I got news for you... Narrow/tight spreads only benefit short term traders. They are of practically no importance to *investors*. As a matter of fact, I'd rather trade a market where the average stock spread is 5 cents instead of 1 bs penny. At least the slimy scumbags known as HFT's won't be around trying to screw with my order. Yes, I'd rather PAY 5 cents more per share in order not to have HFT's mucking up the prices ALL day! HFT's do not create/add liquidity. They suck money out of transactions through the manipulation of prices. What they do create is a FALSE sense of confidence in a shaky financial structure with "lots of liquidity". The "liquidity" is there only thanks to dumb institutions trading. As soon as the dumb money stops or cannot trade, the HFT's conveniently shut down.
I do disagree with at least some of propseeker's opinions. However, he knows a lot about market structure, and supports his opinions. Therefore I find value in reading his posts. Please don't lower the conversation into namecalling. That helps no one.
But is HFT really liquidity though? If HFT algos pull their bids in unison (or close enough to it) and a very large % of volume is from HFT, isn't that the equivalent of the market having a massive heart attack? Maybe HFT's are "conditional liquidity" that can all be withdrawn in nanoseconds. Then the bid/ask spreads become like they did on May 6th.
Just do a market order ... they can't frontrun you and the tight spread from HFT saves you a few cents! Why all the whining
agreed I have learned from you as well. Let's try to stick to the issues, can someone comment on the ISO orders, intermarket sweep orders. The stuff I read over at traderworx is saying that some houses are using them to essentially "frontrun" competing orders. Can someone speak to that intelligently and without bitterness. see attached page 12 about ISO orders.
At the end of the day everyones crying about HFT is nothng but crying, its not gonna go away. Tradeworks will probably go 40 years without a negative day. if 50 or 60 or 70 % of the volume is done by these guys...then they are paying 50 or 60 or 70% of all the SEC fees think about that for a second, we are talking about hundreds upon hundreds of millions of dollars they may rig it so only large institutions can play the game instead of these fragmented troublemakes ...but i highly doubt the concept is going away so crying about these guys...AS MUCH AS I HATE THEM... will do nothing cause they are not going away if you look at Tradeworx report...their avg profit after everythying is about .0002 so the SEC is basically their partner in this entire deal (as well as yours and I's..but i'm hoping most people here make more than just rebates as a way of trading) that being said...if all ECNS changed their fee structure from + .002 to add and -.003 to remove to 0 to take and -.001 to remove This theoritically would allow the ecns to make the same amount of money ..but its not the case as most HFTS would cease to exist and SEC and ECNs both lose out on hundreds of millions of dollars. the hft's live on the rebates...thats their game...the bigger the rebate the more they post "liquidity" the more they frontrun ur order the more they and the SEC makes , the LESS CHANCE of you getting a good fill on the bid or an institution gettin its entire order filled quickly. MOST of us hope they will be stopped...and i agree with an earlier poster that 5c spreads woule be better for us and institutions getting fills and I have actually seen research about that exact topic, but the reality is ..its not gonna happen...and lets just say if it does I'll be prepared...and if it doesnt...Its ok also..i've already adapted not gonna happen
Here is the irony. RegNMS and ISO orders were designed by regulators to protect the individual investor. I.e. if exchange A has a price worse then exchange B, investor can't trade on exchange A, the order will be routed to exchange B. However as of results of this average investor (a) can't post on exchange A even if it took all liquidity there (b) practically can't take on liquidity on exchanges A and B at the same time.
in a market with no short term traders, you'd be paying spreads that are nowhere near a nickle. try hundreds of basis points (5% variance would not be unrealistic). a good example of what a market would look like without a large quantity of short term traders simply due to logistics is real estate. spreads between buyers and sellers in that marketplace routinely are huge and in any kind of 'liquidity crisis' you consider yourself lucky if you can even find a bid. another simple place to observe low short term/market maker presence are in some of the harder to hedge ETF's. no nickle spreads there either. think about it. if everyone is a long term investor, how is trade facilitated? answer, it's not, at least not easily.
i'm pretty sure i answered this question already, look a few pages back in this thread... maybe page 17/18. also, read page 17 of that pdf you linked to for a good example given by tradeworx.