This is why less and less retail traders are making money. At this rate, no one will be able to make a living trading on their own. http://www.nytimes.com/2009/07/24/business/24trading.html?_r=1&hp
The slower traders began issuing buy orders. But rather than being shown to all potential sellers at the same time, some of those orders were most likely routed to a collection of high-frequency traders for just 30 milliseconds â 0.03 seconds â in what are known as flash orders. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee. What the hell kind of rule is that? That's akin to manipulation, right there. Itâs become a technological arms race, and what separates winners and losers is how fast they can move,â said Joseph M. Mecane of NYSE Euronext, which operates the New York Stock Exchange. âMarkets need liquidity, and high-frequency traders provide opportunities for other investors to buy and sell. Yeah, it sure seems like they "provide" liquidity alright. By ripping off others at the worst prices!
Doesn't this simply suggest that we have to be aware of the environment and adapt to it. Perhaps trade long enough term or with appropriate order types so that these disadvantages are not significant.
No. Because no matter if you're short or long term oriented, you're being scammed. Among the 1st things that ought to be changed is these order flashes & the ability to post fake bids/asks as well as this "colocation" BS. Another possibility is raise their SEC fees by 2-3 times the current rates. Maybe that might slow down the thivery.
It's the same argument day-traders have been making for years when long-term investors ask "why do we allow them to exist when they seem to cause so much volatility?" But just like the investor who needs to get rid of shares quickly is glad day traders exist, day traders who need to get out of a position quickly silently thank their deity of choice for high-frequency algorithms...
If it wasn't for hft there would be no one in this market. How many long term investors are cashin in big, swing traders? I bet many of you are making good money but let me tell you....coming from someone new, this market is a disaster. How can you have a position on with any kind of leverage overnight and have any expectation of normalcy? Obama and his "we will save gm, no we wont, yes we will, no we wont" was freakin deadly to me and I'm still hacking away trying to come back. In the end he was messing with the bond holders and the market got over it, but goddamn. I never traded that damn GM stock and yet the gyrations were sick. I had always thought daytraders were foolish to scalp for pennies when you could swing trade. Well... they toss out contract law like it never meant anything. Hows that? I'll tell you what, screw holding. What kind of confidence does anyone have in any position long or short? You want to trade around with mutual funds....really.... cause retail is a ghost. Maybe some of you are fine with clarity going forward, I'm not. I'm looking into prop and once I find one, I will never hold overnight again. If you take out hft, liquidity is going to the dogs. I have some swing trades on right now, Im in copper, silver and tech. Take liquidity out and it gaps.... well wtf. I hope it gaps up. I watched battlestar galatica, I rooted for the humans, I'm no fan of the cylons. But what are they really? Id love to work the phone or run tickets. The floors are dead, I missed it. When you see a stock sellin hard and then it drifts up on nothing volume, do you yell and say those damn bots!! Well what did the old floor guys do? Weren't they the ones nibbling at the bottom? Who was the big volume that came after the rise, the paper.. I have been askin every computer I know for an internship, a couple dells an hp, nothin yet. Seriously though, the nyt doesn't know anything. No one wants this paper, they don't trust it, its trash. If not for hft there would be no volume.
no news to me. my rule: what I would do if I had all the info and the money and connections, can brake law, etc, to rob other traders. Well, that is what I am exposed to when trading. However, there are ways to minimise/avoid it and possibly use it. Intelligence helps here.
After you've been trading a while you eventually learn the lesson that you have to play a game where you maximize your strenghts and minimize your weaknesses. As a retail trader your strength is never going to be 1) speed of execution or 2) cost of execution. Therefore, if you're playing this game you're going to lose. What retail traders need to learn is how to identify the conditions that lead to large, more substantial moves that don't require speed of execution to participate in, and don't require extremely low cost to profit from. OldTrader
There should be no exceptions or loopholes in the rules to benefit any type of trader/market participant over any other. With that out of the way, fund managers and retail traders need to (and will) simply adapt to this. They interviewed a guy on Bloomberg who's launching a trading service for big players, using algos of his own to watch for signs of HFT frontrunning activity and avoid it by adjusting order strategies and execution tactics, or moving orders around between different ECNs/dark pools. It's just the same old arms race, adapt or die.