Guest Post: A Five Minute Example of HFT Shenanigans

Tyler Durden's picture


Via Dennis Dick of,

I was trying to buy 500 shares of a preferred stock this morning, Principal Financial Group Inc. series B (NYSE:PFG-B).  It is such a challenge to trade any type of illiquid issue as the execution of orders is nearly impossible in this HFT world.  Here is the sequence of events.

At 09:39:08, the stock is offered on EDGX at $26.29.

I place an order to lift the offer.  The shares trade but I get filled on zero shares.  Knowing that my bid will cause a bunch of HFT programs to penny-jump me (step ahead of my order by a penny -  which they immediately do), I cancel the order. The HFT penny jumper cancels their order as well.

At 09:39:29, the stock is offered on EDGX again at $26.32.  I place an order to lift the offer.  The stock trades at the exact same second.  Again, I get filled on zero shares.  I cancel the order.

At 09:39:41, the stock is offered on PCSE at $26.29.  I place an order to lift the offer.  The stock trades at the exact same second again, but I get filled on zero shares.  I cancel the order.

At 09:39:50, I place a hidden order to buy the stock at $26.32.  Five second later the stock prints in front of me at $26.33 (Obviously these hidden orders aren’t as hidden as they should be).  I leave the hidden order to buy at $26.32.

At 09:40:05, the stock prints right through my hidden order on another exchange at $26.30.  So despite my bid being higher at $26.32, thanks to the fragmentation in the market, I get filled on zero shares again (and the seller gets a worse price!)

At 09:40:20, the stock prints through my hidden order again at $26.30.  Again, no execution for me.  Frustrated, I cancel my order.

A few seconds later, at 09:40:36 a couple of HFT programs battle out for the top of the order queue, and the bid changes rapidly, as you can see below:

At 09:40:40, the HFT programs go to battle again fighting for the best bid.

This battle continues for the next few minutes.  In fact, during one period of time from 09:44:53 – 09:46:35 (a total of just over a minute and a half), the best bid changes over 800 times, as these two HFT algorithms battle to be at the top of the queue.

At 10:07:14, I finally lift an offer and pay up to $26.35.  The HFT firms scalps their few cents from me, and all the games are over.

Some serious issues are highlighted in these few minutes of activity:

1) Inability for market participants to access a quote.

2) Excessive quote pollution as HFT algorithms battle each other.

3) Market fragmentation can lead to inferior execution.

4) HFT penny jumping can discourage market liquidity.

The bottom line is that all of these issues discourage participants from trading illiquid securities – making these securities even more illiquid.

Your rating: None

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 12/11/2012 - 18:36 | 3053427 molecool
molecool's picture

Great detective work, Dennis - thanks for posting it. Not that anyone running the exchanges will give a rat's rectum. HFT is in - human traders are out. It'll all end in tears one of these days. Maybe tomorrow, maybe a few years from now - but it's coming.

Tue, 12/11/2012 - 18:38 | 3053442 Big Slick
Big Slick's picture

When algo trading is outlawed only outlaws will have ... (wait)...  Aw forget it.

Tue, 12/11/2012 - 18:47 | 3053453 Big Slick
Big Slick's picture

I like to tell myself that my 'down-arrows' are all algos

(see... there's one right there at 17:45:45)

(and another 17:46:01....  and another... FLASH CRASH)

Tue, 12/11/2012 - 19:32 | 3053619 Jay Gould Esq.
Jay Gould Esq.'s picture

No, Stanks ( as once identified by Bill Banzai ) the serial junking dog is apparently running off-leash, and "marking his territory" with impunity, over the entire site this evening.

Tue, 12/11/2012 - 19:45 | 3053676 Sylvia Plath
Sylvia Plath's picture

Samething happened to me trading BPL....

Tue, 12/11/2012 - 20:45 | 3053784 Manthong
Manthong's picture

Mercy sakes!

