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Guest Post: Major Structural Changes in US Equity Markets You Must Know
Brandon Rowley over at Wall Street Cheat Sheet has penned a post conveniently summarizing some of the most critical market structure trends that we have been highlighting for the past year. In a market that is increasingly computerized, the only key benefit presented by the pro-algo lobby has been that liquidity has increased. And while that may indeed be the case for the 50 or so most traded stocks whose trading is dominated by HFTs, the trade offs have been a spike in the average quotes per minute over the past decade, a fake order depth which disappears on a moment's notice, a dramatic shift away from traditional marketplaces and to "gray" venues, and most importantly, a massive surge in the cancellation to execution ratio, which is currently at an all time high, with the Nasdaq seeing 30 cancels for every execution. With so much probing and poking by computers to test which bids and offers are real, it is a miracle we don't have flash crashes every single day, as the bulk of the liquidity, likely well over 90%, is a sham.
Guest Post Submitted by Brandon Rowley of Wall Street Cheat Sheet
Major Structural Changes in US Equity Markets You Must Know
Knight Capital Group recently commissioned a study entitled “Equity Trading in the 21st Century” that explores
the major structural changes we have seen in the markets so far this
century and the impacts it has had on investors and traders. I will not
offer an opinion or recommendation but rather just summarize the
transformations the authors present.
The professors who authored the paper offer well-argued perspectives
and it’s worth the read if you are interested in the regulatory angle.
But, based on previous interest in our articles on high frequency
trading, it seems that many would find it worthwhile to examine the
changes that have fostered a system where HFT dominates the tape for
better or worse. So, how has the market changed?
Displayed Depth Has Increased
Within six cents of the national best bid and offer, the depth of the
book has seen a dramatic increase recently. From 2003-2009 the depth
looks to have averaged around 2,000 shares on the bid and offer for
S&P 500 companies. Yet, in just 2009, the book saw a dramatic jump
in displayed quote volume leaping from lows of 1,500 shares to over
4,500, a 200% increase.
The depth, to be sure, is not necessarily indicative of actual
executed volume. We argued in an earlier
paper that this is largely a result of HFTs providing bids and
offers that they intend to cancel without a fill such that the “real”
depth is much less than displayed. Note: the inclusion of stocks outside
the S&P 500 based on nominal share sizes is misleading. We would
rather see these stocks on their own graphs or a logarithmic graph to
interpret it logically.
Average NYSE Trade Size Has Consistently Fallen
Average trade size on the New York Stock Exchange (NYSE: NYX) has
consistently fallen for the last six years. At the beginning of 2004
average trade size was over 700 shares while now it is slightly over 300
shares. The hyper growth in automated trading strategies has helped cut
average trade size in half in five years. Large-scale investors have
utilized algorithms to execute orders in an effort to hide their
intentions and reduce price impact.
Splitting up large orders into smaller and smaller pieces minimizes
the impact of any single order on the market and can reduce other
traders’ abilities to capitalize on their inefficient order flow. Many
scalp-style active traders have found order flow more and more difficult
to read because falling transaction costs have allowed institutions to
invest heavily in algorithm development in order to hide their
intentions while executing orders.
Average Quotes per Minute Skyrocket, Then Return to Earth
Average quotes per minute coming through skyrocketed in the Panic of
2008 when markets became the most volatile they had been in decades.
Quotes per minute went from below 50 to over 500 in five years before
falling back to more normalized levels as volatility slowed. Quotes per
minute are now around 200, still roughly a 900% increase in the last six
years.
Cancels to Executed Steadily Rising
Early 2002 saw a cancellation to execution ratio of ten to one, but
that ratio has steadily climbed over the years. Now, the Nasdaq sees 30
cancels for every execution according to Knight Capital Group’s
research. This increasing ratio and the upsurge in average quotes per
minute is consistent with a market that has become HFT dominated with
greater total volumes coupled with lower average trade sizes.
NYSE to Become a Museum
Volume on the New York Stock Exchange has collapsed and it seems like
it won’t be much more than a decade from now that the NYSE Floor will
be turned into a museum. Regulation National Market System (NMS) was
passed in 2005 and opened the NYSE up to increased competition. At the
beginning of 2003, the NYSE executed 80% of the total volume.
This ratio has plummeted as electronic communication networks (ECNs)
gobbled up market share.The NYSE ex
ARCA accounted for only 25% of all volume by the end of 2009, about a
70% decline in market share in just five years. NYSE Euronext has wisely
invested in ARCA so the company is far from doomed, but the physical
floor will likely be an exhibit in the not too distant future.
