This page has been archived and commenting is disabled.
The Broken Market's Latest Creation: An Algo To Offset The Impact Of Other Algos
Define paradox: in a world in which market liquidity has become non-existent due to the pervasive presence of algos in every product, from stocks, to FX, to commodities and now to Treasurys (as the Oct 15 Treasury crash showed) who do nothing but churn all day long to collect liquidity rebates and just wait to front-run and subpenny whale orders, and yet the second a major sell order appears they all scurry as the "machines are all turned off" and we get a flash crash, what is one to do? Why put all their faith in an algo of course.
Define paradox #2: just whose algo is supposed to provide you will the much needed liquidity? Why that of the firm which blew up because its trading wires got crossed and on August 1, 2012 inverted bid and ask, promptly pushing itself into insolvency as its own "liquidity" evaporated in minutes and ended up being bought for pennies on the dollar by the like of Jefferies and Citadel. The firm, of course, is Knight Capital, or as it is now known, KCG.
And because two paradoxes make an unparadox or something, Trader's Magazine reports that "as part of KCG's continued push into the institutional trading side of the business"... which is a euphemism for please trade with us: we won't blow up again, we promise... "the well-regarded and historically focused market-maker [ZH: if you keep repeating that it magically comes true, just ask world-renowned trader Dennis Gartman] has built its first brand new algorithmic trading tool - Catch."
What does the algo known as Catch do? Well, supposedly it offsets the impact of all other algos who have crushed market liquidity. Translation: this is a "good" algo.
The firm has developed Catch - an algorithm designed to find what Susi and KCG term "higher quality" liquidity. Higher quality liquidity, he noted, could be defined as order flow that reflects little to no market impact after and execution - no market movement, reversion or footprint. Thus, Catch is meant for buysiders who are quietly searching for that elusive block trade and/or natural fill - not the small predatory orders or high-frequency traders who look to sniff out institutions larger orders and get out in front of them.
"Elusive" being the key word of course. And we won't even comment on the irony of an algo admitting its sole purpose is to offset what createors of every other parasitic, predatory algos deny exists: HFTs which "sniff out institutions of larger orders and get out in front of them." Maybe there is another irony somewhere that offsets this one. Just like the paradoxes.
So, how does the algorithm work?
In simple terms, Catch casts a wider net for an order, leveraging a broader set of tools when chasing liquidity. Utilizing thoughtful, passive order placement logic and an advanced fair value model, Catch is empowered by KCG's Big Data analytics and low-latency routing technology.
Catch is guided, but not governed, by a market-aware participation strategy that uses adaptive participation guidelines. This strategy influences the urgency of trading, but will not force trading at inopportune times, as can be the case with algorithms coded with hard bands.
Susi explained that the algo is designed to act aggressive early on. That is, volume participation will be greater at the beginning of the order, getting a user closer to the fill sooner. As the algo runs, it continuously recalibrates. Catch manages opportunistic passive and aggressive trading by considering urgency, inventory, and market conditions in real-time. Therefore, its participation is continually recalibrated as an order progresses to ensure proper exposure and optimal execution performance.
He added that Catch is rooted in the firm's market making technology, market latency experience and now big data technology. The result is an algorithm which helps the buyside find alpha at all levels - especially incremental or "micro" alpha at the child order level.
Uh, Knight Capital - which again blew up due to its market making going horribly wrong - pitching something as being rooted in the firm's "market making technology, market latency experience" is probably not the best approach.
The said, we can't help but note the biggest irony of all: first of all HFTs destroy market liquidity, and now they "sell" products meant to circumvent the zero liquidity they themselves have created. Does that qualify for a market monopoly yet?
In conclusion, however, we are very much relieved to note that when even HFTs begin offering products that seek to offset the impact of other HFTs, than the market structure wars are finally coming to an end as the cannibalization among the parasites has reached the endgame.
Now if only central banks could follow suit.
