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84% of All Stock Trades Are By High-Frequency Computers … Only 16% Are Done By Human Traders

George Washington's picture





 

As of 2010, 50-70% of all stock trades were done by high frequency trading computer algorithms.

And many other asset classes are dominated by high frequency trading as well.

High-frequency trading distorts the markets.  And see this and   this.  And it lets the big banks peak at what the real traders are buying and selling, and then trade on the insider information. See this, this, this, and this.

Morgan Stanley has just shown (via the Financial Times) that the percentage of high frequency trading in the stock market has skyrocketed to 84%:

Trading by “real” investors is taking up the smallest share of US stock market volumes [since Morgan Stanley  started keeping track 10 years ago.]

 

The findings highlight how US trading activity is increasingly being fuelled by fast turnover of shares by independent firms and the market-making desks of brokerages, many using high-frequency trading engines. [actually all of the market-making desks are using it.]

 

***

 

The proportion of US trading activity represented by buy and sell orders from mutual funds, hedge funds, pensions and brokerages, referred to as “real money” or institutional investors, accounted for just 16 per cent of total market volume in the form of buying, and 13 per cent via selling in the final quarter of last year, according to analysis by Morgan Stanley’s Quantitative and Derivative Strategies group.

It’s not just the U.S. High frequency trading dominates in the U.K. as well.

Given the dominance of the machines, do flesh-and-blood traders have a chance?

 


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Thu, 04/26/2012 - 13:55 | Link to Comment Winston Smith 2009
Thu, 04/26/2012 - 14:05 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

"Did that robot just fart?"

"Robots can't fart!"

AWESOM-O:  "Initiating fart sequence....."

Thu, 04/26/2012 - 13:43 | Link to Comment blueridgeviews
blueridgeviews's picture

Looking forward to the next flash crash. Should be a doozy.

Thu, 04/26/2012 - 13:43 | Link to Comment poor fella
poor fella's picture

Wonder what the high HFT volume means on a super-low volume day, like today..

Wow, the market is flash-crashing to the upside! There's my answer.

Thu, 04/26/2012 - 13:09 | Link to Comment digitlman
digitlman's picture

banks get to "peek", not "peak".

Thu, 04/26/2012 - 13:05 | Link to Comment DavidC
DavidC's picture

When the HFTs finally have everything, it'll be easier, just BTFD every time...

At the moment there's always a feeling or a hope that fundamentals might still have a relevance to the market moves.
DavidC

Thu, 04/26/2012 - 12:56 | Link to Comment ebworthen
ebworthen's picture

Yes, I've been busy lately.

Coffee? Or chamomile tea?

http://www.flickr.com/photos/79008263@N05/6941472004/

Thu, 04/26/2012 - 12:56 | Link to Comment Benjamin Glutton
Benjamin Glutton's picture

How long before ATM's try to go double or nothing?

Thu, 04/26/2012 - 12:50 | Link to Comment W10321303
W10321303's picture

Ref: several programs from Mad Max....

Thu, 04/26/2012 - 12:56 | Link to Comment JustObserving
JustObserving's picture

If you to stymie the HFT algos bring back the uptick rule and impose a 0.01% transaction tax for securities held less than 5 minutes.

"The rule went into effect in 1938 and was removed when Rule 201 Regulation SHO became effective in 2007"

"On November 18, 2008, the Wall Street Journal published an opinion editorial by Robert Pozen and Yaneer Bar-Yam describing an analysis of the difference between regulated and unregulated stocks during the SEC pilot program. By using an analysis they claimed to be more comprehensive than the SEC's original study, they showed that unregulated stocks have lower returns, with a difference that is both statistically and economically significant. They also reported that twice as many stocks had greater than 40% drops in corresponding 12 month periods before and after the repeal.[19] [20]"

The SEC is owned by the financial elite who own all the HFT platforms.  So there is no chance that they reintroduce the uptick rule or put a transaction tax on HFT.  BTW, Hong Kong has an uptick rule:

"Hong Kong traditionally had no uptick rule, a situation depicted in James Clavell's novel Noble House.[27] They instituted one following the 1997 Asian Financial Crisis.[28"

http://en.wikipedia.org/wiki/Uptick_rule

Leave the New York markets and trade in the fairer Hong Kong markets - unless you are inclined to financial suicide.

