There are always going to be people in the market who have info you don't have. Deal with it and figure out a away to make money anyway. If you can't do that, your wasting your time.
exactly, i don't really understand the basis for a lot of these arguments. if you think you're being front run routing to getco, then basic logic should tell you to... um, NOT ROUTE THERE. every broker i know of has the option of not routing out. every exchange has strategies that don't route dark first. so, why are you guys routing to darkpools if you think they're so evil? i don't get it. here's a fact that i hope you guys can understand. if dark pools weren't providing value to liquidity takers, they would NOT exist. these allegations that darkpools are somehow like these big black holes siphoning off liquidity is bs. people make the CHOICE to use these routes. if the marjority of orders were frontrun and resulted in negative slippage for working orders then no one would use them. don't ya think? if i had to make any guess as to what's happening to the traders in this thread, i would say... you guys have done very little work with learning about the routing strategies your exchanges and b/d's provide you.
conveniently, you left out the part where they say the MAJORITY of this 'front running' is INADVERTENT. how exactly am i front running if i don't even know i'm stepping ahead with my pegged ISO? do you even know what a pegged order is? the fact of the matter is, you know NOTHING about the ACTUAL logistics of how markets are made and the different order types that can cause these effects when coupled with a botched regulation implementation like regnms. i've addressed these logistical points in detail in this thread. there has been ZERO counterpoints on them, but you, like many others are more than willing to blather negative hyperbole on issues you have little understanding of.
sure i can answer those questions no problem. they're a little unclear though, so i need you to clarify your questions so i can answer them more accurately. wrt to your first question... i don't know. did he route it to a dark pool where there is an IOI system in place? if he did route it to a dark pool where there is an IOI system, then what was his reasoning behind it? has he had significant negative/positive slippage with this pool? if negative, why did he route there? if he doesn't know, why is he routing large orders to pools he knows little about with no previous trasaction cost modelling? wrt to the second question... if it's routed to a dark pool with an IOI system, then, yes, market makers in that pool would decide if they wanted to fill the order or not. whether they decided to trade ahead of the order in the primary exchange would be dictated by whether they calculated the size of the order would significantly impact the public book. if they had resting orders there they might decide to cancel them, or if there was little liquidity they might decide to clear it. since the remote trader obviously knew that this routing strategy was pinging an IOI based book, then i'm sure he had good reason to use it. if he did not have good reason, was unaware of the impact his order might have, and had no knowledge of the routes he uses, well, then he's what we in the business call: a fucking idiot. *** btw, for clarification, the issue achilles is bringing up here has nothing to do with the alleged regnms 'front-running' in the previous post. this is a dark pool 'issue' that has much more to do with market particpants not understanding their tools they use and where and when to use them.
I don't trade in one shot, size that I can test this with, but there is persistent comment that a resting VISIBLE order can be PULLED if you try to execute against it. i.e. send an order to BATS for 5k that's showing and only 500 trades, and the rest vanishes. If true , and it's a big if, this is BACKING AWAY ,and should be illegal and severely punished under any and all circumstances. Looking at the tape , I see little evidence that this is happening. Are these complaints bullshit or is there something to it?
jerkstore, True. Though, you are making a case for market makers, rather than HFT's. i'm making a case for all short term trading. it all breaks down to the same thing. short term traders trade at the expense of long term traders at the cost of the spread but provide the valueable service of tightening them through their activity which saves long term investors in the long run. Did any of you take debate class in hi school? Remember how it was important to agree upon term definitions at the beginning? Market making and HFT strategies have become like concentric circles in the stock world--making this discussion difficult. it doesn't matter what you call it, as it's all the same thing. the allegations are that the smallest of the small time frames are making money at the expense of everyone else (true), but everyone disregards the savings they reap as a result (which unless you're measuring it, you wouldn't know). instead, the song of the day is to associate losses or lack of knowledge of the use of trading tools with this group (who rarely have losses due to the enormous frequency, and who have EXCELLENT understanding of the tools). The order information disseminated to some dark pool operators (which is what I would refer to as flash quotes) and some dark pool participants as well as order internalization (basically just a one market maker dark pool) gives a select group of well connected players huge, unfair advantages. have you actually done any research into the logistics of being a liquidity provider and receivign IOI's in these pools? if you had, you'd realize the barrier to entry is a lot lower than you're implying. however, this is what everyone implies to make it sound more unfair than it is. RegNMS only covers the public exchanges. Therefore if a dark pool operator has internalization deals with retail brokers (like Citidel does with E-Trade), all they have to do is sub penny the public exchange prices to legally internalize these non-public orders. rgt, but how exactly is this a bad thing? if i'm the liquidity taker, i just got price improvement. if i'm the liquidity provider, i just beat the spread in the public market. if you and i decide to do a deal privately between the spread of a public exchange on a stock i own, why should that be illegal? if i'm providing value to you in the sale above the public market, then i don't get how we're doing anything wrong, and if i'm not providing value, you obviously have the option of using the public market. If Citidel/Getco/GS/Knight/IB chooses not to internalize the trade, they can still use the order info to make proprietary trading decisions before that order ever hits a public exchange. This company may be making markets on a public exchange, but they are basing their public markets off of non-public order flow information. Read the fine print when you sign up as a Sigma X customer, which states that GS may make trading decision off of your order if you don't believe me. If that isn't the defintion of front running, I don't know what is. sorry, this isn't front-running. how can it be if you know ahead of time that you're sending an IOI message to the pool? you trivialized it by saying 'read the fine print', but in fact, that's an important part of understanding the business you're involved in. if it's important that no one know about your order before it routes to public exchanges, then you don't route to dark pools with IOI's. period. likewise, even if you understand that there's a potential that there will be information leakage, but OVERALL your analysis shows significant cost reduction using the route, then you continue. This kills liquidity for all other participants who don't know the orders coming through the pipeline. All the while, the HFT company may adjust theoretical values due to non-public information. This sucks liquidity from everyone else, and hands it to the HFT company. again, if there wasn't value in using dark pools, firms wouldn't route there. 