»
- 6638 reads
- Printer-friendly version
- Send to friend
- advertisements -
Two ZH posts to offset each other. ...... Genius !!!
Dont they do that with huge forest fires blazing out of control?? Create more backfires to contain the huge blaze?
Of course if the winds change, back fires dont work as well. Also fires tend to have physical limitations like fuel, not so with money that can create credit on the fly.
It's like Catch-22
Maybe I should license my trademark since 1986 - "Creative solutions for problems we cause."
Did they ever say at any point that the aglo's they were trying to front run weren't their own?
well. that is how the game is played now... edge is edge.. money is money.. http://hedgeaccordingly.com/2014/11/virtu-financial-joins-eris-exchange-...
Great....another Algo to skim off its cut of the mistakes of other Algos.
<chuckle>
Always someone, somewhere looking for the angle.
"Two ZH posts to offset each other. ...... Genius !!!"
Its an algo posting engine
Like watching two computers play chess against each other...
I've been expecting counter-algo's for awhile. Of course this will cause everybody else to start using them, which will cause counter-counter-algo's ad absurdium. Skynet is gonna get a migraine.
Right, a robot death match, just as our creator would have wished.
We most certainly have come along way since the invention of the wheel, when one really could say "now that's handy".
So this is where 'Merika's mathematical genius has gone to reside and create more nothing out of nothing... Except for the making of e- money, and other digitally created profits out of thin air and on the backs of real traders and investors.
If you have the right Mathematics or Engineering degree, you can make a huge buttload of money going mercenary on Wall St.
Sounds like advanced, modern-day alchemists turning lead and tungsten into gold. ;-)
"What does the algo known as Catch do? Well, supposedly it offsets the impact of all other algos"
When all the algos get together and combine with AI - it's called Skynet. Want a piece of that action? Get in on the ground floor!
That Catch is a real slut
Blah blah blah...
Algos are irrelevant, paper claims on real goods and services are not.
I knew a guy that ended up being a sexual predator...His name?? Ketch
It's like free salted peanuts or popcorn at a bar - makes you buy more beer.
we used to say To Ketch a Predator
Catch-another machine that will be magically "shut off" when flash crash 2.0 arrives
Have they just used it on Gold - Reversed earlier losses and currently at session highs !
Yes - quite the obvious stop run we had right there
OT: Or maybe not, what's up with Gold? Did Swiss poll get it backwards? $25 swing?
"broken market" -why continue to refer to this scheme as a "market" ?
What a dumb field to work in and what a waste of time and energy.
I keep saying that central command controls this thing 100%.
World is choosing not to participate due to that.
You haven't learned the game yet?
Sorta like paper Gold going from 1195 straight down to under 1180, sideways for an hour or so, then straight back up to 1195.
Looks normal to me.
This fixes nothing, just another rubber glove solution to another leaky fountain pen.
Catch seems to detect micro-moves in the market. Down this path, smaller and smaller micro-moves. Eventually, you can only reduce down to some minimum, one or two ticks on the computer chip.
After that, there's only the intention behind the transaction that creates the micro-move. Which you can only get by mind-reading or, its electronic cousin, hacking. I suppose there's making your HFT study out the pattern of other HFTs, but that's never as reliable.
I wonder what PR-speak is going to make electronic spying a normal part of a healthy market?
I'd like Trader's Magazine to consider interviewing me, as I have a truly effective solution to the problems that algo's have created for themselves.
My development is called the SELCTALLDEL 3000 Quantum Combobulator. While I can't disclose the proprietary aspects of my system, I can say that it works on all platforms and I unequivocally guarantee the user will not chase non-existent bid or ask figures.
My system requires no code upgrades. But the <ctrl>, <a>, and <Delete> buttons must be available and functional on your server platform. You just identify the predatory algorithm, enter the proprietary key sequence, and the rogue code will be removed from your trading environment. It's that easy.
Available for December delivery - pre-order now for $875,000.00. Enterprise licenses are available.