All these charts are consistent with the growth in high frequency
trading as a means of increasing efficiency, making the execution side
of the business largely computer-driven. The days of the floor broker
are rapidly disappearing. Automated trading is here to stay and
participants need to learn
how to adapt.
All charts are excerpted from “Equity Trading in the 21st Century” commissioned by
Knight
Capital Group and authored by professors James Angel of Georgetown
University, Larry Harris of the University of Southern California, and
Chester Spatt of Carnegie Mellon University published on February 23,
2010. Brandon Rowley is a professional trader at T3 Live.
»
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I've been wondering for 2 years now where all the hackers are when you need em?
Fact that there hasn't been a single one caught so far means they are in and working the system.
Remember the NYSE chinese hack in 2007? The GS hack? The white house hack? Pentagon hack?
all in the last few years and you won't hear anything about it, but it shows it's very well possible.
+1
The hackers are a system attribute, not a problem.
No, I'm not kidding. You think GS, the Fed, or any institution would turn down such a mechanism to skim and gain market advantage?
Like the memorable quote from Sneakers, 1992:
I think someone linked to this video in response to a different post, but I'll reproduce it here for convenience.
http://www.youtube.com/watch?v=xOr5suFJ6-k
This vid is also very informative, and dumbed down enough for people like me -
http://www.youtube.com/watch?v=3z12dJdZ8qA&feature=related
Can Tyler Durden produce such work?
Seems like once upon a time, some people in D.C. would have recognized that vulnerability as a threat to national security, and stepped in for the market's own good.
Now the idea seems quaint that our government could effectively somehow protect us from computerized mass-theft, or a market collapse orchestrated by an enemy nation.
Today's problems are increasingly too huge and complex for D.C. to deal with at all. (i.e. the oil spill, our southern border, drug trafficking, widespread mortgage fraud, election irregularities, financial sector looting).
In my neighborhood, the 4th of July lights up like freakin' World War III even though all the "good" fireworks are supposedly illegal in this State and there is a police precinct a couple blocks away. Now, one could argue that many of these fireworks should be legal anyway.
But my point is, after a few years in this house, that I'm resigned this bombardment. I've completely dropped the expectation that the rules will be enforced. That a police officer would step outside the precinct door and do some very very simple triangulation to walk over and ask the people to stop, or confiscate their supposedly illegal ordinance. I have basically stopped expecting anyone to enforce the rule of law on anything short of physical violence. (Our city of 500k people almost did away with code enforcement all together last year due to the budget crunch.)
Long rant. Now I've depressed myself....
Welcome to the future http://reason.com/assets/mc/_ATTIC/ngillespie2/presidentcamacho.jpg
When the police begin to control the distribution of meth and other drugs then become worried. Stockton , CA has more police officers selling meth than other town in the USA.
Well John Henry was a little baby
Sittin' on his daddy's knee
He picked up a hammer and
a little piece of steel
And cried, "Hammer's gonna
be death of me, Lord, Lord
Hammer's gonna be the death of me."
Like a large rubber band that's being wound up, the market appears to have great flexibility and elasticity. But at some point that all changes in a hurry. And if there's one thing that was demonstrated by the May 6th Flash Crash, it is this.
All that vaunted liquidity will disappear when it's no longer profitable for the HFT computers to provide it. Period. This is a sure recipe for disaster. The SEC knows this and is desperate to place circuit breakers into the system. But what happens when both the HFT computers and everyone else come back into the market to sell in mass and over weeks/months? We shall see.
But what is clear is that the SEC/FINRA and the other so-called regulators are captive and will do nothing to stop the flow of profits. The computer systems are all leaning in the same direction. I'm getting off the boat now, while I can. Because I won't be able to later.
CD,
Bingo. Same thing in the physical gold market. Unsustainable leverage in paper gold will bring the whole thing down and send the price of real gold soaring.
http://news.goldseek.com/GoldSeek/1278694102.php
I'm glad you said that. I came over here just because I saw the price of gold going up again after the beat down. I just wanted some camaraderie. Bay, we are a little crude around here. We say:
GOLD BITCHES!
I just wanted to say that. Thanks for posting on gold.
Thanks... nice link.
You forgot a key benefit: smaller spreads...
Also, NYSE is just as guilty if not the root cause of the flash crash, stripping their quotes. Slower systems, older technology my ass - NYSE has been front running trades for the last 13 years.
Ever wonder why Nasdaq executes in under 10 ms and NYSE under 200?
