High frequency traders literally printing money!!! LITERALLY PRINTING MONEY!!!!

Discussion in 'Wall St. News' started by S2007S, May 17, 2010.

  1. S2007S


    Since the 998 point intraday collapse news stories about these high frequency traders have been popping up every where. Its actually shedding even more light on whats going on and how these traders work and how they literally print free money on a second to second basis. These speedy traders are making up more than half of the volume on the exchanges. Wallstreet has become nothing but a casino, with these programs in place they are guaranteed to make a profit no matter what, no regular trader whether long term or short can compete with these computer codes. These computers are front running and sniffing out trades before they even touch the exchanges. Of course its going to take something even worse than May 6th to shed light on whats really going on with these high frequency traders.

    Speedy New Traders Make Waves Far From Wall Street
    May 17, 2010, 1:56 am

    Above Restoration Hardware in the Jersey Shore town of Red Bank, not far from the Navesink River, lurks a Wall Street giant.

    Here, inside the humdrum offices of a tiny trading firm called Tradeworx, workers in their 20s and 30s in jeans and T-shirts quietly tend high-speed computers that typically buy and sell 80 million shares a day.

    But on the afternoon of May 6, as the stock market began to plunge in the “flash crash,” someone here walked up to one of those computers and typed the command HF STOP: sell everything and shutdown, The New York Times’s Julie Creswell writes.

    Across the country, several of Tradeworx’s counterparts did the same. In a blink, some of the most powerful players in the stock market — high-frequency traders — went dark. The result sent chills through the financial world.

    After the brief 1,000-point plunge in the stock market that day, the growing role of high-frequency traders in the nation’s financial markets is drawing new scrutiny.

    Over the last decade, these high-tech operators have become sort of a shadow Wall Street — from New Jersey to Kansas City, from Texas to Chicago. Depending on whose estimates you believe, high-frequency traders account for 40 to 70 percent of all trading on every stock market in the country. Some of the biggest players trade more than a billion shares a day.

    These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.

    But some in Washington wonder if ordinary investors will pay a price for this sort of lightning-quick trading. Unlike old-fashioned specialists on the New York Stock Exchange, who are obligated to stay in the market whether it is rising or falling, high-frequency traders can walk away at any time.

    While market regulators are still trying to figure out what happened on May 6, the decision of high-frequency traders to withdraw from the marketplace is under examination.

    Did their decision create a market vacuum that caused prices to plunge even faster?

    “We don’t know, but isn’t that the point? How are we ever going to find out what’s going on with these high-frequency traders?” said Senator Edward E. Kaufman, Democrat of Delaware, who wants the Securities and Exchange Commission to collect more information on high-frequency traders.

    “Whenever you have a lot of money, a lot of change, little or no transparency, and therefore, no regulation, you have the potential for a market disaster,” Senator Kaufman added. “That’s what we have in high-frequency trading.”

    Some high-frequency traders welcome the closer scrutiny.

    “We are not a no-regulation crowd,” said Richard Gorelick, a co-founder of the high-frequency trading firm RGM Advisors in Austin, Tex. “We were all created by good regulation, the regulation that provided for more competition, more transparency and more fairness.”

    But critics say the markets have become unfair to investors who cannot invest millions in high-tech computers. The exchanges offer incentives, including rebates, which can add up to meaningful profits for high-volume traders as well.

    “The market structure has morphed from one that was equitable and fair to one where those who get the greatest perks, who have the speed, have all of the advantages,” said Sal Arnuk, who runs an equity trading firm in New Jersey.

    High-frequency traders insist that they provide the market with liquidity, thus enabling investors to trade easily.

    “The benefits of the liquidity that we bring to the markets aren’t theoretical,” said Cameron Smith, the general counsel for high-frequency trading firm Quantlab Financial in Houston. “If you can buy a security with the knowledge that you can resell it later, that creates a lot of confidence in the market.”

    The high-frequency club consisting of 100 to 200 firms are scattered far from the canyons of Wall Street. Most use their founders’ money to trade. A handful are run from spare bedrooms, while others, like GetCo in Chicago, have hundreds of employees.