 

Thu, 04/26/2012 - 12:45 | Link to Comment kurt
kurt's picture

Sometimes things are much simpler than than they seem:

 High frequency trading is FRAUD and must be stopped.

Thu, 04/26/2012 - 12:42 | Link to Comment BeetleBailey
BeetleBailey's picture

Bring on the machines...I'll beat their brakes off. Doing it now.

Stocks my clients own are up an average of 22% since January 1....profit stops locked in....stalking more....

FX? 88/12 winners to losers %. 3 to 1 ratio winner in the money to loser out of the money.

Small losses, larger gains. By the book. How I was taught by far smarter teachers/traders than I.

Machines cannot "think" ....like an investor. Machines don't have clients.

Machines are fed junk data - and must repond. Humans - that are in the TRUE know - don't have to respond.

We can respond and react as dispassionately as a machine.

Light volume. Heavy volume. makes no difference. If you're experienced, and have the scars to prove it, you can trade and win.

 

Thu, 04/26/2012 - 14:01 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Uh, no, Beetle.  Just plain no.

Thu, 04/26/2012 - 13:35 | Link to Comment donsluck
donsluck's picture

You may be right on a micro level, but on a macro level you are incorrect. Do you know what micro-second front-running really means?

Fri, 04/27/2012 - 04:47 | Link to Comment BeetleBailey
BeetleBailey's picture

don: to me, it doesn't matter what macro vs. micro is.

Playing the front running game is a fools errand.

My alliegance is to my clients - no one else.

I have my own tried and true rules of trading; gleaned over time and trial and error.

I am not the "best" by far, nor do I strive to be some super trader. Another fools errand.

The point of my post is that human traders - if they have a solid set of trading rules, and stick by them, consistently get results.

Being that I work on performance, it works for me.

Thu, 04/26/2012 - 13:03 | Link to Comment skepticCarl
skepticCarl's picture

Beetle, it's nice knowing you as a Zero-Herder before you end up the richest man in the world.  You will be, of course, by compounding at 22% per 4 months.  That geometric progression, which I'm sure you will maintain, should put you ahead of Bill Gates in wealth in 20 years or less.

Fri, 04/27/2012 - 05:11 | Link to Comment BeetleBailey
BeetleBailey's picture

who said anything about being the richest man in the world? Not I.

Consistent results. Not trying to hit home runs or take excessive risks with my clients money.

Over 20+ years in the business, I'm still going strong. Seen plenty of market conditions come and go. Longevity.

Thu, 04/26/2012 - 12:55 | Link to Comment gatorontheloose
gatorontheloose's picture

how about since October?  year over year?  what isn't up 20% since janurary ?  

Fri, 04/27/2012 - 04:50 | Link to Comment BeetleBailey
BeetleBailey's picture

Since October, my clients are up 45+% in strategic equities gator -

I know plenty of others that are not up 20% since January. if you're a trader, you know that some trade their view, rather than trading what they see.

Nearly every time I trade my view, I lose. Nearly every time I trade what I see, I win.

Thu, 04/26/2012 - 12:46 | Link to Comment homersimpson
homersimpson's picture

"If you're experienced, and have the scars to prove it, you can trade and win." Funny - that's what gambling addicts in Vegas say. You forget to mention that if you're experienced and have the scars to prove it, it could also mean you're broke and beaten down like a 3 wheeled VW bug without an engine if you play long enough in casino aka stock market. At least Vegas lets you roll the dice before you bet on a number..

Fri, 04/27/2012 - 04:57 | Link to Comment BeetleBailey
BeetleBailey's picture

True enough Homer. Years back, I did take some losses that took months to recover. Having the right coaches and developing a sound plan was the key.

Comparing Vegas gamblers to disciplined traders is apples to oranges. Most gamblers have no plan. Their risk/reward is lousy, as the house has the odds stacked in their favor - always.

I don't gamble. I love Vegas - but not for gambling. Well, I used to love it - back when the mob controlled it. Now, it's shite with a roulette wheel.

Thu, 04/26/2012 - 12:38 | Link to Comment falak pema
falak pema's picture

Why the market is slowly dying and soon we won't need a stock market until the AUgean stables have been cleaned out :

 

Its called planned economy and its the price to pay to cool the bubble economy which is 50 times the real economy and is the REAL game on the stock echange.