Stop the flow of profits?? Is that the purpose of regulations??
What would you do if someone showed up at your front door, pulled out a gun, and said "I am from the government and I am here to help stop the flow of your profits"?
You would do anything you could to capture him, make him work for your interests, and stop the flow of profits AT YOUR COMPETITORS!
A regulator cannot make someone do something which would lose money. He can only prohibit someone from doing something. So as you ponder the question of: how can regulators MAKE someone "provide market liquidity", you have to admit it. They cannot.
If the market is structured today such that it can go "no bid", then that tells you something. Let's have the Fed stop pumping "liquidity" so the market can discover a fair clearing price. Oh, but wait. The Fed is the regulator of the money supply and the banking system.
+1
Yes, and why should the government force me to take a test (all be it a too easy test) to tell me I am fit to drive. They are regulating my right to drive. And my state is regulating me by requiring car insurance. They must be in cahoots with those big insurance companies instead of letting the little guy (my neighbor) say he will insure me. Down with all government regulations. We should have free trade to so that we may be flooded up to our eyes in cheap foreign steel.
Thinking is not your strength.
It is fun to feed trolls that rant and rave that regulation is bad everywhere. You obviously lack any sense of humor and have to have a very boring life. How much Xanax do you take in a day?
You prove my point.
And what point is that, that you need to resort to personal attacks to try to improve your e-penis?
P.S. It shows that I get under your skin when you actually think about the junk link. I like it for its attention factor. But someone seems to like to junk your posts, and it was not me.
LMAO +100
First, give Kat some credit - that was funny!
Kat is right - remember when you tried to compare using technical analysis to trade the BP catastrophe to using TA to determine whether or not the market was oversold after the last two weeks?
Actually it was completely uncreative and something I would expect from someone that lacks imagination. It would have been funny if his statement came back to the issue at hand such as "Obviously someone deregulated your thinking ability" or something of sort.
And you are talking about when you had to resort to personal attacks instead of think. Yes that as well. Shows that you both have low self-esteem levels. The BP statement was to show how TA indicators showed oversold levels for BP on its quick decline, when fundamentals said that it had not fallen enough. But I wouldn't expect you to actually understand since I spelled it out to you and you still kept your blinders on. Really I don't give a shit since everyone is just a statistic in my opinion.
I guess we see things differently (Don't take it personally).
If you would have compared using TA to trade BP to trading the market after the Lehman collapse, I would agree BUT you didn't...
Do try to think for one second at least. How many men do you know called "Kat"?
Providing a certificate of live birth from the state Hawaii should be the only thing the government requires.
What "market"?
Dear Mr. Gekko,
"Mark-it" to any value I say it is.
Sincerely,
Ben there, did that to you.
I have something I am going to throw out quick, but it has been on my mind all week, and your post just triggered it, and I will probably pour my prolific heart into it over the next moon or so, but to address it in brief now....
We are waiting for mark-to-market. Until then, nothing matters. I began to think about this a week ago, when TD flashed market assets in comparison to "real" value (Major Banks in Europe and US). Until those banks mark-to-market, the farce continues. The major questions I have are:
Will there be something that forces the issue?
Can the market mark-itself-to-market (a la gold/silver/platinum/oil vs. FIAT)?
I have been thinking about this all week, and have made little head way, but it is at the forefront of my thoughts....
LennonH
it might help to look at it as a sort of *community* endorsed lie... vs a 'them' vs 'us' thing.
only when the liars start to get burned by the lie, will they move from it (to yet another lie, or the truth - i dunno).
just read/heard that now that the 'wealth tax' (~1% on all holdings (not income!) above some amount) may actually affect the rich dems, they are getting peeved... even barbra streisand is pissed at mr 0. symptom.
it's when this behavior stops suiting 'our' selfish interest that it will change. short-term/short-sited to be sure.
not really an answer, but a perspective. i think you're on the right track. but the japanese have been doing this for 12 years sideways, so even if we figure it out... it may not be as actionable as we might like.
Yes, but the Japanese are only "bluffing" themselves. This "market" is trying to "bluff" the whole world. I say it stops when somebody calls the "bluff" and wants real payment. Then the sharks go into frenzy and eat each other. When that happens TSHTF.
LH.....I read something yesterday, maybe Bloom or here on ZH, that FASB is attempting to put in an asset reclassification ruling ( fair value ) effective in 2013. The ABA has rallied the banksters and their investors to contact the head beancounting commissioner in protest. That is the battleground for MTM and I would give odds that FASB fails or is delayed to 2016. And they actually believe they can work this Ponzi 3 more years.
