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Is The HFT Scourge Ending?
Whether it is due to the recent margin hikes, a dwindling of greater fools, more scrutiny (albeit weak) by the regulators, increased free-money competition, or the monopolization of bandwidth; it would appear, from the following charts from Nanex, that we have seen Peak HFT. Quote Spam (the number of quotes per actual trade) has dropped to a 3 year low today.
On October 18, 2013, Quote/Trade ratios dropped to 3 year lows. Charts below chronicle the average number of quotes per trade for each 5 minute period of the regular trading session (9:30 to 16:00 ET) for all ~8000 NMS Stocks from 2007 to October 18, 2013 (through 10:45 ET). Each day is color coded by age - older dates start with purple while more recent dates are colored red.. The horizontal red line is in the future (after 10:30 ET on October 18, 2013).
Quotes per $10,000 Traded (accounts for trade size drop and changes in stock price)...
Quote per Trade overall...
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Nothing left for HFT to squeeze out of the turnip? Uh oh.
Re: out of the turnip
That might be. The guy sitting in the cube next to me has been learning options for the last week. He's already lost 10's of thousands on Apple.
He's GOT to be one of the last suckers left.
Purple haze all in my brain....lately things don't seem the same....help me...help me.....
Is it because of margin hikes? I don't know. How about we hike them again and give it a try?
I was talking to an...ahem.. dancer recently, who is looking to get into trading. She's taking a course that she got off groupon.
n.b. the early 60s classic "How I Made $2,000,000 in the Stock Market" was written by the dancer Nicolas Darvas, whose metaphor for stock price patterns was the movement of a dancer.
dup
Last time I was "talking" to an "ahem dancer" who wanted to get into trading was in 2007. So, there's that.
Lost 10's of thousands on Apple options....oh my fuck.
... but. how much did you make before that?
Damn! Just when I was finally geared up to join in.
All they had to do was sell IBM and buy Google and Chipotle as soon as the debt deal was announced.
I'm really trying to sell the bullish case for a crappy burrito chain because the debt ceiling has been raised.
The media has removed all pretense that the market trades on fundamentals right?
The economy is how much the Fed can print, and we can't have it any other way.
I don't pay attention to Chipotles valuation but as a chain "fast food" place they offer much better quality food than other fast food places at a very fair price. I'm sure it's trading at stupid p/e levels but as far as doing what they do they do a pretty good job at delivering a quality product.
Nah, the robots have been turned off and are being reprogrammed for bear markets.
If the plunge protection bots are going down, the FEDs printing presses are the last line of defense...
What if the chairwitch has a black swan in her new hat? ;)
You're not 'Crap'. You're on to something: the leopard does NOT change his spots.
They're scared witless/shitless that the Derivatives volatility will tank the whole system.
What are the pros and cons of HFT? If it is a bad thing it would be trivial to eliminate it. All you have to do is add a random amount of time to the time stamp of the quote request or trade request, and then release each according to timestamp. This would eliminate any advantage an HFT trader would have. Except to game the system I see no useful purpose in allowing anyone to HFT.
You're right. Except dark pools and ECNs are allowed to internally trade their book. Who monitors the timestamp of their timestamp? Flash Trading Systems from BATS,NASDAQ OMX and the like by definition, manipulate "cyber time" to give advantage to their subscribers so once again are we going to have tiered timestamp environment. HFT is too narrow a scope for concern. It's all these other ECNs, DPs and Alternative exchanges that require the equity universe to move in milliseconds. Cross trades are causing so much instability it's not even funny. Don't even go to the ETF's who are posting less than 10% of transactions on their exchange of record -- so much for price discovery. Portfolio hedge my ass. Options trading is pretty much done since the GS et al can just put trades with the childern upstairs in their dark pools and manipulate prices into expiration, then lo and behold, the prices move after expiration friday.
Bottom line is HFT is evil but it's not the only problem. There are no true markets anymore, there is no price discovery and it's a bunch of cyber trojans injected into the system to not only game it but crash it. It does feel like we are on the cusp of a 1999 blowoff. It will be interesting to see when the next crash hits how all this off-balance sheet and cross-balance sheet counterparty stuff gets resolved. I betcha it won't end well.
But then again, LOOK A SQUIRREL. Once again, nothing will be done and we will all like it -- or else.
The algos are aging far to quick. Probably no more than a few days and then start all over. Exhausting work. Hardware has bought all the time it can along with co-location. There is little advantage between players anymore.
Where they go from here will be interesting.
HFT is the market.
HFT is dying.
=> Market is dying?
It seems you don't know of anything "good" about HFT for the marketplace. It seems to me there are lots of things "bad" about it.
Assumptions are always risky but I'm assuming that all quotes and trades are executed on a first come first served basis ... regardless of the source. So, if at the time the timestamp is assigned a random amount of time is added to it, that should treat "all" trades the same shouldn't it?
Dracos----------
There is only one market and it is the HFT market
imagine, nano-cent differeentials and millions of quotes per hour and as
illiquid as stone
Who would ever have thought---------------?
