Charting The Unprecedented 'HFT-Driven' Rise In Intraday-Trading Volatility

Tyler Durden's picture


Sometimes a picture can paint a thousand words; in the case of these two charts from Nanex, it paints more as it is abundantly clear that since Reg NMS, the 'noise' in our daily trading markets has risen exponentially as the apparent price we pay for the 'liquidity-providing' machines is up to 15-times more normalized 'price-changes' - or put another 'smoothed' way: averaged over a 20-day period, intraday volatility has doubled since HFT began (and was six times larger during the flash crash). How's your mean-variance efficient-frontier look now? Or your delta/gamma hedging program?


Nanex ~ 30-Aug-2012 ~ SPY Intraday Volatility

For the symbol SPY, we took the number of NBBO (National Best Bid and Ask) price changes and divided that number by the trading session price range (high minus low). We call this ratio the Relative Intraday Volatility (RIV). We then plotted the RIV for each trading day from January 2006 through August 29, 2012 as shown in the chart below. The dark blue line is a 20 period moving average of the RIV. Notice how the year before Reg NMS was implemented, the RIV was very stable and flat. Since Reg NMS, the average Intraday volatility in SPY is twice as high today, and was nearly six times higher during August 2011. The second chart is scaled to include the entire range of data: note the August 2011 peak is 15 times higher than before Reg NMS. 

1. SPY Relative Intraday Volatility from January 2006 through August 29, 2012

2. Same as chart above, but scaled to show the August 2011 peak.


Source: Nanex

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Thu, 08/30/2012 - 20:06 | 2751104 chump666
chump666's picture

Outstanding Nanex and ZH.

Thu, 08/30/2012 - 20:31 | 2751157 veyron
veyron's picture

What I would like to see is a discussion about the fragmented market (many trading venues, which is why RegNMS was necessary) and why it allowed for latency arbitrage to proliferate ...


P.S: they are auditing intermarket sweep orders now ... I know of a few firms that are under FINRA inquiry for their ISO practices ...

Thu, 08/30/2012 - 20:43 | 2751176 chump666
chump666's picture

Right. well keep it simple and concise and forget about the bs regulation.

HFTs are prowling the 20, 50, 100 MAs not for retail, they were toast from 2008 onward.  But for bigger players, the humans left in the game, but they are not buying. Hence the market almost completly dry.

Problem.  Well, with HFTs running the bid/offer show on 95% on indexes out there on nothing volume, the market is over-juiced with machines and illusion. It will not take much for any positions to be cut hard and this could be any day.  Which will lead to a stunning crash in equities.  Prelude to the 13Sept QE.  But even then, the market volatility should continue into end year and next year, which could be a disaster zone.

The market is broken, everyone knows this.

Thu, 08/30/2012 - 21:02 | 2751217 fonzannoon
fonzannoon's picture

fkin a chump. nice summary.

Thu, 08/30/2012 - 21:20 | 2751254 chump666
chump666's picture

thank you.

Fri, 08/31/2012 - 05:27 | 2751648 Muppet of the U...
Muppet of the Universe's picture


Hopefully we'll see this tomorrow.

Thu, 08/30/2012 - 20:07 | 2751108 Ratscam
Ratscam's picture

not one of my open 2500 SPX shorts got filled.
What a scam of rats!

Thu, 08/30/2012 - 23:29 | 2751461 FRBNYrCROOKS
FRBNYrCROOKS's picture

There might be hope for me yet!

Have been short, via spxu, since Oct 3rd, 2011 getting hosed for almost a year but, founded in my belief this market is a hyped pos. Thanks Ratscam for giving me hope.

Thu, 08/30/2012 - 20:12 | 2751117 Yen Cross
Yen Cross's picture

 Thanks tyler I have created a " HFT Learning " file thanks to you! It was before that Knight debacle. That interview,(with those guys in N.Y.) hooked me.

   Those "nanex" charts were "BLOBS" of color, and now I can "sort of " read them. It's amazing the flows that move so fast!

Thu, 08/30/2012 - 20:15 | 2751128 asteroids
asteroids's picture

Ever notice how the SPY jumps around all day while a lot of stocks just sleep, only to have the SPY magically "sync up" with all the underlying issues at the end of the day. I'm surprised the SEC allows this nonsense to happen.

Thu, 08/30/2012 - 20:53 | 2751199 mumbo_jumbo
mumbo_jumbo's picture

the SEC only cares about the REAL Martha stewart.

