Step Right Up: It's HFT Whack-A-Mole Time

Tyler Durden's picture

For those who thought the crocodile algo or the fractal HFT patterns were crazy, you ain't seen nothing yet. Earlier today, Nanex caught arguably the most berserk HFT algorithm yet captured on film, or jpeg as the case may be, in the trading of Earthlink stock shortly after hours. What happened next is one for the ages... Because it certainly will not make it to the regulators. In essence, we had our first spotted appearance of the Whack-A-Mole algorithm, which allowed one, if one is fast enough, and incidentally one isn't, as all the bids would be cancelled at the same time as they were sent out, to make free money on a 10% trading spread between the bid and ask. Gone is any pretense of an NBBO, gone is any pretense of an orderly market: it is the wild, electronic, and nanosecond west out there.

Per Nanex:

It's wack-a-mole, if you can hit the bid and offer fast enough, it's instant money!

On August 2nd, right after regular trading closed at 16:00, ELNK perfectly illustrates the illusion of modern trading. Gone are luddite meanings of bids and offers, where a bid really meant someone wanted to buy and an offer was a legitimate offer of stock. Today's bids and offers are beautiful to behold. And boy they are fast! How fast? Faster than you could ever hope to hit them. So shut up, sit back, and leave it to the professionals.


Price Only:

Price and Size:

Scatter plot of trades only (Price and Size):

Zoom in of price activity:

Zoom in of early price activity:

The charts below are spaced evenly with time. The first is in 100ms intervals, the second in 200ms intervals.

shading: red=NBBO crossed, yellow=crossed, gray=normal

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slow_roast's picture

Those charts look like something straight out of an Atari video game.

Zero Govt's picture

no what's happened is a moron at Goldman Sucks hooked up their Cubest Modern Art algo instead of their Frontrunning Illegal Inside Trader algo program today

of course mans most advanced computers and robotics couldn't carry out the daily chores of an Ant, but i suppose simply being INSIDER TRADING programs frontrunning investor buy and sell orders, though absolutely illegal for everyone else, the Big Dumb Bankrupt Banks think it's perfectly ok for a computer to do... much better bet than their over-bonused money destroying humans anyway

Expect another bigger market flash crash (soon) caused by these moronic brain-dead computers because they don't know their arse from their elbow (ie. have no consciousness) ...SEC Regulators stand-by for your usual pile of extrement excuses 

Id fight Gandhi's picture

Seriously, is there a "beautiful mind" out there that can comment on this?

Were all told that this HFT is good for the markets and liquidity. Can't see how.

WebWeasel's picture

HFT is good for liquidity and making the markets all Black Swany.

FunkyMonkeyBoy's picture

Let's pray to god these algorithms aren't run on a Windows OS, otherwise, things could turn really nasty.

El Viejo's picture

Ha!  Can you imagine a 747 pilot coming over the intercom saying, "Ladies and gentlemen we have to reboot our computer now. Don't pay any attention to the lights going off and on etc. It should be landing us into Tegucigalpa Honduras shortly" There is one documented case of an on board computer vectoring way off course to Aus or NZ and flying into the side of a mountain in Antartica. They never knew what hit them.

Sledge's picture



I remember that.  No GPS then. Just primitive inertial navigation and the navigator punched in the wrong waypoint numbers. I believe It was a sight-seeing tour of antartica and weather shrouded the mountain so no one saw it coming.

aldousd's picture

I was on a plane where that happened. But it was a linux host. I guess people trained to 'fix' things the windows way never learned any other measures.  Luckily it wasn't the actual control systems or anything important. it was the interactive passenger babysitter LCD screens in front of everyone's face. You could see them boot up, changing runlevel mounting terrorist hard drives, and all that.

Speaking of that:

zorba THE GREEK's picture

I was on a UFO headed for Alfa Ventura when the same thing happened and I ended up on this s**thole planet.

Hobbleknee's picture

I was traveling across dimensions when the same thing happened and I ended up with a 12 inch schlong that glows in the dark.

indio007's picture

reminds of the windows EULA



GotElevenToes's picture

Wrong - Let's pray they ARE on a Windows OS.  The sooner they crash and burn the better.  Of course their virus software may be out-of-date and they could easily get hacked...

DeadFred's picture

Let's all hit the reset button at once, three, two, one, NOW.

WebWeasel's picture

I turned down a job at one of the HFT companies (not saying which) because there's some hinky stuff going on there.

That being said they usually hook up Linux boxes to the big pipe. You would be amazed at how much Linux and Postgres can handle.

tekhneek's picture

Postgres? Try NoSQL w/ solid-state pure RAM disks for storage. That's speed.