    Most of these firms typically hold onto stocks for a few seconds, minutes or hours and usually end the day with little or no position in the market. Their profits come in slivers of a penny, but they can reap those incremental rewards over and over, all day long.

    What all high-frequency traders love is volatility — lots of it. “It was like shooting fish in the barrel in 2008. Any dummy who tried to do a high-frequency strategy back then could make money,” said Manoj Narang, the founder of Tradeworx.

    A quiet man with a quick wit and a boyish enthusiasm, Mr. Narang, 40, looks like he came out of central casting from the dot-com era. Wearing jeans, a gray T-shirt and a New York Yankees hat, he takes a seat in front of his computer terminal and quietly answers questions about his business, glancing occasionally at the Yankees game in one of the windows on his PC.

    After graduating from M.I.T., where he majored in math and computer science, Mr. Narang bounced around Wall Street trading desks before starting Tradeworx in the late 1990s.

    At the time, Wall Street was at the beginning of a technological evolution that has changed the way stocks are traded, opening a variety of platforms beyond the trading floor.

    The Tradeworx computers get price quotes from the exchanges, decide how to trade, complete a risk analysis and generate a buy or sell order — in 20 microseconds.

    The computers trade in and out of individual stocks, indexes and exchange-traded funds, or E.T.F.’s, all day long. Mr. Narang, for the most part, has no idea which stocks Tradeworx is buying or selling.

    Showing a computer chart to a visitor, Mr. Narang zeroes in on one stock that had recently been a winner for the firm. Which stock? Mr. Narang clicks on the chart to bring up the ticker symbol: NETL. What’s that? Mr. Narang clicks a few more times and answers slowly: “NetLogic Microsystems.” He shrugs. “Never heard of it,” he says.

    If high-frequency traders crave volatility, why did Tradeworx and others turn off their computers on May 6?

    Mr. Narang said Tradeworx could not tell whether something was wrong with the data feeds from the exchanges. More important, Mr. Narang worried that if some trades were canceled — as, indeed, many were — Tradeworx might be left holding stocks it did not want.

    Now that the dust has settled, however, he has mixed feelings. “Several high-frequency trading firms that I know about stayed in the market that day,” he said, “and had their best day of the year.
  2. there seems to be hostility against those who actually learn to make money in the market...
  3. “Several high-frequency trading firms that I know about stayed in the market that day,” he said, “and had their best day of the year."

    Yes, I'm sure they did.


    You know it's near the end game when the thieves don't even recognize their own crimes.
  4. S2007S


    you mean front running!!!
  5. Evolve or die, If you cannot evolve to this market and take you piece of the action then you should not trade.
  6. From the article-

    "Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years".

    The chances of that happening on an even playing field is probably zero.

    HFT/flash trading is frontrunning. Nothing more.
  7. schizo



    The real question is why have these HFTs simply walked away on May 6th? If this has never happened before, what do they know that we don't?

    This really sounds like some fucking conspiracy out of Hollywood.
  8. bevo96


    This is one of the most uninformed, idiotic statments I have ever read. Flash orders no longer exist anywhere except Direct Edge and the buy side traders choose to use them with hopes of price improvement. HFT strategies can put the picture together and hit the button faster than a manual guy. Its not like they have a direct feed showing them the buy side order flow before it hits the market.

    If you want to talk about front running, lets talk about what used to happen in the pits at the Merc and BOT as well as on the floor of the NYSE.
  9. bevo96


    No one "walked away because they knew something". When your incoming data latency is usually 1ms and now it is 20 seconds you question the integrity of the data and turn off your strategy. No one wants to trade when they don't know where prices are. All anyone knew was the data coming from the exchanges was abnormally latent...due to the heavy load on the exchange telecom and matching engine.
  10. in the 1987 crash, specialists and market makers refused to answer their phones and walked away, where prices dropped 21%, not an extra 5%. the nyse shut down trading in ge and acn so their specialists wouldn't get hurt - there's your buyer of last resort, not to mention the litany of fines and censures for illegal order handling. at least the bots play by the rules given.

    would you rather these people buy every penny down then go broke, creating a real systemic crises. if you want to see volatility, reduce volume with a transaction tax or some other ridiculous rule - you'll see real volatility on a daily basis, and such high implicit costs few will want to participate.
    #10     May 17, 2010