Agree strongly with your first point. On the second, when volume dries up during flash crashes and periods of extremely high volatility hft simply stop quoting or don't quote getting filled against the prevailing market moves. I programmed my market making algorithms in fx that way and so do tons of other hft shops I am in contact with. I don't believe this can be taken as an argument against hft participation as equally humans during those volatile times behave and behaves very similarly.
I loved that scene! But I have a few questions. So in the beginning they saw prices going up, then they decided to SHORT it. All of sudden the entire crowd was buying from them? Hmm.. Didn't quite made sense. When the report came out, it crashed. That made sense. Then they bought back to cover their shorts. Made sense. What never made sense to me was when they decided to sell short at the "top" why were so many people excited to buy from them? How else were they able to establish the short position.
Huh?? I'm not an expert on this but I thought all transactions get cleared through the clearing houses, eg. NYSD, NASDAQ, etc. Certainly, you can HIDE your orders but once it gets bought or sold, the transactions MUST get printed. This is where it shows up on the T&S screen.
I think we are miscommunicating. I said hft stop quoting or only quote one sided. That is the reason why liquidity dries up. Quotes are not the same as fills.
You wrote " I programmed my market making algorithms in fx that way and so do tons of other hft shops I am in contact with. "
So, I am still confused where EBS fits in there. EBS only shows tradable prices of very large liquidity providers, often 30 to 50 million usd notional, sometimes hundreds of millions. Hence the spread is often 3 or 4 pips wide. So, no I do not provide liquidity on EBS.
No worries I would have thought EBS is important to a market maker algo as there is a lot of size displayed there.
Freeze the screen at 0:57 seconds -- it shows the LAST for April futs as 142. Remember that the Dukes (through Wilson) had opened with an aggressive BUY order. The rest of the wildebeasts keyed in on that, and bid the market from 102 to 142 over the next 50 seconds. Since it's an open, and things bounce and plunge, Lewis wants to wait, wait, wait til the topmost price he can get before the market itself starts with downward (short) marks. The market (shooting upward) hits 142, and Lewis utters, "Now." AND THEN launches a sizeable SELL order AT THE MARKET {and not at 143 or 145 or whatever} -- HE SIGNALED THE TURN all by his lonesome self. With the market looking to buy as much as possible at 142, they sold as much as they could at 142, and then rode the market down to 102s and the Ag Report. The market pauses, receives the good news, and then rips into 96, then 77 and 46 (when they start covering) -- going all the way down to $29 when they covered their last. So, the key moment was when they crossed the BID-ASK spread with a sizeable BUY at mkt=$142. Everyone wanted to buy from them (rather than chase the offer up), and eventually {which is to say, "a few seconds later}, others were selling too: 120s, 110s, down to 102.