Really? You obviously have never tried to actually hit one of these "fake" bids, they have no intention of being filled and in 99/100 they dont. If you place an order either on the bid or offer with no intention of actually allowing it to get hit whether it does or not is a fake order and spoofing.
I can place an order with a lifespan of 50ms (too short for most dial up traders to see it, react to it, get a market order to the exchange to fill against it) doesn't mean I'm placing that order without any intention of being filled, it only means that I want 50ms exposer to being filled at a specific price, nothing wrong or illegal about that. Whether its dial up users with 250ms delay to the market or once a day traders who have a 24~ hr epsilon to reacting to the market, complaining that an order doesn't stay around long enough for your liking seems... pointless. Either people need to get faster reaction times to increase their chances of getting those faster orders, or vote for someone who will legislate a minimum order lifespan on exchanges. Until then people will utilize micro order lifespans.
It's not just a case of speed for HFT's or whether the orders being placed are "spoofs". The fact of the matter is that HFT's have been recognizing the pattern by which many brokers route their orders . . . ("sequential smart order router") which directs buy/sell orders in a PREDETERMINED PATTERN ranked by the access fees at the exchanges. This is what the HFT's have been taking advantage of. Speed is only a mere part of the equation. It's more about the PATTERN of working an institutional order. http://blogs.wsj.com/marketbeat/2011/01/14/thor-enters-the-high-frequency-trading-arms-race/ RBC's "Thor" essentially slows everything down to the pace of the slowest piece of the order, the slowest ECN of the entire order. That way, nothing in the order "stands-out" or becomes sequentially "identifiable" to the HFT's.
Ah now we are talking about two different things arent we. Im not complaining about the micro second order which nobody sees, Im talking about the 5000 shares on the bid that vanish only when you try to hit them. Now I agree thats not entirely a hft strategy but its part of the game they play, able to place orders with no fear of getting hit. This new RBC strategy has been implemented to try to stop this practice.
It is my understanding of the markets that there is no way for an order (or order owner) to 'know you are trying to hit it' and cause itself to vanish, without front running which is highly illegal, the more likely explanation of why orders vanish before you try to hit them is because they have small lifespans, not someone is front running you. If the order is on the books when your MKT order arrives, there is nothing the order owner can do to prevent you from taking liquidity.
Sorry to tell you this but that is not true. Certain firms have access to order flow and thus are able to "see" orders coming in and react to those orders(they pay for this privilege). This is precisely what the RBC strategy is trying to prevent, their system delays the fastest part of the order so that the entire order hits the market simultaneously thus minimizing the chance of the original order from cancelling. This ability to see the incoming order is a large part of HFT trading, otherwise they would have no edge.
An article Landis82 linked earlier explains how this happens: "If youâre an HFT with 1,000 shares you want to sell, you could offer 200 shares at each of five different exchanges. If what looks like a big buyer takes your offer at one of the venues, you can instantly cancel your offers to sell the other 800 shares, in confidence that you are likely to be able to get a higher price later. You might even have time to buy more shares and flip them for a penny more â effectively driving up the price at the expense of the institutional buyer." http://blogs.wsj.com/marketbeat/2011/01/14/thor-enters-the-high-frequency-trading-arms-race/
Could you offer 10x100 shares and as soon as the first one is filled cancel the rest? is there enough time for that?
In this example, it's not about time but about the number of venues (exchanges and black pools) that trade a stock in question.