So we're totally wasting our money funding the SEC.
It's only $1.3B ... but every little bit helps. If the SEC went away, could things get worse?
margins to thin for hft, its all big daddy data now.
The correct answer is NOPE!!!!
The debt deal nonsense shot way too many stocks past the algo's programmed parameters.
If an Algo was programmed to take Google to $1000 a share by February, it has no idea what to do now.
We know people aren't setting the price for stocks, it's all machine driven, so the machines need new instructions since the obvious goal of making the stock market look like Zimbabwe had it right all along has been met.
If anyone is curious, a really interesting article on HFT. (Warning, high geek content, As a programmer, I found it interesting)
"An in-depth description of the math and technology involved in HFT."
High-frequency Trading and Exchange Technology
Excellent, thanks for that!
From the linked article:
" I would argue that the computational challenges of developing and maintaining a competitive advantage in the exchange business are among the most difficult in computer science, and specifically systems programming. "
If there's no advantage to the "marketplace" as a whole to have nano-second response vs second response, it would be pretty trivial to take any advantage away from fast traders by just adding a random amount of time to the timestamp and then release on a (modified) first come first served basis. Then these brilliant programers would be freed up to do more useful work since HFT work would be fruitless.
Again, from the article:
"An exchange is the collection of systems that facilitate the electronic execution of assets in a centrally controlled and managed service. Today, exchanges are in a fight to offer faster and faster trading to their clients, facing some of the same latency issues as their newer HFT clients."
It would seem that it would be good for the exchanges to have a random delay applied to transactions. It would make this kind of ridiculous competition that doesn't help the markplace go away.
Also:
"For exchanges, collocation can be an invaluable source of revenue. The more incumbent exchanges run their own data centers (such as NYSE and Nasdaq), and customers pay collocation fees to the exchanges directly. Newer exchanges must collocate in third-party data centers that house financial customers (for example, Equinix's NY4 in Secaucus, New Jersey).
So, from this reality, the exchange's ox gets gored if this problem goes away. Maybe that's why the obvious solution hasn't been applied. It's good for the marketplace but bad for the exchanges ... so screw the marketplace.
Netting it out: I didn't see a single issue in the linked article that didn't go away if a random delay is imposed on each transaction. Further, I didn't see anything to lead me to believe that such a solution has ill effects on the marketplace (i.e. doesn't present a level playing field and efficient operation to "all" traders)
The base problem with most HFT is that the underlying premise for trading is based upon some kind of trick/arbitrage/time advantage. Eventually this is a 0 sum game, whether other players force it or regulators finally catch on. The programmed methods are based upon prediction/reaction on the micro scale. Take that away from them and they are done. There are whole business models that relay on microsecond accuracy to make anything. To me that is a recipe for disaster - when that ends you have nothing. All the models are worthless because they predict nothing other than manipulation on a micro scale.
I submit that adding a random amount of time to the timestamp does just that ... it takes the micro-time solution away completely.
Great, so you've freed them up to work on Poisson timing algorithms to accurately guesstimate when their orders will be hit instead.
Woohoo.
And just how do you think a Poisson distribution is going to help them? Please explain.
It's been done for spot FX at least. Check out Compagnie Financiere Tradition's tradFXpure.
They implement a stochastic delay on all inbound orders.
I almost went slumming and took a job there a while back just to be on the inside of that platform, but they turned out to be too square for me.
Always funny to watch people with way too much money and way too little sense throw hardware at problems that could be more easily solved by simply negotiating less braindead market data formats.
Maybe SAC is unplugging their 'puters.
When the HFT robots bailout that means the music stops.
HFT peaking? Don't be fucking stupid. The party is just getting started. It's merely a software/hardware upgrade. The algos have figured out how to move the markets more efficiently with less noise.
What happened to the HIL (Human In the Loop)?
How does an algo read a forward-looking statement from a company?
Is there a 'lying' coefficient that is figured in?
Will PhD sociologists be next on the staff of the algo trading companies?
Where does this end?
With fortunes tellers on staff?
End???
Are you kidding?
HFT trading is the new normal----no workers
No real need to trade. Once you buy a stawk you just hold it until QE ends - and that won't be anytime soon.
This could be technological efficiency rather than an end to HFT.
They may simply have discovered and converged to the maximum number of quote requests required to accomplish the goal. It turns out they were doing more than needed sort of thing.
It would only stop if it didn't make money or it was illlegal.
Bullshit.
Skynet is in FULL control.
Human traders are practically nonexistant these days. Look at the NYSE when CNBC is on... nobody there except marketmakers and Asian visitors taking pictures of Cramer's bald head.
Everytning was clear to me until i noticed the date time-line is on the y axis, the units of the x axis are not defined and there is no legend to explain the colors. Now it is about as clear as swamp mud.
I am sure it is simple. Would someone explain?
" the units of the x axis are not defined "
You don't reconize NYSE trading hours when you see them?
Looks like this time of year is typically low for all years. Why try to make a point when all prior years dip at this time also???