BTW, IASB usually goes lock step with FASB.
The fact that banksters need to fake it through 2013 is a tell all by itself.
The fact that they are allowed to milk/bilk bonuses while they "rebuild their balance sheets" is another tell.
"It's not a market. It's a crime scene."
None of these problems result from HFT.
They are all a result of the SEC eliminating market maker exemptions so that MM's can actually do their job.
The SEC has been increasing the cost of providing liquidity, resulting in thousands of traditional market makers leaving the business entirely - leaving the market with predominantly HFT to add liquidity.
The SEC is now working on increasing obligations on top of taking away exemptions which allow the MM to do his job. More will leave. You'll have less liquidity.
The poster above makes an obvious point - if you stop profits in a business, people will leave the business.
I will never ever lose my and my investors' money to provide you with liquidity. Not going to happen. I'm not into negative expectancy trading. Are you? How long do you think you're going to last? A child could figure out this logic.
The only thing the SEC can actually do is get out of our way and allow us to provide liquidity. There's enough market risk without piling on regulatory risk and mandates. All mandates will do is drive more MM's out. And liquidity will go with them.
You wanted the SEC to have a heavier hand. These are the consequences. Deal with it.
Yes, because in this market so many have jumped in. You are walking a fine line by using the term MM with HFT. How about those few HFT shops that stopped trading and liquidity evaporated. Too much power in the hands of the few is what scares me. Also dark pools are not conducive to a free market economic thinker. Opacity is never a good thing.
Where would be today if Brooksley Born was given regulatory power over the OTC market as requested instead of being steamrolled by Greenspan's anti-regulation rehtoric?
Cmd: HF Stop
First, NYSE was the primary reason why hft's stopping trading. Nobody in their right my would keep trading when they believe that their data feeds are bugged. Looking back it was prob a good thing that hft's turned off their systems - instead of a "V" that resulted, the product would have been an "L" in the market. Not that everyone on this site would have been disappointed at such a result...
But what about when the "V" turns into a "W" then what good do they provide? It would seem to me that they provide unsustainability more than provide a service.
Who said they provide good or a service?
Their objective is to make money, same any human trader. Everyone gets pissed off because they are just better at it...
See we are in agreement. They state that they provide a service by providing liquidity. I never said they are to provide a service, but I don't think they should have a free lunch either.
Free lunch? Most hft's risk their own capital, one mistake and there is no lunch.
"They state that they provide a service by providing liquidity. I never said they are to provide a service, but I don't think they should have a free lunch either."
are you still talking about HFT Shops?
Please define the "free lunch" you think they're getting.
If they are market makers then they are providing a service. Name one service provider who is willing to provide a service without profiting from it. Why do you think "profit" and "free lunch" are synonyms?
If HFT shops are not Market Makers they do not have any obligations at all. So, why are you complaining when they turn off their machines during market volatility?
How about we force you provide liquidity? Why are you owed liquidity? Why shouldn't we force you to provide it on our terms instead?
I do provide atomic-liquidity by being a market participant. By free lunch, I am talking about the flash bid/cancel which is technically market manipulation to drive up the price even if it is a penny. I am complaing that they argue that they provide liquidity and then are more than willing to disappear at the drop of a hat. I don't care if they turn off their machines, when they do it shows how much of a farce a lot of the market truely is.
So, if you think you're providing liquidity by being a market participant (which you probably aren't because I bet your activities are more liquidity taking than providing), I'm assuming we can rely on you not to cancel your bids when the market plunges, right?
You would have no problem at all then if we FORCED you NOT to cancel your bids during a plunge even if it meant you were going to lose all or most of your capital (which happened to actual market makers on May 6th and many other days).
I mean, I'm assuming you would want the same standard applied to you as to any other "market participant", right?
I do buy and sale, so there for I do provide liquidy on an atomic-scale (like nothing worth while but in reality I do by participating). I had no bids in at the time of the plunge, and since I do not use any algo trading I was not at risk (in a hindsight since the market "recovered"). If anything May 6th showed to the masses how broken the system truely is. Additionally, the MM's are also HFT firms as well. So in a way they were privy to their own distruction. How many MM's have disappeard in the last 10 years?
Being an MM you are taking on risk that you can become insolvent. What about all the dealers during the Holland Tulip bubble?