Those HFT shenanigans as so like the mischievous antics of little Wolfie Hochstetter.

Tue, 12/11/2012 - 21:50 | 3054218 smlbizman
smlbizman's picture

jay, would you guess it is a really lonely human being or a program?

Wed, 12/12/2012 - 06:48 | 3055087 noses
noses's picture

If crimes are outlawed only outlaws will comit crimes.

Wed, 12/12/2012 - 10:24 | 3055516 Big Slick
Big Slick's picture

"If crimes are outlawed only outlaws will comit crimes"

Yeah... what HE said

Tue, 12/11/2012 - 18:37 | 3053443 knukles
knukles's picture

Impossible.  All lies and misdirection, trying to besmirch the Street's good name.  Obviously a propaganda exercise of the left wing press in order to have further excuses to nationalize the markets.
The Street says it's good for America and what's good for America is good for the little man in the middle class.

See how well that worked for GM, eh?


Tue, 12/11/2012 - 18:43 | 3053458 boogerbently
boogerbently's picture

Had he NOT cancelled his cheapest order, it would have filled @ 9:40+ (AM)

Tue, 12/11/2012 - 18:39 | 3053448 Hype Alert
Hype Alert's picture

No, the exchanges love it.  It LOOKS like liquidity.


I've found the best option is to cancel the order and walk away.  They love a biding war and I'm glad to let someone else get scalped.

Wed, 12/12/2012 - 06:07 | 3055054 Nage42
Nage42's picture

OK, so it's like this guys... if you really want "the powers that be" to take some action on HFT all you need to do is the following.


Recruit some (~4) smart Russians with math backgrounds.  Tell them that if they can "get 'er done" they'll get a bonus of $50K USD.

Get in bed with some Prime Brokerage that has co-hosting facilities.

Initiate a "wack-a-mole" strategy on the following stocks:  HAL, LMT, MMM, DD, and MON


I bet you that within 2 weeks there will be regulators shutting down the possibilities of HFT faster that you can say: "I'm sorry Senator, your portfolio just halved."


Think I'm wrong?




Tue, 12/11/2012 - 18:34 | 3053430 Gubbmint Cheese
Gubbmint Cheese's picture

yup - I see it every.. single.. day.



Tue, 12/11/2012 - 18:35 | 3053434 duncecap rack
duncecap rack's picture

excellent post

Tue, 12/11/2012 - 18:35 | 3053439 Pairadimes
Pairadimes's picture

Why isn't this against the law? It would be in almost any other form of transaction I can think of.

Tue, 12/11/2012 - 18:37 | 3053445 Cdad
Cdad's picture

Laws do not apply to bankers and least not in the U.S.

Tue, 12/11/2012 - 18:44 | 3053460 boogerbently
boogerbently's picture

....or congress....or celebrities....

Tue, 12/11/2012 - 18:39 | 3053449 knukles
knukles's picture

Front running is against the law.

Go figure.  It's not being done by a human, just a buncha chips.  And how ya gonna arrest a chip?
Ergo, nothing to enforce.

Tue, 12/11/2012 - 21:35 | 3054149 MachineMan
MachineMan's picture

HFT is too fast to fail

Tue, 12/11/2012 - 18:49 | 3053474 boogerbently
boogerbently's picture

It's like when there is a Senate investigation of some company that gave money to a foreign politician to get something done. Irony.

Tue, 12/11/2012 - 19:37 | 3053644 NotApplicable
NotApplicable's picture

That word "law?" It doesn't mean what you think it does.

Tue, 12/11/2012 - 18:37 | 3053440 asteroids
asteroids's picture

Some day, these HFTs are going to freeze and the market will drop like a stone.

Tue, 12/11/2012 - 18:42 | 3053457 buzzsaw99
buzzsaw99's picture

you are either a terrorist or a commie besmirching the fine american capitalist system like that tsk tsk

Tue, 12/11/2012 - 18:36 | 3053441 Cdad
Cdad's picture

The bottom line is that all of these issues discourage participants from trading illiquid securities – making these securities even more illiquid.