Thu, 08/30/2012 - 20:16 | 2751129 Jendrzejczyk
Jendrzejczyk's picture

My delta/gamma hedging program has been lost in a tragic canoe mishap.

Thu, 08/30/2012 - 20:57 | 2751208 CloseToTheEdge
CloseToTheEdge's picture

you got the laugh of the day! says a lot for this bullshit week

Thu, 08/30/2012 - 20:32 | 2751162 disabledvet
disabledvet's picture

fascinating. can't say i know the exact dates of QE's 1 and 2 plus Twist 1 and 2 but if i were to hazard a guess those major spikes probably happened around those times.
let's see..."march 29, 2009" ended the first trillion plus...check...."then resumed in August, 2010 when the economy (sic) was determined not to be growing fast enough." check.
QE 2 started "end of the second quarter of 2011"...SPOT ON BEN! which was then followed by a massive plunge in interest rates combined with the odd "twist policy" which appears to have if not doomed Barak Obama's race for a 2nd term sure put it in jeopardy as it totally was a "Japan mistake" than Ben claimed he was trying to avoid...just like Patton and Metz where he said "i avoid all the cities"...except that one. i don't expect "normalization" tommorrow...which is what he should have done instead of twist 2 in my view. but hey, so it's Renoir instead of a Monet. I'm not complaining.

Thu, 08/30/2012 - 20:54 | 2751168 LetThemEatRand
LetThemEatRand's picture

Fucking bankers.   Coincidence that all of the TBTF banks had 100% (or close) profitable trading days over the last couple of years?  Steal a loaf of bread and it's to the big house in a paddy wagon.  Steal a few billion and it's to a big house in the Maz.

Les Miserables vs. Les Maseratis (his and hers).

Thu, 08/30/2012 - 20:38 | 2751170 LawsofPhysics
LawsofPhysics's picture

Is this what liquidity looks like? FAIL.

Thu, 08/30/2012 - 21:02 | 2751218 LetThemEatRand
LetThemEatRand's picture

Fail for most of us.  WINNING! for a few.

Thu, 08/30/2012 - 21:24 | 2751262 fonzannoon
fonzannoon's picture

Congrats LTER you pissed off a banker.

Thu, 08/30/2012 - 21:47 | 2751302 LetThemEatRand
LetThemEatRand's picture

Probably just someone who fancies himself or herself a future oligarch, which seems to be the common thread that holds together the fabric of the Rand cult.

Thu, 08/30/2012 - 22:01 | 2751321 fonzannoon
fonzannoon's picture

I go with Pat Tillman. He is my Rand. I have read as much as I could about him, met some of his family at one point through his foundation. He was a good dude. Good to the core. He would help you if you needed it. He busted his ass to get everything he wanted, and he got it all. He was a smart dude. Studied his ass off. Asked a million questions, lived for finding answers. He signed up thinking he was doing his duty to his country, only to realize he was fighting an illegal war against a straw man enemy, and he spoke up about it. He is gone but that's someone that I hold on a pedestal and think about when I make decisions and try to evaluate right from wrong.

Thu, 08/30/2012 - 22:32 | 2751369 LetThemEatRand
LetThemEatRand's picture

We could all learn from Tillman.  He gave up a big $$ job to fight for what he believed in.  I didn't agree with his chosen fight at the time, but I respect that he did and I respect that he stepped up.  A lot of smart people think he was killed, deliberately.  And not by the "bad guys."

Thu, 08/30/2012 - 22:40 | 2751381 fonzannoon
fonzannoon's picture

after seeing the length to which they covered it up i would not doubt it

Thu, 08/30/2012 - 22:57 | 2751411 LetThemEatRand
LetThemEatRand's picture

I do not vouch for this site in any way, but an interesting take.


Thu, 08/30/2012 - 23:26 | 2751457 SmackDaddy
SmackDaddy's picture

What happened to Tillman is no longer a secret.  The coverup was exposed.  No one was held truly accountable.

His family participated in one of the best documentaries I have ever seen.  Look up his little brother's eulogoy.  Fucking masterpiece.  All while the goddamn liying bastards were right there in the crowd.



Thu, 08/30/2012 - 20:48 | 2751186 pndr4495
pndr4495's picture

Can we see the same representation for the NYMEX WTI  crude oil ( CL) contract for the same period of time? 

Thu, 08/30/2012 - 22:08 | 2751195 Yen Cross
Yen Cross's picture

 There is a big difference, between hedging (tangible assets), (even Fiat), as opposed to, "MIX matching worthless SHIT", and looking for profit!

