The Problem Of HFT

CalibratedConfidence's picture

No doubt the SEC will have a busy weekend ahead of them (assuming they have read Broken Markets already).  Fresh off the printers today comes a new release from Haim Bodek titled The Problem of HFT.  It is available for Kindle and there is a paper version available too.  Unlike most book releases, the price is set so that basic production costs are covered.  Haims not making bank but he is providing readers with a bank of information to revert back to in times of heated debate.  The book consists of some the writings we have found on his website.

"Modern HFT wasn't a paradigm shift because its innovations brought new efficiencies into the marketplace.  HFT was a paradigm shift because its innovations proved that anti-competitive barriers to entry could be erected in the market structure itself to preference one class of market participant above all others"

- Haim Bodek

Most of the material is published with a decent amount of unpublished material sprinkled throughout.  Topics/Papers that are included:

  1. The Problem of HFT
  2. HFT Scalping Strategies
  3. Locked Markets, Priority, and Why HFTs Have an Advantage
  4. Electronic Liquidity Strategy
  5. HFT - A Systemic Issue
  6. Reforming the National Market System
  7. NZZ Interview with Haim Bodek
  8. TradeTech Interview with Haim Bodek

For more work from Haim, check these links to the Zerohedge servers and read his story as detailed by Scott Patterson in Dark Pools:

  1. The Dark (Pool) Truth About What Really Goes On In The Stock Market - Part 1
  2. The Dark (Pool) Truth About What Really Goes On In The Stock Market - Part 2
  3. The Dark (Pool) Truth About What Really Goes On In The Stock Market - Part 3

Via Amazon:

Haim Bodek is a Managing Principal of Decimus Capital Markets, LLC, a
tactical consulting and strategic advisory firm focused on high
frequency trading and market structure. 


Mr. Bodek was formerly a founder and Chief Executive Officer of Trading
Machines LLC, an independent high frequency options trading firm. Prior
to TM, Mr. Bodek was a Managing Director and Joint Global Head of
Electronic Volatility Trading at UBS Investment Bank. He is an
electronic trading executive and algorithmic trading strategist with 15
years experience in the automated trading space. 
Bodek's career, experiences, and advocacy for US stock market
regulatory reform are described extensively in Dark Pools by Scott
Patterson, freelance writer and staff reporter for The Wall Street

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mendigo's picture

Would it be about right to say that hft mainly screws with other hft and causes some ripple effects on the day traders and arbitrage.

I am thinking that MFG was not about HFT.

And really the most corrupt and manipulative force in the market is I vote the FED - oh wait that's us. But oh that's right China are "currency manipulators" crackin me the fuck up those guys.

If they what to eliminate waste in spending the place to start would be the SEC.

It really comes down to: Which is more important - perception or reality. To which the ovious answer is - perception is reality.

robnume's picture

There's a problem with HFT? No, shit, Sherlock. Are we supposed to believe that this guy is sorry for raping us? Next we'll be told that we have a free market economy! FOAD, Bodek.

blu's picture

These guys are pretty smart, but they missed the best part of HFT; red hot boobs

She's blue. She's bad. And she's stacked better than a brick house. Meet Fortran goddess of mad science, bust'n out that rack in every guy's server farm, who answers the question that's been on everyones' mind since she last took off her top in public; what exactly does a girl do with 4 trillion computation units anyway?

Turns out she does exactly what she wants to, bitch.

Friday fiction. Only at Zerohedge.

Perpetual Burn's picture

"I suck at trading because of HFT", pretty much sums up zero hedge peeps.

CalibratedConfidence's picture

when they use expert-networks to execute orders that weren't public information at the time, yeah we have a little more trouble but suck wouldn't be accurate.  I suppose the Tour De France losers "sucked" because Armstrong cheated right?

Perpetual Burn's picture

Yes, that is predatory trading. The problem is labeling all HFT as predatory trading, which is false.

CalibratedConfidence's picture

I agree.  not ALL of the HFT are bad

NotApplicable's picture

Yeah, it's too bad that only 98% of them make the other 2% look so bad.

To me, the real issue with HFTs is their destruction of liquidity via their quote-stuffing/retraction, thereby running all of the sensible humans out of the market.

I don't see how lack of true price discovery benefits anyone but the criminal class.

MeelionDollerBogus's picture

well what's funny is that at low-speed if we could quote-stuff & retract with conditional orders, as humans, we'd still be just as dangerous. It's not the speed, it's the fraud. The illegality. The special powers granted to those who do it which allegedly do not legally exist yet are permitted.

IamtheREALmario's picture

I can almost accept HFT because they skim off the skimmers. I am not a huge fan of the runners of MM HFT computers programming in the price pattern and ending price for the day and then heading out to the golf course.

What we need is a new solution for is Specialist firms and Market Makers. The guaranteed liquidity is the bigger problem because it completely  defeats free market dynamics.

If there is buying, then the MM inserts himself in every order then needs to drop price to buy (because the MM and specialists are tasked with making a profit). If there is selling the MM buys then needs to raise price to dump off the inventory. The Market Maker, guaranteed liquidity system completely defeats free market dynamics. 

NotApplicable's picture

Given all trading is now electronic, and all stocks are owned by the DTCC, exactly why does anyone need MMs?

Either there's a real bid and a real ask waiting for a fill, or there isn't. There is no longer any need for intermediaries to be involved. All they do is act as parasites, providing absolutely no value.

NEOSERF's picture

Wish I had Mr. Bodek's bank account...I would write books about all the carnage I caused to clear my conscience too..

CalibratedConfidence's picture

He didn't cause any carange.  He is responsible for discovering the HFT expert-networks.  Along with Themis, he staked is reputation on calling out the new practice.

GolfHatesMe's picture

Lance Armstrong says nothing wrong with HFT