There were MM's for that industry that became insolvant for being in an asset bubble. It should not be a risk free business, as no business is risk free. In the May 6th plunge, the investors were the bag holders since the MM's were allowed to shut down and move along. The SEC rules we are looking at is no fix, and it does not attack the symptoms. Personally, I feel that all bids should stand even with instances such as APC and WPO. This stop all trades and reverse them just creates moral hazard in the markets now, just as it has in the banking industry.
When Goldman bought Speer, Leeds and had multiple access to co-location schemes, then established REDI Book in 2003, the fix was in.
What exactly do you think more regulation is going to do?
It's clear you don't understand a word of what I said in my post. Increased regulation has driven out thousands of liquidity providers. Now, there's so much power in the hands of the few. More regulation will drive more power into the hands of even fewer people.
You can't FORCE people to provide liquidity. They'll simply close up shop (which they can do overnight by filing a BDW) and leave. Then, you'll have nobody providing you with liquidity.
As for dark pools...they don't worry me. If you willingly participate in a dark pool, why should I have any influence over your adult decisions? Dark pools already exist to avoid the stupidity and the effects of illiquidity in the market. If you suck out more liquidity with more regulation and force people to stop using dark pools, do you seriously think all that volume will return to the exchange? If you do, I want what you're smoking.
There has been more deregulation over the past 10 years than regulation. It was deregulation that allowed the creation of the HFT shops and "dark pools"(alternate exchanges). I am not saying I play in dark pools, but that movements in dark pools can effect the market and they need more transparency. I agree in too much regulation is bad, but there are aspects of the system that need some regulation. The system is and has been broken, and business as usual has failed us too much. The SEC does need to be purged of dead fat (along with some internet sites blocked). This type of thinking that you are running on has lead to TBTF and the state that we are in.
Okay, it's clear to me that you are so ignorant on this topic that you have no idea what I'm talking about. It's clear you know absolutely nothing about financial regulation have never dealt with the SEC or been subject to its rules. What's scary is that despite your complete ignorance you are certain that whatever you think you're talking about is the right direction. The rise of HFT is driven by many things - deregulation ain't one of them. Also, there has been a lot more regulation in financial markets than deregulation. Reregulation is not the same thing as deregulation.
I'm not trying to slap you down. I'm just going to end this because I don't think that even if I ran a tutorial, I don't think you'd understand it.
I'll leave you with this:
If the SEC does what you seem to want it to do (although, it's not clear to me that you even know what you want them to do) - force HFT shops to provide liquidity and force dark pools onto exchanges, the liquidity situation will dramatically worsen. fraud will increase and the market will become more rigged. It's likely the SEC will come up with rules that have that effect. So, just be prepared for much worse than we have now if you get your wish.
Today, there is no "business as usual". Market participants brought the message of deflating assets. The messenger has been getting massacred by endless new rules spurting from the SEC since 2008. Now, you don't like the results of the massacre you asked for. How do you not get that?
+1000
2008 was a response to their lack of oversight while markets got out of hand from 2002 to 2007. So that is a mute point of whining about rules from 2008. Second I am not saying the SEC will impose proper regulation, but going at Bear's argument that requlation is bad in all forms. Third, please enlighten me how bringing dark pools onto exchanges would eliminate liquidity? Fourth, I know HFT was not from deregulation, but deregulation allowed it to grow too big. Market participants still say assests are overflated, but TPTB is now giving the illusion of stability by holding all the MBS and the suspension of FASB rules. Do you think banks balance sheets are good if they had to mark-to-market? The market is too opaque as it is, and it is transparency in all aspects is what I am looking for.
First, please think before you comment...
"2008 was a response to their lack of oversight while markets got out of hand from 2002 to 2007" - actually it was a RESULT rather than a response. And it was mostly due to careless monetary policy and market fundamentalism.
"So that is a mute point of whining about rules from 2008." - name one rule aside from a ban on short selling that was enacted in 2008.
"please enlighten me how bringing dark pools onto exchanges would eliminate liquidity?" - The majority of participants (eg Institutions executing block trades) will no longer trade there.
"I know HFT was not from deregulation, but deregulation allowed it to grow too big." - How is Reg NMS and migration onto fully electronic systems deregulation?
"Market participants still say assests are overflated" - How many professional investors do you personally know?
"The market is too opaque as it is, and it is transparency in all aspects is what I am looking for. " - Would you also like to know Coke's secret formula?
Excellent post.
Allow market participants to regulate themselves. Irregularities don't survive or get worked out. Those who don't like the regularities don't have to participate.
What we have now is thugs working for the big boyz who go around forcing others to provide or close shop.