Good!  Maybe it expedites the trade of such illiquid securities to zero?


Wed, 12/12/2012 - 01:05 | 3054691 GoinFawr
GoinFawr's picture

I agree, but I think this article is meant to be a hyperbole that demonstrates how HFT removes liquidity from everything it touches, especially when it is crucial,  and so even from traditionally liquid securities.

Tue, 12/11/2012 - 18:40 | 3053452 buzzsaw99
buzzsaw99's picture

just wait until you try to sell - lulz

we must fight, to run away... [/Captain Jack Sparrow]


Tue, 12/11/2012 - 18:41 | 3053455 Joebloinvestor
Joebloinvestor's picture

I always thought it was the market maker playing games.

Everyone knows these guys are above reproach.

Tue, 12/11/2012 - 18:47 | 3053471 mammoth mo
mammoth mo's picture


What a coincidence - look at the spread on the TVIX at 3:07


VelocityShares Daily 2x VIX Short Term ETN TVIX:NYSE Arca


Last Price

Today's Change




Today's Volume

Schwab Analysis


-0.04 (-4.01%)




3,849,128 Average

Report Card PDF

As of 3:07 PM ET, 12/11/2012

Tue, 12/11/2012 - 18:47 | 3053472 shitting_alpha
shitting_alpha's picture

whine whine whine.


if you're bitching about .2% on your execution, you have no idea why you're even making the trade. you just think it should go up.


how far, dummy?  .4%???????????????????

L O L.

take up a sport that you can actually play.

Tue, 12/11/2012 - 18:50 | 3053478 nanex
nanex's picture

We created charts of the event to commemorate Dennis's experience:

Tue, 12/11/2012 - 19:42 | 3053663 NotApplicable
NotApplicable's picture

I tell ya, once the SEC finishes going after Dennis for bot harassment, they're coming after his enablers.

Don't say you weren't warned!

(You folks are awesome)

Tue, 12/11/2012 - 18:53 | 3053486 comrade rally monkey
comrade rally monkey's picture

whats his complaint. he got pipped for $15 bucks...that his clients pay ...and still made more today than the HFT program.

silly broker seeks sympathy...




Tue, 12/11/2012 - 18:55 | 3053489 kdrury12
kdrury12's picture

what type of order was placed?  You can tell based on Nanex's charts above that Dennis did not place a resting limit order.  It seems impossible to not get executed if Dennis had placed a limit order to buy @26.29 on EDGX....was it a routable order?

Tue, 12/11/2012 - 18:57 | 3053496 shitting_alpha
shitting_alpha's picture

like most engineers, nanex, you have failed to efficiently monetize your information.


so instead of printing money like you should, you spend all of your time complaining about the markets.


i have an egghead buddy like you.  he also makes dick.

Tue, 12/11/2012 - 19:41 | 3053664 chump666
chump666's picture

We got a HFT bubble, add that too the stupid goverment bubble, Obama bubble, Bernanke's bubble, China destructo bubble, insane European bubble etc etc etc

Any nerds that rush in now and set up a HFT trading company now, most likely are Johnny-come-lately...that and some crazed nerdy programmer may crash the whole f*cking market.

We are that close to a major reset, and not by design, just by our arrogance.  Nature punishes the arrogant.


Tue, 12/11/2012 - 19:42 | 3053666 phyuckyiu
phyuckyiu's picture

I have a stockbroker buddy like you. Fat, miserable, many pills. Everyone knows he's a dick.

Wed, 12/12/2012 - 21:27 | 3058018 SanOvaBeach
SanOvaBeach's picture

Make the $ and fuck everybody in the process,  Your a whore and proud of it.  Your mother fucked a dog and you came out!  So did mine!  Takes one to know one.  Salute, one asshole to another................

