares. I cancel the order.


    At 09:39:41, the stock is offered on PCSE at $26.29. I place an order to lift the offer. The stock trades at the exact same second again, but I get filled on zero shares. I cancel the order.

    At 09:39:50, I place a hidden order to buy the stock at $26.32. Five second later the stock prints in front of me at $26.33 (Obviously these hidden orders aren’t as hidden as they should be). I leave the hidden order to buy at $26.32.

    At 09:40:05, the stock prints right through my hidden order on another exchange at $26.30. So despite my bid being higher at $26.32, thanks to the fragmentation in the market, I get filled on zero shares again (and the seller gets a worse price!)

    At 09:40:20, the stock prints through my hidden order again at $26.30. Again, no execution for me. Frustrated, I cancel my order.

    A few seconds later, at 09:40:36 a couple of HFT programs battle out for the top of the order queue, and the bid changes rapidly, as you can see below:


    At 09:40:40, the HFT programs go to battle again fighting for the best bid.


    This battle continues for the next few minutes. In fact, during one period of time from 09:44:53 – 09:46:35 (a total of just over a minute and a half), the best bid changes over 800 times, as these two HFT algorithms battle to be at the top of the queue.

    At 10:07:14, I finally lift an offer and pay up to $26.35. The HFT firm scalps their few cents from me, and all the games are over.

    Some serious issues are highlighted in these few minutes of activity:

    1) Inability for market participants to access a quote.

    2) Excessive quote pollution as HFT algorithms battle each other.

    3) Market fragmentation can lead to inferior execution.

    4) HFT penny jumping can discourage market liquidity.

    The bottom line is that all of these issues discourage participants from trading illiquid securities – making these securities even more illiquid.
  2. 1. Get a better broker, not HFTs fault he's selling your flow to disreputable sources
    2. I think that's called "liquidity" and you'd like it if they did that when you wanted to sell
    3. Yup. You want NMS protection you gotta show the order. No whining about hidden trade throughs
    4. I think the blogger is annoyed the HFTs are better at making a market than he is. I'm not sure this is a problem. Automated quoting can have lower margins since it takes less human time to do it, leading to narrower spreads for active participants.
  3. nursebee


    Were you really trying to buy?

    In a way, the only way to get me to bite into this post as being shenanigans is to take a live video of your screen as this unfolds. Include your bidding along with time and sales incuding size of bid and asks.
  4. jharmon


    Do not undderstand

    Bid-Ask was 26.21/26.29 (EDGX)
    You place 26.29 (unknown exchange or routing)
    You get zero fill

    Perhaps your order was placed on wrong exchange originally.

    Which broker, what routing?
  5. sprstpd


    It has been my experience that this comment is untrue in most cases. Especially in illiquid securities.
  6. Perhaps, but again, with thinly traded symbols, this is a definite possibility. HFT algos likely have less impact on highly liquid securities.
  7. Agree. He needs to call his broker and ask what is happening here. It's either a routing issue or he sent an "All or Nothing" order. There is an explanation but instead of trying to find it and solving the issue, we just went straight to the HFT boogeyman.
  8. But the example shown indicates that is exactly what happened. Bids were being raised to meet the offer. The algos helped to lower the spread.
  9. this is the anti-hft bright trader. so, might want a little salt with that dick.
  10. jem


    I read the post on his thread. He seems very level headed about the entire scenario.

    figures he got beat on the first try and he is suspicious of what happens after that.

    All I know is that the sec spent the nineties forcing everyone to consolidate into a national best bid ask then they spent the next decade letting the participants to fragment the market.
    #10     Dec 12, 2012