WTF does that mean?
Finally an original thought of reason. It gets old seeing "manipulation, alog-driven, conspiracy, fraud, gs, etc.." bs posts here, everyone copy/pasting td's posts into their own. It's like people here don't have a mind of their own...
I salute u
"Too much power in the hands of the few is what scares me. Also dark pools are not conducive to a free market economic thinker. Opacity is never a good thing".
Original thought of reason? BS posts? People here don't have a mind of their own? Please. What part of fraud, manipulation, conspiracy and rigged markets don't apply to this particular post? Kiss my ass Abiggs if you don't think we are all thinking for ourselves around here.
I was referring to comments made by people such as you...
Yeah, I got that part of it. And where were you ten years ago when the Goldbugs were just about the only ones shouting this from the rooftops, Mr. Enlightenment?
I was graduating college and ecstatic about starting my first finance-related job in the city. Is that a bad thing, am I a vampire for doing so according to your twisted logic?
Unfortunately you are the type that goes short into a rising market as if it's some noble cause, then you complain and cry manipulation, fraud, gs when you lose all of your money.
Don't participate in the market, nobody is forcing you - buy all the gold in the world if it makes you happy...
cat,
"You wanted the SEC to have a heavier hand. These are the consequences. Deal with it."
no argument with the 'deal with it' sentiment.
but what i/we 'wanted' has never been part of the real equation (do you think dodd/frank/et. al. have any interest in what i/we want...? :^)
i think we just wanted the SEC to 'do the right thing' with that hand... regardless the weight. i have very little confidence that is what has (or will) happen.
sure, we may be creating fake ghosts with HFT theories, etc. but the broader point stands, this is no longer a natural or transparent market, and neither the SEC nor anyone else can turn it into one with the mechanisms in place right now.
a cell-phone with a 10 character text message can make or cost someone millions of dollars in a few minutes.
we can't regulate integrity.
i think i'll take my ball and go play somewhere else...
Knot knot,
You sound like a smarter voice in the wilderness. You just want the SEC to execute it's mission statement and I think you understand that it has no incentive to do that. I think you know that their is no such thing as "independent" regulator and the SEC is merely responding to political pressure.
The average Joe wants blood - the blood of Market Makers, the blood of Wall Streeters in general. The folks at the SEC and politicians merely want to hold on to their job and so they go after the blood. After all, if it doesn't work out, they will distance themselves. So, they won't bear the cost of bad (which most of it is bad) regulation.
I don't agree that the SEC has no power to improve the market. It can improve the market by returning trading exemptions to market makers - or, better yet, making those exemptions apply to everyone. That will allow more people to compete and there's nothing like many many competitors to strengthen a market - including preventing fraud.
We have more fraud and more asymmetry because the SEC decides who can trade and when. That leaves a lot of power in the hands of the very powerful few (think: too big to fail banks who own politicians). Instead, everything the SEC has done has been anti-competitive and that has made our markets more fragile.
Given this, I don't blame you for taking your ball and finding another place to play. Not at all. But, I think you understand that going for the blood of the HFT guys isn't going to improve fairness and liquidity (which go hand in hand).
+10
I guess the world misinterpreted the movie "The Terminator" and the machines would be coming for us...
Instead is was much simpler...the algos inadvertantley destroy the world via destroying the markets when they realize we can't live without money?
Food and ammo bitches!
I thought it funny in the Matrix when Morpheus was explaining the brief known history of how the machines rose to power. "It was us who scortched the sky"... at the time we thought without solar power they couldn't operate, etc. It seems he was implying we used nuclear weapons to try and kill off the machines. Well, that would have worked because of the EMP (high alt. detonation)... not because of nuclear winter. And it is completely inconsistent for the ships to have EMP as defense mechanisms...
Also, I always thought it was fascinating to contemplate the parameters of Sophia Stewart's claim (e.g. that the matrix and terminator were contemplated in her copyrighted work).
Can anybody tell me how the market trades today with HFT leading the volumes?
Are any of the fundamental investment tactics / techniques of the last 30 years relevant in today's market?
No. You are trying to cheat people who are cheating you. That is your strategy. Think, "If I were a fucker, how would I fuck the public next?" Place your bet accordingly.
Roger that. Think like a sociopath. Then either protect yourself from them or act like them. But you can't live in peace among them. It's just not happening. Either become a vampire or kill/remove the vampires. Or protect yourself as best you can. Since the public hasn't found the moral/emotional courage to kill/remove them, it looks like the choices are still somewhat limited.
