Thanks Black Diamond, Apparently I misunderstood the problem. I agree with you on both complaints. However, the problem related to real traders losing priority in the queue seems to be less serious than the issue of real traders frontrunned by HFT on NASDAQ. I would be totally pissed to see asks I click on getting removed before I get a piece of it just because of my order.
In regards to the last part of the title "Algorithmic manipulation" , I can only speak about stocks in the the Dow 30 and the sp 100 as these are the baskets and sub-baskets of stocks i monitor and in regards to algorthmic trading where baskets of buy side stocks are traded against sell side stocks , the reason you get alot of reversals in the indicies such as the Dow and S&P usually before 11:00am is that alot of baskets of stocks categorized either by sector or by there 10 and 20 day volatilities , they are hitting their 1 and 2 standard deviations areas from various algorithmic benchmarks such as their VWAP or their current day mid price . Some alogorithms are just that basic but they all react similarly in that they need to offset a certain amount of risk early in the trading day when liquidity is greatest which means trading aggresively until the basket moves too far then the algorthim switches off or the sell side basket part of the order kicks in which allows a reversion to take place . This can make the moves in the indicies look eratic but they are just computers trying to lower the overall transactions cost of the portfolio by trading pretty systematically on some days..
No offense, but I'm not sure you have looked deep enough into the issue. I think some are using the flash order information in more complex ways. Market makers, automated or otherwise, have a huge advantage with this information. Algo's and HFT's can be set up right around the flash order information to extract a few cents from thousands of transactions per day, netting $21 Billion for GS and it's HFT customers. Also, most of the streets market makers are operated by Goldman Sach's. They control 25% of the total market volume (saw this on another post). GS also owns Direct Edge, the last holdout to not offer on it's own to ban the use of of the flash orders. The flash orders have made it an unfair cake-walk for these market makers/programs. THEY CAN SEE THE ORDER INFORMATION COMING IN ADVANCE AND REACT ANY WAY THEY WANT!! Give me the flash order info in advance and a robot that can react around it in milliseconds and you'll never see me posting on this site again. I'll be somewhere on an tropical island sipping mai tai's (Not really, because that would be illegal/unethical and a little guy like me would get in big trouble. It would also be cheating, and i'm not a cheater). GS (and others) with its' knowledge, resources, and influence on the street are already doing this. This is why a Senator and many others are pushing to abandon the practice. I'm not talking about a fraction of a cent here or there, i'm talking about market makers or automated market makers using the info scalp several cents per transaction on decent volume stocks with maybe 3-5 cent spreads on the bid/ask. How else could you explain getting filled 3-10 cents out of the money when liquidity was apparently there? I've looked at the time and sales on several trades. No one is ever in front of my order, i'm first in line at multiple level II prices. Once the order is placed, poof, the liquidity vanishes and fills me in a nasty spread. No prints in between on the time and sales, nothing. Seems to me it has to be a market maker or program that spotted my order coming in with a "flash' and dropped all of it's bid's (or offers). A few of these type of fills a day (about 25% for me in this market) can really put a dent into all the good trading you have made for the day. If someone see's what else they think it could be, by all means, please let me know. This is the reason I originally started this post, i was looking for answers and help. I only hope that they look further into the HFT's and algo's while this whole thing is unfolding. "Where there is smoke, there is usually fire". My gut instinct is telling me there much more unethical trading practices going on. Black Diamond, just sit back and relax. When they abandon the practice you'll see how much easier your trading becomes. Maybe your particular trading style is not affected by the flash orders. But you may find that, at the end of the day, even your profits are a little better. Why negate a discussion, perhaps topic of change for traders like ourselves, that can only benefit you. If you ultimately had it your way, you would opt for the ban of flash orders, wouldn't you?
What broker are you trading with? If YOU are not using a flash order and you take liquidity on the bid or offer, you mean to tell me it 'disappears' when you execute. I don't believe it. Post a real example for dissection. I assume you are trading this by hand, if not, then maybe you expect more from a black box than it can deliver.
Hey Pacific 7- No offense taken but I am not convinced. And I am not trying to negate any discussion, just giving my opinion. I'll assume your facts here are correct, I don't think they lead to your conclusion. If a lot of volume is done by algos and the algos make money, so what? I can say market makers on the floor do a lot of volume and make a lot of money (or used to), that in and of itself does not mean they are doing anything harmful. The fact that some politicians get excited about it doesn't prove anything either. I don't think there is a way flash orders can take your liquidity in the example you give. I think the explanation is cancelled limit orders, and if this happens a lot in what you trade it sounds like a good reason to use a marketable limit order instead of a market order. Maybe it is reasonable to have a beef with how long limit orders have to sit there, but I don't see how you can blame it on flash orders. Your order is not getting flashed unless you are submitting a flash order. And the liquidity you are looking at is not from flash orders unless you subscribe to them and you can watch very quickly! So here is my challenge to you: lay out a scenario step by step where flash orders could get you ripped off. Not counting when you are the flasher, I still haven't heard any good ones except "my limit order should have filled and didn't". I am also curious how you would make a ton of money if you could see flash orders. As far as I can tell they 1) give you a chance to buy at the bid and sell at the ask out of line - nice but not the grail, and 2) frontrun the flasher, who presumably would have decided not to flash his order if he was worth frontrunning. I think the real money made from flash orders is when DirectEdge or whoever gets to fill an order internally instead of sending it out into the market. So what am I missing? And you ask if I agree flash orders should be banned. I am kind of ambivalent. My impression is that they are not good but not terribly damaging either, and I am not a big fan of banning things for minor improvements. Especially when the people making money off them are probably smart enough to do the same thing some other way that gets around the ban. But I am open minded - if you can give me a concrete example how they are worse than I think, or point out where my facts are wrong, I may switch sides.