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The market and the machines...

Old 03-13-2015, 08:32 AM
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Default The market and the machines...

What happens when the gov't finally realizes the machines, other than it's own manipulations, are distorting the markets in an insane way and decides to stop the practice of HFT/Algo trading?

I firmly believe that much of the churn in the markets (churn read as "liquidity" by many talking heads) is mostly because of algorithmic trading, which seems to not really focus on "fundamentals," but more on technical indicators and headlines. Lots of talk of this over past 7 years or so, but even Schwab is coming out with an "Intelligent Portfolio" http://pressroom.aboutschwab.com/pre...ent-portfolios

Do you think liquidity will dry up to the point buyers will be much harder to find and stocks drop because of it? Dangerous times we live in, IMO, regarding the market and gov't policies.
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Old 03-13-2015, 10:49 AM
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Just came across this...More or less on how a lot of HFT's operate...and the HFT lobby claims it is for liquidity purposes. If you want more reading on this topic, Nanex and Themis Trading have put out some good reports over the past 7-8 years on this topic.

http://www.zerohedge.com/news/2015-0...asury-securiti

From the lawsuit:






This matter involves the egregious manipulation of the U.S. Treasury futures markets trading at the Board of Trade of the City of Chicago (“CBOT”), a designated contract market and a wholly-owned subsidiary of CME Group, Inc. (“CME Group”). Since at least January, 2013, and continuing through at least August, 2014, the Doe Defendant(s) engaged in an illegal form of market manipulation known as “spoofing” in the U.S. Treasury futures markets. The term “spoofing” refers to, among other things, the manipulative practice of entering bid or offer orders with the intent to cancel those orders before execution (these orders are hereinafter referred to as “Deceptive Orders”). Examples of spoofing include entering orders to create the appearance of false market depth or to create artificial price movements upwards or downwards. This practice enabled the Doe Defendants to manipulate the market to their benefit, and to the detriment of HTG and other market participants. This Complaint seeks to recover the financial losses HTG suffered as a result of the Doe Defendant(s)’ illegal activity.
Back to the lawsuit, which goes in exquisite detail as to just how HFTs spoof (yes dear HFT-defending lobby: how you spoof everyone else):






The Doe Defendant(s) accomplished their spoofing activity by submitting Deceptive Orders into the CME Globex platform which they intended to cancel before execution. By submitting Deceptive Orders, the Doe Defendant(s) lured other market participants (like HTG) into selling contracts below, or buying contracts above, what would otherwise be the prevailing market price. These Deceptive Orders created the false appearance of market pressure in a certain direction (to either buy or sell). The Doe Defendant(s) then “flipped” the market by canceling their Deceptive Orders and virtually simultaneously entering an order in the opposite direction at the same price.



In this case, the Doe Defendant(s)’ spoofing is characterized by a unique signature: a well-defined pattern consisting of three phases. In the first phase, the Doe Defendant(s) would enter Deceptive Orders that they intended to cancel before execution (the “build-up” phase). These orders were deceptive because the Doe Defendant(s) intended to cancel the orders before they could be filled; they created the false appearance of market depth, which, in turn, caused unwitting market participants to react by entering buy or sell orders in the same direction as the false momentum. In the second phase, the Doe Defendant(s) canceled the Deceptive Orders they had entered during the build-up phase (i.e., the “cancel” phase). In the third phase, virtually simultaneous to the cancels, the Doe Defendant(s) would enter one or more orders in the opposite direction of the Deceptive Orders and at the same price, trading against the remaining available contracts at that price, thereby “flipping” the market (the “flip” phase).



It is this well-defined, three-phased pattern that demonstrates that the Doe Defendant(s)’ entered orders with the intent to cancel those orders before execution. Indeed, the frequency and speed with which the build-up, cancel and flip progression took place eliminates the possibility that this pattern was anything other than orchestrated. The Doe Defendant(s) could not have legitimately changed their mind as to the direction of the market so quickly, so often, and with such precision.
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Old 03-13-2015, 10:54 AM
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You are talking to yourself in public.
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Old 03-13-2015, 11:25 AM
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Not the first time...
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Old 03-13-2015, 01:02 PM
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Did you ever hear the piece on NPR, The Million Dollar Microsecond?

Last edited by aubv; 03-13-2015 at 01:32 PM.
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Old 03-13-2015, 01:28 PM
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Originally Posted by aubv View Post
Did you ever hear the piece on NPR about theThe Million Dollar Microsecond?
That was an amazing but scary piece. I think the guy they were interviewing wrote a book about it. unreal what they go through for a micro second advantage.
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Old 03-13-2015, 05:30 PM
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If you have not read the Michael Lewis book on HFT I strongly suggest you do so. Very interesting read.
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Old 03-13-2015, 06:34 PM
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I know a good number of brokers who are no longer in the business because they were more or less replaced by machines. The machines fire trades at the market so fast that the market cannot react. Its scary. I have a client who was at the forefront of this type of trading and he made so much money he's been retired for a long time. He's 43.
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Old 03-13-2015, 06:40 PM
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To answer your question, no, not because of the HFT Low Latency stuff you're talking about.
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Old 03-14-2015, 03:58 PM
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Originally Posted by aubv View Post
Did you ever hear the piece on NPR, The Million Dollar Microsecond?
Haven't heard that one...is it about "frontrunning?" I'll have to see if I can hunt it up.
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Old 03-14-2015, 04:13 PM
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Originally Posted by Double tyme View Post
If you have not read the Michael Lewis book on HFT I strongly suggest you do so. Very interesting read.
Have only read bits and pieces of it...have read 1 or 2 of his other books, though, and they are pretty good reading.


