High Freq Trading Is 70% of Volume; Take It Away = Armageddon

Discussion in 'Trading' started by ByLoSellHi, Aug 4, 2009.

  1. High Frequency Trading Programs account for 70% of market volume. TAKE AWAY 70% of MARKET VOLUME AND YOU HAVE FINANCIAL ARMAGEDDON.


    High Frequency Trading Programs (HFTP) collect a ¼ of a penny rebate for every transaction they make. They’re not interested in making a gains from a trade, just collecting the rebate.

    Let’s say an institutional investor has put in an order to buy 15,000 shares of XYZ company between $10.00 and $10.07. The institution’s buy program is designed to make this order without pushing up the stock price, so it buys the shares in chunks of 100 or so (often it also advertises to the index how many shares are left in the order).

    First it buys 100 shares at $10.00. That order clears, so the program buys another 200 shares at $10.01. That clears, so the program buys another 500 shares at $10.03. At this point an HFTP will have recognized that an institutional investor is putting in a large staggered order.

    The HFTP then begins front-running the institutional investor. So the HFTP puts in an order for 100 shares at $10.04. The broker who was selling shares to the institutional investor would obviously rather sell at a higher price (even if it’s just a penny). So the broker sells his shares to the HFTP at $10.04. The HFTP then turns around and sells its shares to the institutional investor for $10.04 (which was the institution’s next price anyway).

    In this way, the trading program makes ½ a penny (one ¼ for buying from the broker and another ¼ for selling to the institution) AND makes the institutional trader pay a penny more on the shares.

    And this kind of nonsense now comprises 70% OF ALL MARKET TRANSACTIONS. Put another way, the market is now no longer moving based on REAL orders, it’s moving based on a bunch of HFTPs gaming each other and REAL orders to earn fractions of a penny.

    Currently, roughly five billion shares trade per day. Take away HFTP’s transactions (70%) and you’ve got daily volume of 1.5 billion. That’s roughly the same amount of transactions that occur during Christmas (see the HUGE drop in late December), a time when almost every institution and investor is on vacation.

    HFTPs were introduced under the auspices of providing liquidity. But the liquidity they provide isn’t REAL. It’s largely microsecond trades between computer programs, not REAL buy/sell orders from someone who has any interest in owning stocks.

    In fact, HFTPs are not REQUIRED to trade. They’re entirely “for profit” enterprises. And the profits are obscene: $21 billion spread out amongst the 100 or so firms who engage in this (Goldman Sachs (GS) is the undisputed king controlling an estimated 21% of all High Frequency Trading).

    So IF the market collapses (as it well could when the summer ends and institutional participation returns to the market in full force). HFTPs can simply stop trading, evaporating 70% of the market’s trading volume overnight. Indeed, one could very easily consider HFTPs to be the ULTIMATE market prop as you will soon see.

  2. this must be the 10th or is it the 20th ARMAGGEDDON we have faced so far this year....the wholoe scenario has become a yawn now.................
  3. Complacency as to facts is solid evidence a crash is near.
  4. That's all BS!

    Armageddon from what???

    A market can go up on very low volume just as it can go down on very low volume.

    What the hell do you want these LEECHES around for???

    They don't provide liquity. They profit from it at the expense of long term traders & to a smaller degree, daytraders.

    Why would you want these bloodsuckers around?
  5. Bring it on! Nothing wrong with a market decline/bear market.

    In case you haven't noticed this year has been the year with probably the smallest net intraday changes in price when compared to overnight gaps. In other words, almost every day you have huge gaps only to end the day with little change from the open.

    What that tells me is the US is no longer the master of it's own universe. It's markets are now being driven by foreign trading in foreign exchanges. Not the way most Americans think, huh?

    Screw US markets. Let these leeches suck each other dry!

    Most movement in US market is 'fake'. If you trade a lot of stocks/sectors, you can see it.

  6. You know that not too long ago people just bought stock and stuck the certificates in a safe deposit box.

    It will not be the end of the world, Traders made money when the todays daily volume represented a week of trades.

    Shit even earlier they actually posted on the newspapers the actual volume for each stock in the NYSE in addition to the closing prices.
  7. Certainly, last 2 weeks has been "fake".
  9. Take away HFT, the real trading begins. Sure mkt will lose volume......but it was all fake anyway. HFT has really been abusing the mkt lately and it definitely needs to be banned. Unlikely, but some rules definitely can change the picture here......instead of flashing bids/offers, it needs to stand for at least a full second before it can be cancelled.

    Only reason it wasn't until now is that it manipulated the mkt to the upside and our greedy government made a lot of money from it. It looks like politicians(including Chuck) are finally surfacing this. and HFT firms are getting nervous. Hopefully i won't be paying so much slippage starting soon........
  10. I lean towards this analysis as well. But frankly, as someone else mentioned, it's mostly a yawn.

    Much more interesting imo, though unrelated to HFT is Goldman telling their people to hoard cash. Is it really based on PR? Or is it bonus part deux? http://www.reuters.com/article/newsOne/idUSTRE5732GJ20090804
    #10     Aug 4, 2009