What Half A Second Of "Trading" Looks Like In Today's Market
That modern markets are broken beyond repair should by now be clear to everyone: with liquidity that can be shut off at the flick of a switch, 70% of overall market "volumes" merely churning between various rebate collecting HFT algos, and the consolidated quote tape stuffed by billions of cancellation-sniffing quotes, it is surprising that major, marketwide millisecond +/- 2% swings are not a daily occurrence (as opposed to single-stock flash crashes and smashes which now do take place daily).
However, said realization must also be followed by political and regulatory action, which will not come as these same politicians and regulators are beholden to precisely the same financial parties that have broken the market microstructure and who generously benefit from their Marketstein monster creation (with some fraction of the profits channeled as hush money to political lobbies to keep the regulators quiet and happy).
Which means the best everyone else can do is sit back and watch the accelerating cannibalization with which these same market players go after one another until there is nothing left, and there is no other choice but to go back to the drawing board and start from scratch.
To help pass the time, here is a short clip from Nanex showing just what happens at the proper timescale of modern "markets" - half a second - in the trading of Johnson & Johnson stock. If anyone had any doubts as to the stability of the market before, this should alleviate all doubt.
The bottom box (SIP) shows the National Best Bid and Offer. Watch how much it changes in the blink of an eye.
Watch High Frequency Traders (HFT) at the millisecond level jam thousands of quotes in the stock of Johnson and Johnson (JNJ) through our financial networks on May 2, 2013. Video shows 1/2 second of time. If any of the connections are not running perfectly, High Frequency Traders can profit from the price discrepancies that result. There is no economic justification for this abusive behavior.
Each box represents one exchange. The SIP (CQS in this case) is the box at 6 o'clock. It shows the National Best Bid/Offer. Watch how much it changes in a fraction of a second. The shapes represent quote changes which are the result of a change to the top of the book at each exchange. The time at the top of the screen is Eastern Time HH:MM:SS:mmm (mmm = millisecond). We slow time down so you can see what goes on at the millisecond level. A millisecond (ms) is 1/1000th of a second.
Note how every exchange must process every quote from the others -- for proper trade through price protection. This complex web of technology must run flawlessly every millisecond of the trading day, or arbitrage (HFT profit) opportunities will appear. It is easy for HFTs to cause delays in one or more of the connections between each exchange.
And said 0.5 second action in its full animated glory: