I actually don't think you've made a huge new point here, but of course I can't disagree re: price discovery and the auction mechanism. And I don't think you can actually elect for an order to be "flashable", so there's no benefit to the broker. It's part of the exchange matching process. But again, that's going to be specific and I don't know the options world at all at this point. If you could point to a definition or rule somewhere I'd like to see it though. Again, we're going to have to get into specific definitions. In its original incarnation, Flash orders were only sent to participants who partially filled an order that was to have its balance routed away. In other words, liquidity providers were given an opportunity to do more of the same thing, and no one who didn't participate in the first place could execute against a Flash order. In addition, they're only sent to a select group, and never posted publicly. So the only way NBBO/away markets could change is if someone partially filled a Flash order, saw there was more size, and then went away and scratched their trade. That's not going to be common, but you're right, that screws the aggressing order. I stand corrected. I agree it should be banned, but it is 100% untrue that anyone ("sophisticated" or otherwise) can get access to the info. At least on some exchanges; maybe options is different.
You may have some interesting points in there, but I can't respond to that. If you can't organize what you want to say, I don't feel any obligation to do it for you. Don't mean to sound like a bitch, but part of the reason spelling/grammar count is because it shows you care enough to make things readable for others.
Who is your broker? Are you using market orders? If you are using a direct access broker and limit orders this would never happen. Anyone who uses market orders are asking to buy the book up/sell the book down. Also, most retail broker dealers do not show every quote from each ECN therefore the price changes can be more dramatic and go very much against you since your order will be internalized based on limited information your broker feeds you. Yes you are getting f'd over but its your broker screwing you not some random market participant. (but this is only a guess since you didn't provide enough information to comment on) Then why are you here complaining?
what's else to comment? read my posts once again..broker is IB,orders (in examples )are off course limit. happens 10's of times each day in real trading
Dark Pools don't count - they are private. Another poster mentioned close to 50 ECNs in the US so you are saying that only TWO ECNs use flash and then a slew of DP which the general public does not have access to anyway. Have you seen/worked with flash orders? Have you ever seen a market order turned down and flashed out? The reality is that the market has tiers and that will probably never change. Personally I think this is a good thing, but that's just my opinion. You have retail, professional and institutional players in the market. Retail gets screwed over by their broker not by flash orders or market makers. Most everyone would agree that today's Market Maker matching engines are considered HFT so with that said you can't deny that a MM or internalizing broker uses HFT... however - There is a massive difference between your retail broker (or low-level prop firm) screwing you over by providing minimal quote & market infomation, structuring fees in such a way that MKT is really the only affordable solution, and then providing you with a fill price that seems "better" than the quoted price provided to you by your broker when in fact you have no idea what the market really looks like. I'm not trying to shift blame here from HFT/Flash but the vast majority of people that complain about HFT aren't really even exposed to it. I don't consider an internalized MM to be HFT because if you get rid of internalization and give everyone direct access to the markets it would make most of these issues go away.
I don't know of any system or firm that has made billions on HFT alone so the easy answer is that you don't know what you are talking about so please stop trolling this thread. A better answer for those that actually care to read and understand this thread is: Liquidity providers usually make the spread and earn a rebate for their trading. Because HFT increases liquidity and recuces spreads, the better the HFT systems get the less money there is to make (similar to any other trade/area that gets saturated). There are also many arbitrage opportunities - so between arb, making markets and providing liquidity there are several opportunities to make a decent living - but I have yet to meet anyone who has made $1billion on HFT alone.
A recent Aite Group report pegged HFT at about $2B/yr net. I think that's high; it necessarily involved 2008, which was ridiculously phenomenal maybe once-in-a-lifetime conditions. That said, GETCO has certainly made a billion over time, and Goldman and RenTech. Can't think of anyone else I'd put in that group. As far as where the money comes from 777, have you not noticed how many more shares are traded? That alone, coupled with liquidity rebate and tape revenue sharing programs is probably half the money right there.
Great - this can kill two birds with one stone. Bob111, when you send an order do you route "Auto" or do you specify an exchange? Are you bundled or unbundled? Interactive Brokers' prop trading arm is Timber Hill - I don't remember exactly how and when they merged/partnered. Just like E*Trade uses Citadel and many others have special relationships with market makers who internalize orders. rsi80, what this means is that when you buy or sell stocks through most retail brokers, unless you specify to send the order to ARCA/NYSE (or any other ECN, usually at a higher cost), they will internally match the order against another of their customers. At IB, most people are trading against other IB customers, same at E*Trade, TD Ameritrade, etc. Timber Hill matches the orders so they make the profit on the spread and make the profit on your fees. Internalization = your order never goes outside the firm. It is crossed/matched internally and your broker makes the spread + your ticket fee, plus has the option to totally F you over if you send market. Furthermore, as I mentioned in another post, most brokers do not provide customers with full market data (not all ECNs) which means that the prices you see aren't always accurate and the orders you are trying to fill against aren't always accurate. This, combined with the fact that price structure is skewed in favor of market orders at retail firms, making it easier for them to hold a market order to sit for the max time while they pull liquidity on you makes it legal and very easy to take from their customer base. Also, just like how many Stock Loan desks (for short sales) have recipricol agreements, many of these internal crossing desks/prop desks will flash your order to dark pools that other internalizing firms subscribe to, before routing your order out to an exchange. So if your retail broker can't (or does not want to) fill your order, it first flashes it out to a dark pool (essentially other internalizing firms) and then it will route out to wherever there is true liquidity. This is why people are pissed off at HFT when actually its your own broker screwing you over. Bob, If you submit a limit order to buy 1000shs @ $50 it is impossible for your broker (or anyone for that matter) to fill you at $50.01 or anything over $50. Your order simply would not get filled. It is possible however for you to submit a limit order to buy @ $50 and for you to receive a fill at an average price of $49.9999 or at any price lower than $50 (price improvement that goes in your favor). Are you paying through? (when offer would be $50 and you bid $50.25 to make sure you get filled? I don't understand how its possible for someone to walk up the book ahead of your limit order. If you do get filled outside your limit just call up IB and get price improvement. They will go back and credit you for the ticket price (if it was truly limit and there was size to fill it).
Timber Hill predates IB by several years (maybe 10). IB grew out Peterffy's recognition that he could monetize his market making infrastructure. bob, I think you got at least a potential explanation how you could observe what you do: it's possible someone in the chain is grabbing liquidity before you, via the propagation of retail orders in dark pools, flash, etc. But Winston is spot-on: there's really no one to blame but your broker. You'll also see different behavior if you select a specific destination.