Tue, 12/11/2012 - 19:01 | 3053503 comrade rally monkey
comrade rally monkey's picture

ps: that guys a real Dick




Tue, 12/11/2012 - 20:07 | 3053750 fonzannoon
fonzannoon's picture

Chump is one of the better dudes on this site. People have their panties in a bunch because we are staring at the abyss and Chump (and every hedge fund on the planet) thought we were taking a ride down at some point this year? So what?

You Permabull ass clowns should step back and take a look at the long term charts. My favorite is the Nasdaq but go ahead and take your pick.

Tue, 12/11/2012 - 19:14 | 3053542 icanhasbailout
icanhasbailout's picture

My idea for a new, no-HFT-permitted, integrity-based exchange sounds better and better every day.

Tue, 12/11/2012 - 19:47 | 3053682 CPL
CPL's picture

There are called flea markets, yard sales, Kijiji, craigslist and boot sales.  Trade, barter, cash and it's foundation, haggling.  

It's all good as long as you think you are getting what you need at the price you are willing to part with.

Wed, 12/12/2012 - 06:24 | 3055067 Non Passaran
Non Passaran's picture

Define "no-HFT permitted" and I'll think about it.

Tue, 12/11/2012 - 19:23 | 3053576 Getting Old Sucks
Getting Old Sucks's picture

Heck, we've capitalized on the ignorant world (other than the USA) until they got smart.  Now we revert to the place where ignorance abounds (USA)  Surprise anyone?

Tue, 12/11/2012 - 19:32 | 3053621 ekm
ekm's picture


What do you do when Corleones and shooting against Lucchesis


1) Stay in the middle of the bullet shooting

2) Run as fast as you can


Any ideas?

Tue, 12/11/2012 - 19:33 | 3053626 chump666
chump666's picture

Now imagine a whole index, the Dow, with HFTs gaming players (the so-called Pros, also Europe and Asia  - except China).  A HFT crowded trade stopping out any shorts and sucking in longs, with a hedged DXY trade to boot. 

The flip-side: HFTs will crash this monster, with or without the fiscal cliff side issue.  Yes, they trade of news, but also know that they can support the MA's, with longs piling on top. 


Tue, 12/11/2012 - 19:50 | 3053652 babylon15
babylon15's picture

Over the same time interval of this post, the S&P 500 rose 29 basis points.  Why did he expect to get filled at the 9:40 price when it was 10:07?

Tue, 12/11/2012 - 19:41 | 3053661 shitting_alpha
shitting_alpha's picture



Quit the crack, turning your mind to mush...

Look Asia starts the corrections, forget Europe it's a write off, no one cares and they have lost brains.  The USD bids started on the Asian open...boom, blew their equities markets south. A slight correction is forming as supports break on most indexes.  We may have a tight range till June passes.  If you are going long have a ten year plan with equities.  No new highs for a long time, you just witnessed the last highs for maybe the next few yrs 3mths back.  Not even Bernanke can do anything, QE3 has to be massive to offset Aisa's meltdown.  Impossible.  A creditor going to the wall will take out America, Europe has already been taken out sans the ECB's mad Mario buying.  Europe is a zombie.  A recession till the great reset when markets can't price anything (goes to zero)...3-6mth time-frame

In the meantime US markets will be short once the supports have been retraced. Maybe a week or so




Tue, 12/11/2012 - 19:50 | 3053698 chump666
chump666's picture

Um yeah, well November did 4% neg, I made cash ala "slight correction" my words note "slight". Hmm I was also right about the post QE3 selloff and "no new highs".  Thanks for the reminder.  But yes i did miss the current meltup. Which I am pissed about, but with crappy gap-ups on open and no volatility, this market is short rather than long...I lay in wait for 2013.

Overall I think I was on the money with that rant.  And I don't think I was even drunk when I wrote it

Do NOT follow this link or you will be banned from the site!