We can protect ourselves better than the average Joe. But trying to swim with them is crazy and it will destroy you morally and spiritually. You and I aren't even in the same league as these vampires and we'll be swallowed up alive if we try. Fight or protect yourself. Gold is one of the ways to protect yourself. Lead is another. Education, for yourself and your community is another. Think local, buy local is another.
No, we are not in the same league; we are much better.
You edited out nearly your entire comment. Why?
These blood suckers have existed for thousands of years primarily because we allow it. Or tolerate it. Or however we wish to spin it to make ourselves feel better about the situation. As long as we allow the condition to exist, as long as we subvert ourselves to their control and manipulation, we will never be far from our hamster wheel.
If you are tired of the fight, it's not for lack of bravery but from lack of support. You and I and others are outnumbered because not only are we fighting the vampires but also all of those around us who would rather bleed a little blood every day to feed the vampires than take a chance on wiping them out but possibly being hurt more than our slow bleed while doing so.
The vast majority of us have made the conscious decision that a little pain each day is more desirable than the potential of greater pain today and then being pain free forever. We think in isolation, thus we can never come together as a group. We have been conditioned to distrust each other and to trust our oppressors. Classic slave mentality.
If you think making market is so noble, why don't you become a market maker?
Go ahead. Raise capital. Become a Broker Dealer. Get an exchange to approve you as a market maker. Pay the SEC to regulate you. Submit to the endless compliance with a million rules. Then, whatever you do, don't cancel your bids just because you might blow up your company and all of your and your iinvestors' money. After all, making a market at all cost is an obligation, according to you.
I love all the bitching and moaning. It's so cheap when you don't have to risk your own captial.
"These blood suckers have existed for thousands of years primarily because we allow it."
My first sentence highlighted above indicates that maybe we are talking about different things. I was responding to MsCreant. Who are you responding to? Has HFT been around for thousands of years? Or Broker Dealers? The SEC?
Clearly you are reading something into my comments. I own my business. Does that count as risking my own capital? What buttons of yours did I activate? I was talking about the powers that be. What are you talking about?
or find something else to do with your time, computer and other various sundries.
MsCreant
or, as many of us are actively doing, "get the hell out of Dodge" in one form or another. the government is completely unable to manage this trend (Mutual Fund outflows, etc.), and probably very concerned.
i'm not smart enough to go up against this wall of 100+ year-armed GS/JPM/SEC(?) pirates and have a chance.
i figure, if the game has been determined to be rigged... leave the game. even with the thugs guarding the exits.
however, your advice is spot-on to those to continue to play.
forget leaving the game... life would be to dam borring...
im still winning...
until ya don't, then what? As you said, you'd be bored. That must be a discomfortable potential for you.
lol. Woe to us all, we are getting clusterfucked to death.
My oh my, you were not lying. You are quite a salty créant today Ms.
While you're at it consider this:
How much stock could a stock fucker fuck if a stock fucker could fuck a stock?
If you can't beat them, join em...
this really should be in notionals
'...participants need to learn how to adapt'.
How does one adapt to previous month's consumer credit being adjusted from +$1 bn to -$14.1 bn, the current month's coming in at -$9.1 bn with a forecast -$2.32 bn, and the Dow goes UP by nearly 100 points?
I guess double guessing might work MsCreant, but then we get into the realms of double-double guessing, double-double-double...well, you get the picture.
The futility of HFT etc seems to me to that there is enough money to go round for everyone rather than trying to shaft the person who's trying to shaft you. It becomes self defeating.
DavidC
Exactly. Adaptation can only occur within a given set of markers. You can't adapt to a constantly changing system. You'll just devolve into a pile of goo.
too late...
:^)
How does one adapt to previous month's consumer credit being adjusted from +$1 bn to -$14.1 bn, the current month's coming in at -$9.1 bn with a forecast -$2.32 bn, and the Dow goes UP by nearly 100 points?
You evidently failed to notice the 45% month-to-month "improvement" in the 2nd derivative :p
you sound familiar, echo,,,,s
How does one adapt to previous month's consumer credit being adjusted from +$1 bn to -$14.1 bn... and the Dow goes UP by nearly 100 points?
There is a well-worn saying in trading that markets that do not go down on bad news are bullish. And vice versa. At any given time there are 0 or more memes floating around out there, some of which are more or less important to one or more market participants causing them to act by buying or selling and thus being the marginal bid or offer in the market. When bullish memes are foremost causing more bullish market participants to hit buy, then on balance prices rise. And vice-versa. Your comment is really no different than the oft-heard complaint about a stock going down after a blow-out earnings release. Market participants make bets based on expectations. They expected the stock to rise and they sell once the news is out. Buy the rumor, sell the fact.