Nanex has a bunch of info on HFT with pretty little graphs and whatnot on the nefarious activities in the markets that go on...This just came out a week or two spurred by an article in Barron's about Lewis' book, Flash Boys

http://www.nanex.net/aqck2/4685.html
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Old 03-14-2015, 05:12 PM
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http://50.31.154.45/radiolab/radiola...Bp_000000TzLA1
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Old 03-14-2015, 07:38 PM
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Thanks...will try to listen to it tomorrow.
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Old 03-16-2015, 12:35 PM
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Yesterday was clean everything in the house and mow all the weeds day so didn't get a chance to check it out, aubv.

Just read this from Bloomberg, though.

http://www.bloomberg.com/news/articl...ing-dumb-money


Dorsey calls himself a money manager, Bloomberg Markets will report in its April issue, but his methods are more robot designer. He says so himself, proudly. If Dorsey and his team got abducted from their Richmond, Virginia, office by aliens, their algorithms could keep picking investments for the firm’s new money magnet, the First Trust Dorsey Wright Focus 5 ETF, forever.

“Once a quarter, we press a button,’’ Dorsey says. The Focus 5 algorithm then generates a list of investments, and First Trust Portfolios, his partner company, executes them. Otherwise, they don’t meddle with the robot. “We just need someone to press the button.’’
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Old 03-16-2015, 03:20 PM
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i'd swear the past 30 years have done nothing but allow people do develop new "markets" and trade on things that don't even exist. Futures trading? Special markets? Just schemes by investors to make more money trading on pure statistics rather than real things.
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Old 03-16-2015, 06:09 PM
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Futures are good for those that actually use/produce the commodity in question (commodity markets). Maybe to a lesser extent, general equities, but for the most part, things are bullied/abused beyond belief. The regulators seem to want to refuse to regulate...unless one of theirs are being hurt.

Now, paper on paper has been created to trade/mimic real things. Naked shorting seems to be an issue that hasn't really been addressed. I pay a good bit of attention to the gold market and it is generally accepted that 100 ounces of paper trade for every ounce of real metal out there (I tend to believe 100:1 isn't even accurate)
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Old 03-16-2015, 07:33 PM
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I've emailed "B" a few times(pretty sure he actually responded personally)...Kind of like the guy, but he never really seems to follow through with any sort of action. Not sure if he just gets shut down or he is just trying to appear on the "people's side."

Here's another recent interview with him
<iframe width="560" height="315" src="https://www.youtube.com/embed/LBO7tEND7gE" frameborder="0" allowfullscreen></iframe>

and as for the HFT stuff, I think it is pretty hard to argue with what Nanex Research puts out...with all their pretty graphs broken down into micro seconds and whatnot.
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Old 03-16-2015, 07:38 PM
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Katsuyama vs Chilton...
http://www.zerohedge.com/news/2014-0...correct-claims

On July 7, Bart Chilton, a former commissioner of the Commodity Futures Trading Commission, wrote an article about high-frequency trading for the New York Times's DealBook. He argued, in effect, that because high-frequency trading has become so central to the stock market, it must be serving some necessary purpose. “At any one time, it is likely that 50 percent of all trades are made by high-frequency traders in United States equity markets," he wrote. "Even trading volume on the IEX exchange, which is trumpeted as creating 'institutional fairness' in the Michael Lewis book 'Flash Boys' about the topic, is now made up of roughly 50 percent high-frequency traders.”

This is false: While high-frequency trading firms are estimated to generate 50 percent or more of the volume on other stock markets, on IEX, high-frequency trading firms currently make up less than 20 percent of our volume. (Note: It’s difficult to predict the optimal proportion of HFT activity in any market, but it should definitely not be half the volume.)

There is a reason for this vast difference on IEX: We have sought to eliminate the unfair advantages HFT has over genuine investors (such as the combination of high-speed data and the ability to place their computers feet away from exchange-matching engines). By using technology to eliminate what we see as systematic unfairness -- and the opportunity for certain traders (who purchase premium access at other markets) to prey on ordinary investors -- we have discouraged a great deal of predatory high-frequency trading on IEX. Those high-frequency traders who do trade on our market (we like to call them electronic market makers) are the ones who do not require some unfair advantage to succeed. By creating a market without distinct advantages, IEX has allowed the HFT crowd to define itself.
and, now, lasers for trading...no way to deny that there is not some nefarious activity going on here.

https://www.google.com/?gws_rd=ssl#q=nyse+laser+
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Old 03-17-2015, 04:36 AM
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You really can't stop technology. Maybe slow it a bit now and then -- but it will march on.
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