'sucking' liquidity from public markets is hyperbolic. it would be more accurate to say dark pool liquidity due to its cost structure and inherent efficiency are out-competing public markets that are hampered by regulation. Similarly, in the options world, payment for order flow is a liquidity killer. If a company is a registered market maker, they must pay .65 per contract every time they trade with a customer counter-party. Since dark pools do not fall into the same regulation, HFT companies register as customers in the public exchanges. These companies send .5 cent wide markets into dark pools. If they get hit on a trade, they cover by routing the exact opposite trade via naked sponsored access brokers into a public exchage. Since they come in as customers and get paid .65 cents per contract, they literally can buy and sell the same price, and make money. This is killing the market making companies. Think about a penny wide market in an options product. A HFT company can sub penny both sides, and still make money. Whereas, after adding together all the fees, a market making company would need at least 2 pennies of edge to break even. again, this another example of a public market being outcompeted by its private counterpart. this isn't an hft issue, this is a cboe issue. they're killing their own market makers with a transaction based cost structure for MAKING markets. idiotic. from my view of your description, the hft market makers are arbing the cboe and providing price improvement to customers. bravo. that's how a market should work. there's two solutions to this, the cboe will have to adapt if it wants to stay competitive, or regulation will prevent the dark pool markets from quoting allowing cboe anit-competitive rules to continue. The HFT companies do not hold positions. They change their markets based on non-public info. They are killing the real liquidity providers. Adding all this together results in the marketplace losing the price impact cushion to order flow, which pure market makers used to provide. HFT decreases liquidity and vastly increases the price impact that orders have in the marketplace. The penny wide displayed market is an illusion. This is not a good thing for the market in general. More flash crashes with .01 @ 10000 type of markets are in our future, if we continue to allow HFT trading methodolgy to be legal. so, where were the 'real' liquidity providers during the 'flash crash'? gimme a break. the buyside DESTROYED the bids, hft or not, no one was stepping in front of that train. did you any math on the amount of size going off on the bid on HUGE dow components? on corp bonds? there's only so much you can expect the market can take and it took A LOT. do you have any data that shows the market SHOULD have been able to absorb those orders? pull up the time and sales for PG. it WASN'T a fat finger. this was one of MANY. how much went off? come on, you sound intelligent, do your homework here. the 'flash crash' is what happens when you let big dumb boys play with dangerous toys. exchanges should provide the tools to prevent the idiotic from destroying everything. again, this has zero to do with hft and it's pure crap you're trying to pin it on them.
I can tell what's happening here. There is 5k shares on the bid, that is spread across several venues. He send the order to the so called "smart order router ". That will show this order first to multiple darkpools, then ping cheapest venues etc. By the time the order arrives to the venue where most of liquidity is posted that liquidity is gone. Don't be cheap, route to the right place first
no it's not bullshit, this is actually happening, but ONLY if you route to a darkbook with IOI's. when you do that, you're basically agreeing to show your hand and give people the option of taking your trade or not. that some mm firms are using that info to pull their public quotes is definitely happening. i don't agree with you on the legality of this type of situation though. the trader made his order optional the moment he agreed to rout to that dark pool. he can't claim ignorance at that point since he should have done his dd on the route and he can't then blame the market maker quoting publicly to not use that information. there's nothing illegal about that, as the trader gave him the info privately to begin with... "shhh, don't tell anyone, i'm gonna smack your bid!!!".. [moment's later, trader wonders why he's now offered]. from your example though, if you route bats without going to other darks first, or even use other routes that don't go to darks, you'll be able to smack it for the whole wad. it's very important to know the default strategy set by your executing broker, and or configure it yourself first. all traders should become very familiar with the different routing strategies. it should be up to you to manage the quality of your fills, not regulators. blaming others who profit from your lack of knowledge on the subject is not the answer. there's a lot of power in the different strategies whether dark or not and each has its place. understanding how each interact with the market is an important part of modern trading and imo has been a HUGE vale-add for traders. for instance, my liquidity removing orders have seen a reduction in slippage (including fees) from .005+ to closer to .0015 on average since all the different options have been available. these are hard numbers on tens of thousands of executions, so, as is obvious, i'm having a hard time finding a lot of fault with the different options currently available to us. again, these are options guys, provided by companies competing for your business. no one is forcing you to use dark pools. if you get lousy fills with them, don't use them. if you don't take the time to understand how they work, or how your routing strategies work, and continue to receive fills you're not happy with, then you can't blame anyone but yourselves.
Those explanations make sense. I don't know anyone personally that was making that claim, but I'd read it a number of times and could not believe it was possible for posted size to NOT execute if it was hit. I was right. Using a smart route that pings dark pools is then a fools game. For small orders it probably doesn't matter, but if you need that 10k bid, I suggest you hit it direct.