Predators Sensing Your Orders: Trading “Battlebots” Earn Est. $15-25 Billion Annually

Tyler Durden's picture

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Anonymous's picture

If high frequency trading is so well understood, what's keeping every institution from doing it in the same way that Goldman Sachs is doing it? Not trying to justify this since it inherently puts some traders who don't have millisecond connections to the exchange at a disadvantage.. but just don't see why Zerohedge continues to single out Goldman for this practice.

Ben_the_Bald's picture

High-frequency trading is a competitive industry. I don't see a reason to single out GS except that they are big and some of the smaller fishes in Chicago may want to bring it down in size. "Wall Street" is full of cannibals or piranhas.

Anonymous's picture

Same as keep any businesses out of an industry, barriers to entry... You have to get low latency somehow, and there are palms you must tickle before doing so.

Anonymous's picture

Because they are fucking asswipes. :-)

Anonymous's picture

And front running dirt bag thieves. They hired a VOIP software engineer for christ sakes. Every client was most likely electronically spied on. No big deal though, huh?

TODDspecial's picture

If high frequency trading is so well understood, what's keeping every institution from doing it in the same way that Goldman Sachs is doing it? g0od point...hat tip to http://kl.am/tsc

 

 


jm's picture

"If high frequency trading is so well understood, what's keeping every institution from doing it in the same way that Goldman Sachs is doing it?"

 

They aren't the only ones, but for whatever reason (brains, leadership, politics) they are the biggest and best at it.  I won't go beyond that.  Nobody anywhere has a problem with liquidity provision.  But ZH is right to point out that there is more "liquidity" being provided than there are retail buyers, the very ones who presumably are being facilitated by the service.  Liquidity providers are providing liquidity to other liquidity providers. 

 

Guess what though.  The equity/residual security markets  are an ecosystem and the plankton are getting killed off by all this meta-market crap; either by rotten earnings, lies about earnings, or continually losing in a rigged game with no connection to fundamentals.  That means that the big fish are going to get a lot thinner and some will die. 

 

You may not like it, and call people asswipes, but its coming to theater near you. 

Anonymous's picture

Here's the problem with Goldman. When a company consistently outperforms their competitors by 5%, they are better at execution. When they consistently outperform by 500000%, they are cheating.

Ben_the_Bald's picture

So you think Microsoft should have been split up? I'm not even going to argue those numbers, where did you pulled them from?

Anonymous's picture

who cares about some algo trading? this is about as bland a story as you can find

kurt_cagle's picture

John Mauldin, one of the more astute industry analysts I follow, brought up the Algo trading issue, including pointing to a must read piece by Themis Trading at http://www.themistrading.com/article_files/0000/0348/Toxic_Equity_Tradin.... My sense is that publicity on this is now spiraling out of control for GS, and Obama's going to be forced to step in and order an investigation, which is also going to seriously cripple a lot of the shadier funding mechanisms currently at work. Without GS's magic money machines at work, the props keeping the market around S&P 900 aren't going to hold much longer.

Jim B's picture

I have much less faith than you do.  Grease a few palms and all is well.  This crap should be regulated or eliminated because it provides no value added to the economy.  It just skims profit off legitimate market activity.

 

Anonymous's picture

Mauldin knows economics... but his take on electronic trading was just asinine.

Anonymous's picture

This website and most of the threads here is for the industry insiders - folks who are pissed off that big shark GS is not leaving any fish for them - These folks only have scorn for the small fry.

Why don't we let the sharks eat each other for a change - GS happens to be the biggest shark - that is all.

For us Sheeple then there is effectively only one form of protest - that is to stay completely out of all stock and other fancy markets.

If you have money that you want to invest and take a chance with - maybe try Microloans - or take a risk with your next door Garage Entrepreneur who is right now out of luck trying to get one SBA loan. At least you know where he lives when it is time to collect !

ToNYC's picture

I sense Intelligent Design in this Creation story here..coming from early NASD server farm days of TradeCast in late 20th Century, escaping the Specialists through the electronic NAS..watching GS hire away IT guy to re-wire the Amex 24/7 via SLK , then NYSE buying the Amex ..getting in bed with Arcapelago and Arca E-eating the NYSE..lobbying to put the bums rush on the Eighths to kill off the Specialists with ha'pennies to get them outta there screaming with no edge..NOW GS assumes the position of being the UBER-SPECIALIST getting that precious 50msec peek and deciding on your order..problem solved..but wait, the survivors watched it all and payback is a bitch!...It's a tangled web we weave, when first we practice to deceive. We ain't dead yet.

Anonymous's picture

I heard this guy speak last year. He is FAR from an authority on the subject.

Anonymous's picture

I'm always surprised how wrong this blog is about this topic. It chooses the most ill-informed commentators, and then blindly sides with anyone who is against HFT. Amazing. Truly in depth and high quality journalism.

HFT markets are competitive, and guess what - spreads (or "transaction costs" for you non-finance folk) are LOWERED. Furthermore these strategies have extremely short holding periods, and generally DON'T lose money or use much leverage - so the blow up risk is significantly reduced.

As for the "adding more noise to the market" argument. That's like saying, "please give me three competing prices instead of 50" .

In short: high frequency trading smooths liquidity across markets (yes they take a small premium for this, but that doesn't mean its not competitive. Whoever thinks there is no competitive market for liquidity supply is just wrong). Of course it makes more money when volatility is high - but only because panicked institutional investors create such uneven sided markets when they are dumping their stock like ogres.

The conversation by this blog on this topic is getting very close to blatant, idiotic misinformation.

I recommend anyone interested in this topic to just go read a market microstructure book and actually figure out how this all works instead of reading these useless daily rants.