Now that does not apply to bots. But most HFT just tries to match buys and sells on the bid and offer while maintaining a neutral position. Like scalpers on the floor (one of the largest HFT shops is run by former CME floor traders), buy the bid sell the offer - make the spread. Stat arb does something similar, but they will be bid on one name while offer on another. So far so good. To the extent there are other algos out there trying to screw each other and everyone else over and PPT or other entities that seek to push the entire market this way or that, well that is a different issue I will not address here.
But since you brought up HFT, I want to say one more thing about the complaint I have seen elsewhere about how they were responsible for May 6th because they stepped away and stopped providing liquidity. Back in the day, market makers on the floor of NYSE, the guys who manned the posts, were required to be the liquidity providers of last resort. In return they got to see the contents of the "book". In '87, some guys did not provide the liquidity they were supposed to and I believe they were disciplined, some by losing their post (could be proved wrong on that, working from memory here). In the ECNs and elsewhere where algos live, there is no responsibility to provide liquidity, yet liquidity is there as a result of the operation of the HFT shops. Excellent. But when something like May 6th happens, you turn off your machine until things return to "normal". There is nothing wrong with that and faulting them for that seems a bit odd.
All that said, if HFT shops get the equivalent of seeing the "book", as it appears they have been, then that has to be stopped, especially if they have no correlative duty to be there in times of market stress. An easy solution I saw in some comment here is to set a minimum delay that evens the playing field. Something like that might work.
Fwiw.
Great post - refreshing to know at least a select few here understand what's going on.
So sick and tired of seeing ZH group think comments with zero first-hand experience or understanding on the topic.
Yeah, sure bigshot, you're the only one who knows what's going on. You are a first class douchebag.
gotta watch
http://www.youtube.com/watch?v=3B_xBWsDpz0
The CAN$ is up a full percent and is approaching that "range" it usually flags a market falling over the rails again.
With all the HFT's pushing a pulling on leveraged equity they must be falling into the leverage decay scenarios that plague the X2-x3 etf's. With their debt to equity ratio being nearly 50 to 1 it's insane to think of how this is going to keep it's pants on when the leverage decay starts approaching exponental levels. A penny here and there at first, then dollars, then hundreds of dollars, then thousands, then tens...etc.
LEveraged decay is a bitch at x2-x3 levels, these idiots are playing with x50 like those Forex scam traders that have been around for a while.
ya i think people are too busy bottom picking like monkeys and forgeting the trend is still down.. the CADJPY and CADUSD could be some good shorts when they all got to pay some margin calls...
"plague the X2-x3 etf's"
So far it's look like it's playing a 4 cent spread between 93 and 98 and likes to cycle through it on a monthly basis.
HFT's have sprung up like weeds over the past few years. Everyone trying to mimic the success of Renaissance Cap. I think it's only a matter of time before they cannibalize themselves right out of the market. The more entrants you have, the quicker that arb goes away. With enough participants they'll destroy the profitability of it eventually. And their scope is limited to listed securities anyway. That's way the smart money doesn't even really play in the equity space anymore.
You have a good point - there shouldnt be any reason why anyone should lose sleep over HFT.
HFT has some major headwinds, possibly show-stoppers: increased competition and regulation. The gov can wipe them out with a few signatures. They pose as much threat to us as we pose to them.
When there is no money to be made in HFT, then what happens to the market when they move on to greener pastures?
Maybe they go back to mathematics or engineering and actually add some value to society.
I have a couple of friends who work in HFT and have watched them change into self-entitled douchbags over time. Terrible waste of some very promising people.
Fiddling while watching the world burn....
Thank you. There were some of us smart folks that didn't let the greed get to the brain. I always think that. What if these so called geniuses had put their work to good instead of evil. But then, maybe they aren't geniuses at all. They are technicians. And creativity can come from a total dolt who produces something more useful than what has happened on Wall Street. Eventually, it will get back to creating real things that are useful for the greater good. : ) If we don't all kill each other off first.....
"What if these so called geniuses had put their work to good instead of evil."
Why would you call designing hft strategies evil? I understand if you said unproductive to society or speculating - but evil???
"There were some of us smart folks that didn't let the greed get to the brain." - Who told you that you're smart? I find it hard to believe since you characterize folks that work at quant shops evil...
More rally next week ?
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