I am not sure if anyone really understands the situation the marekt is in right now. Due to the microstructure..it is at risk of literally imploding which means that millions of people will have no real way to create wealth slowly. Now it may sound far fetched. But if you want to limit the elite. The have's from the have not's and you want to basically freeze time (money wise). then you kill the stock market and you kill competition and you kill wealth appreciation logn term by those who can only make large sums by slowly investing. I believe HFT and algo's are doing just this very thing and the creators may not even undeerstand it at this point. But, if you were programmed to use artificial intelligence and machine learning and you were told. at any cost to secure profit and monopolize the market then you would have a master plan you would carry out that would "end or win" the game. If this is a "game" tot eh algo's then winning would mean having the most money and shutting down the game..otherwise it never ends and you keep working towards an unachievable goal. If you are A.I. or even human you can realize that if you hut down the market or get others to not invest and during the process you make a killing then in the end you have ULTIMATELY won. OR if the Government or the fed wanted to RESET the usa economically or it's currency issues then a complete collapse of the market with a blame on recession and massive flash crashes would do the trick. Don;t you think it is suspect that they sec cftc really don't know what caused all fo the flash crashes.. HOGWASH. anyway I do not spoof and my point is the algo's are spoofing, layering, and creating moentum ignition a lot whihc are all illegal and disruptive but since algo cod eis considered INTELLECTUAL PROPERTY the sec and the cftc have never been legally allowed to pry into them!! so we human retail investors need to get smart and make it while we can and make it difficult for the algos to GAME US all the time. Placing and cancelling orders is not illegal.
I will add this.. it is a zero sum game. do i want to keep running the stock market higher..let's just say I could. I ahd teh money and programs to do it legally or illegally.. I wouldn't run it higher because I would also be increasing my competitions worth and they might be able to use that wealth to create invent or buy something that could defeat me. My best option would be to crash the market completely and make the most money possible while ti crashes. then most of my competition is wiped and I am exponentially wealthier than everyone else including public company staff and ceo's who had all their retirement in company stock. That is the BEAUTY of BEING a BEAR. You are wealthy when everyone else is POOR and you buy up assets while they are cheap so you get a double bang for your money!! just my theory i hope I am wrong.. terminator.
I'm just now listening to Flash Boys and it's piqued my interest in HFT algorithms. From my viewpoint, observation and experience, the market operates as a fractal, and that the dominant pattern (3 moves of price to 4 moves of volume) is nested within alternating contexts. Trends are complete or incomplete by the interruption by a trend beginning in the opposite direction. Volume follows through or not. As such, HFT's operate within a context that can be encapsulated and bounded - with it's influence gated to permit and kill signals that are relevant to one's trading fractal. Fractals are not to timescales as timescales are to fractals. With that said, then the logically result of the rise of HFT's is for them to cannibalize each other within their domain. From my current beginner perspective on HFT's, they operate by interposing themselves as intermediaries on large orders in equities from larger institutional participants. Mostly functioning as a toll. As I explore and map out the network, hardware and application topology, the HFT's operate on a timescale that is beneath the threshold of human perception which makes it a sub-threshold of human reaction time. I imagine they (as you assert) do also operate on smaller orders. As an example, with ats algos, sub-second ilink message tags on the CME and advanced order types, I've noticed dry up liquidity or shown non-bonafide liquidity in a blink of an eye. It's interesting that you bring up the concept of time. In a way the rise of HFT's are a demonstration of Einstein's theory of relativity bringing theory into reality. In the following video, 15:30ish has a simple explanation of space as it relates to time. When it gets to 24:30ish the explanation in the video begins a concept of time slicing that can be metaphorically applied to HFT's. As HFT's go fast, the solution to someone not operating in that domain, logically would be to go slower or rather trade on a larger timeframe. Next for me in regards to HFT is mapping out the various order types. There has been an explosion of various order types with the rise of ECN's and it's time to update my mental map.
great post and you are spot on on most of the finer points. just remember hft conttols the spread by cancelling orders and moving or reducing limit order. larger time frame..yes but thats why u see so many intraday swings. also hft can see your order comin time wise. they have also incorporated dwqve comp
LOL.. it ain't crying over a tick when a flash crash wipes you out. lol. I never cry over ticks and I work with mainly mkt orders.
look into clearing once you get the orders figured out.. the FAK and FOK and gtc definitely are weird. they also have a new Imessage tag.. it allows option compounding straight to futures for members only and the futures don't show up in the book (volume) as far as relativity.. the fastest way to communicate will be with the particle accelerators.. the fastest way is thru the earth not over since it really is round.(shortest distance). this is what is coming in the next 30 years. particel accelerators are really huge communication hubs of the future.