To kill this bubble market, only one way : close down the markets, tax the OTC transactions, and regulate the hell outa the banks. We are going there. Having socialised the debts, the governments now have to step in. Meanwhile the ponzi banks kill the competition from the small guy. Classic, when only ONE private bank will be left, putting the knife into its gut will be easier. Let it be GS. But to do it, ALL the governments will have to act in unison. It'll be in their interest as GS is not the true market. Its just the elite club. 

Will the club allow this or will they prefer war....?

Thu, 04/26/2012 - 13:47 | Link to Comment blueridgeviews
blueridgeviews's picture

Banks are already one of the most regulated industries.  What we need are regulators that can't be bought off.

This is a lawless society when it comes to politicians and wealthy donors.

Need I mention Corzine and MF Global?  Who is Corzine bundling campaign donations for? The little guy is screwed as long as this crap continues.

Thu, 04/26/2012 - 12:34 | Link to Comment JustObserving
JustObserving's picture

We should get to 99% by HFT algos by next year. Humans has little chance against the machines as shown by chess, backgammon, Jeopardy etc.

Bullish for lower wages.

Markets can be easily manipulated by HFT now.  But soon the control of the markets will be complete.  That should please the Fed.  Gold and silver prices will be what the Fed wants them to be.

Thu, 04/26/2012 - 13:59 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

Soon?  LOL.  The markets are DEAD.  Now take that to its logical conclusion.

Thu, 04/26/2012 - 14:02 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Soon it will be HFT cannibalism! No suckers left to rob.

Thu, 04/26/2012 - 12:33 | Link to Comment NotApplicable
NotApplicable's picture

HFTs are the "Advanced Meat Recovery" machines for humans. Strip you right down to the bone while looking for a way to get to the marrow within.

Thu, 04/26/2012 - 12:28 | Link to Comment worbsid
worbsid's picture

There are many other reasons the market is dying ... MF Global, no fraud arrests, etc. 

Thu, 04/26/2012 - 12:24 | Link to Comment Agent P
Agent P's picture

16%...I'm finally a minority.  I'd like to apply for my government benefits, please.

Thu, 04/26/2012 - 12:35 | Link to Comment Son of Loki
Son of Loki's picture

sorry, all out of SNAP...but we have a few EBTs left....

Thu, 04/26/2012 - 14:01 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

How about minority status so I can get one of the SS jobs and chase those hot hookers in Columbia on gubimint money!

Thu, 04/26/2012 - 13:57 | Link to Comment Bicycle Repairman
Bicycle Repairman's picture

"It too late.  They ain't passin' out any more vouchers for section 8."

Thu, 04/26/2012 - 12:18 | Link to Comment Tyler Durden
Tyler Durden's picture

It only took the FT 10 days to catch up to what ZH readers know two weeks ago (for free):

Why The Market Is Slowly Dying

Thu, 04/26/2012 - 12:35 | Link to Comment George Washington
George Washington's picture

As often happens, I posted on this because I missed your post, and assumed it hadn't been covered. If I'd caught it, I wouldn't have duplicated it ...

Thanks for being ahead of EVERYONE else on HFT, other than perhaps a handful of folks like Max Keiser (who invented the bloody thing).

Thu, 04/26/2012 - 13:43 | Link to Comment Tyler Durden
Tyler Durden's picture

Max Keiser heard of HFT from ZH

Thu, 04/26/2012 - 16:49 | Link to Comment AchtungAffen
AchtungAffen's picture

Hah, yes. I love Max though.

Thu, 04/26/2012 - 14:33 | Link to Comment George Washington
George Washington's picture

Thanks for getting the info out!

Thu, 04/26/2012 - 12:13 | Link to Comment williambanzai7
williambanzai7's picture

AGE OF WALL STREET MACHINES

Thu, 04/26/2012 - 13:05 | Link to Comment skepticCarl
skepticCarl's picture

Is that Dick Clark sitting at the UBIK controls?

Thu, 04/26/2012 - 12:19 | Link to Comment George Washington
George Washington's picture

Aren't SEC technicians busy watching porn?

Thu, 04/26/2012 - 12:33 | Link to Comment Sir Edge
Sir Edge's picture

Well Yes... But Its Midget Porn...

Thu, 04/26/2012 - 13:45 | Link to Comment George Washington
George Washington's picture

Oh, well then it's okay, then ...

Thu, 04/26/2012 - 11:52 | Link to Comment kraschenbern
kraschenbern's picture

When  the elephants are mating the pygmies should get out of the grass.

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