I assume you mean that it's not about some wheel and deal to get the feed explicitly earlier. However, if the HFT folks generally get the data faster due to the technology, they in effect get it earlier anyways.
Most use data feeds direct from trading centers. Each of these feeds is different, but all carry messages used to represent depth of book changes and execution messages. A few examples: NASDAQ TotalView-ITCH BATS PITCH CME Globex FIX/FAST The most serious of the high-frequency firms don't use aggregated feeds. The connect directly to the various venues and consume their native market data feed. Some are proprietary to the exchange, like NASDAQ's ITCH or BATS's PITCH, but others like CME's FAST is a "standard". CME used to use a proprietary format called RLC, but recently migrated away from it to FAST which is an adapted form of FIX for faster delivery and lower latency. Take care, Louis
It's simple really: BATS receives an order to BUY 100 shares of CSCO at market BATS "asks" traders using the BATS direct feed with the appropriate entitlement if they can fill that order. These traders have a certain amount of time to respond. I believe it was 50ms. If no response, the order proceeds into the BATS market for matching and then, potentially, is routed cross-venue to other NMS participants. It's important to remember that flash orders were a practice that exchanges created to encourage liquidity towards their venues. The practice has stopped and is no longer used by any venue that I know of. Flash trades were just a tempest in a tea pot. The practice was clearly in the gray area and should not have been used by the exchanges, but it was. It gave preferential treatment to the most valuable liquidity providers (remember, without the liquidity providers the trading venues are worthless). I'm sure the high-frequency firms were happy to watch the flash orders, but very few if any built their business around them. This is why you see most (all?) high-frequency firms encouraging that the practice be formally banned. Take care, Louis
Thanks for the reply. Could you elaborate on how this could hypothetically be used to screw someone out of their money?
I think it was a bit different. First they tried to executed the order against the BATS book, then the remaining was posted on the book for 25 msec, so it could interact with incoming orders and get a passive execution with a rebate. In fact this order type was good for the retailer investor. It allowed it to get passive execution and rebate.
You're right, of course, I over simplified. Perhaps too much. Most importantly the order is executed against the BATS book first, then it is posted to the market participants for execution for 500ms (not 50ms as I erroneously said) before being disseminated to the national market. One key fact is that after executing against the book, the price of the order is improved by 1 cent before being sent to BATS market participants. This is good for the trader who placed the order because they have an opportunity to automatically receive a better price. For folks interested in doing some Google research look into BATS BOLT order types. BOLT stands for BATS Optional Liquidity Technology and is the order type used for BATS flash orders. NASDAQ called it Flash orders, I believe: read more here. Take care, Louis
I don't think it could, really. Unfortunately, most folks don't understand this type of order beyond what they hear on CNBC, and those folks certainly don't understand it. Therefore, myths begin to perpetuate. I'd suggest trying to track down an interview or two of the BATS CEO talking about their BOLT order type. He explains it fairly clearly. Take care, Louis
To sum it up, play DJ30 stocks for points not cents? that's just great. I'd really like to see any daytraders to be successful at this. The problem lies in that HFT presents unfair advantage over average traders. the details already discussed here. Whatever happened to banning HFT since last year? In September 09, didn't SEC/FED give HFT trading until december(90 days) or so before banning it? Obviously the proposal didn't make it thru, but I can't believe no one is talking about it as if it was never brought up.....