 The derivatives market belongs where (whence) , it was spawned from! ( Insurance/ Recovery/ premium pricing)  /-)

  Clinton ( Bush help), Ass-Hat master walked that one, right into the DOT-COM bubble! VC's became insurance Co.'s , and Banks became " Vulture capital" lending facililites!  See you all in London. At least London doesn't deny "rigged markets"!

   The Queen would die if transaction taxes were implemented!

Thu, 08/30/2012 - 20:54 | 2751204 bookofrao
bookofrao's picture

Overlay it with the VIX and you might get a hunch or a hint lol

Thu, 08/30/2012 - 21:11 | 2751240 LongSoupLine
LongSoupLine's picture aapl?

Thu, 08/30/2012 - 21:19 | 2751253 Mugatu
Mugatu's picture

These HFT's and Algo's make a living out of busting through major stop areas to trigger stops and limit orders.  It has rendered stops virtually useless.  If you are using market stop orders, you are just feeding the beast.  I never use stops anymore because I know some computer geek has an algo to search and trigger my orders.  Traders are reduced to using mental stops and market orders.

Now you have a perverse world where Algo programs search out other Algo programs to steal 1/10 a penny like some goddamn killer whale seeking a meal.  Somewhere I am sure there are Algos programs seeking out the Algo's which seek out other Algo's.  Fucking insane!

How can this be good for the markets?  Fucking SEC is an ass clown to ignore this issue.  I'd like to shove a hundredth of a penny up the SEC's ass.

Thu, 08/30/2012 - 21:25 | 2751265 fonzannoon
fonzannoon's picture

It sounds like the scam in "Office Space"

Fri, 08/31/2012 - 00:56 | 2751568 Godisanhftbot
Godisanhftbot's picture

 where were ya 5 6 7 years ago when this became obvious.

 old news.


Thu, 08/30/2012 - 21:29 | 2751270 Confundido
Confundido's picture

As much as I hate HFT, I must say...Why the fuck do we assume that that volatility is exclusively caused by HFT? Why not global warming? Did it also not increase since 2006?

Thu, 08/30/2012 - 22:57 | 2751408 catch edge ghost
catch edge ghost's picture

Where is the claim of "exclusively"?
Not here.

Where is the evidence that HFT activity is material to this discussion?

With a metric fuckton or two of it, here.

Thu, 08/30/2012 - 21:33 | 2751278 Reverse Split
Reverse Split's picture

Why don't they outlaw this shit...make it the stiffest penalty if caught..public electric chair execution.

Thu, 08/30/2012 - 22:29 | 2751366 mirac
mirac's picture

just tax the trades...

Thu, 08/30/2012 - 22:47 | 2751394 catch edge ghost
catch edge ghost's picture

that only concentrates the activity with the bigger players. false comfort and not a fix.

Thu, 08/30/2012 - 22:02 | 2751323 Caviar Emptor
Caviar Emptor's picture

Just bots trading with bots and then roundtrip back to themselves. Makes it look like there's still plenty of business while the company lives off Fed juice. Just like derivative pyramiding (think chain letters) made it look like there was tons of buisiness to be transacted. Don't be fooled. 

Thu, 08/30/2012 - 22:42 | 2751385 catch edge ghost
catch edge ghost's picture

Just want to say thank you to Nanex and Mr. Hunsader.

Dude is hero. #SEC ftw

Thu, 08/30/2012 - 23:40 | 2751474 roadsnbridges
roadsnbridges's picture

What is easier to hack?  Digital or analog TV?

Please note the date

Fri, 08/31/2012 - 00:25 | 2751536 SafelyGraze
SafelyGraze's picture

volatility = confusion

the price is 20. no, 10. no, 40. no, 60. no, 20. drives you nuts.

the criminal is jamieD. no, the ex-marine who posted on fb. no, corzine. no, the woman thrown to the pavement by peace officers in LA. no, the peace officers themselves. no, the judge in the trial. no, the lawmaker. no, the lobbyist. drives you nuts.

but amazingly there is still one thing in this crazy volatile world that remains serenely constant.

Fri, 08/31/2012 - 03:20 | 2751684 ebworthen
ebworthen's picture

Shake and Bake!

"Whip up something deliciously easy. 

Check out all the fun and flavorful ways you can spice things up."

"Give dinner a shakeover"


All you need are some muppet legs, wings, thighs, or breasts - and some HaFT algos right next to the NYSE backbone. 

Dinner in minutes! (

Fri, 08/31/2012 - 07:16 | 2751881 Super Marco
Super Marco's picture

The SEC. Screwing everybody over since 1934

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