Manthong's picture

Those HFT algo's are synthetics of analog operations modeled years ago.

caerus's picture

those are sum purtty nice charts there...+ sumthin for use of the word "luddite"

Miss Expectations's picture

I got some kind of error message when I hit the up arrow for your comment.  Also, it somehow simultaneously gave you a down arrow.  I'm liking the new technology, but I should have just gone back to the key board and typed +1.  Luddite karma I'm guessing.

Frankie Carbone's picture

No worries. It's just the ZH High Frequency Rating Algo trying to revert to the mean.

Xando's picture

It's like they're not even trying to hide it. They're flaunting it.

jo6pac's picture

Why should they no one goes to jail under the friendly govt.

DormRoom's picture

what winamp skin are they using.

Id fight Gandhi's picture

They make my brain hurt. What am I looking at?

Byte Me's picture

The futurepresent -- unless action is taken to squish this sort of crap...

chump666's picture

thats awesome.

phungus_mungus's picture

Sorry guys, I had a sneezing fit when loading my bids earlier!



molecool's picture

Hey - I got feelings too!!

navy62802's picture

Looking at those charts reminds me of a wave-riding circuit which converts AC electricity to DC. The logic circuits in these algorithms attempt to do nothing more than ride the crest of the wave, just like the logic circuits in an AC to DC converter.

Jumbotron's picture

That's actually frikkin' brilliant !  I don't know jack doodly about these algo's but after staring at these charts for a while, your comment and these charts spurred a memory of when I was learning about my first tube amplifier I bought.  I wanted to know more about these tubes as I had only used transistor amps before.

Got to love Google.  After searching "wave riding circuit ac to dc" I found this gem and it all came back to me......this came from a site explaining how a tube amp is able to take a small ac voltage and ride it along a dc voltage and amping up the ac signal on the other side.

"Example 1: Lets say we are standing at the shore of a completely smooth fresh water lake that is 10 feet deep all the way across. Now lets say a huge 500 pound fat guy jumps off of a dock at the other end of the lake. He creates a wave that is 5 feet higher than the lake surface. The wave also dips down below the lake surface 5 feet. You are on the other side of the lake and you can see the wave coming towards you but you can only see the top 5 feet of the wave. This wave is actually 10 feet high if you consider that the valley of the wave is 5 feet below the lake surface and the wave peak is 5 feet above the lake surface. This wave is 10 feet high peak to peak.
 The lake surface is like a constant DC voltage in an amplifier power supply that measures 10 volts DC above chassis ground and the wave is equivalent to a 10 volt peak to peak AC signal voltage riding on top of a that steady 10 volt DC. The AC signal fluctuates the smooth DC voltage level up and down to a 5volt DC low level and a 15volt DC high level. (Theory).

 In a nutshell: Take a look at the Typical 12AX7 stage in the diagram above. A tube/valve amplifies a voltage by taking a very small AC voltage that is present on the input control grid (pin 2) and makes the current fluctuate through the tube from the cathode (pin 3) to the plate (pin 1). This fluctuating current flows through a 100K plate load resistor and is turned back into a much larger copy of the AC control grid voltage on the other side of the plate load resistor. When a fluctuating DC voltage comes up against a coupling capacitor the fluctuating AC level appears on the other side of the capacitor but the smooth DC voltage component is blocked. Capacitors will block a smooth DC voltage but will appear to pass the fluctuating AC voltage component."

Algos do a similar thing, only the old way of trading is not smooth like a dc signal but it is (was) much smoother than the algos.  The algos take the normal trading schema and amps it up with speed by using very small and speedy trades.  Hence, small inputs of buy and sell orders get magnified by shear speed with the added intelligence of you said....riding the crest....just like a wave-riding the case above a Marshall tube amplifier.

Once again....a frikkin' brilliant observation my friend !

idea_hamster's picture

Earthlink? I thought that company choked on its vomit at Woodstock....

Amish Hacker's picture

Ah, the rare and fragile beauty of unfettered price discovery in a free market...

caerus's picture

ok have captured in color the beauty of mathematics...does anyone care to speak to me about the substace of the sophistry?  ps you'll probalbly drunk

Stares straight ahead's picture

The algo is raking in the spread of bid and ask, as profit.  The bidder and asker do not know the market; probably blinded by quote stuffing. The bidder is bidding too much, the asker is asking too little.  The algo sees this and dips its finger in the sweet, sweet buttercream of the wedding cake and says, "Yum, Yum!" 

I am MOTO (master of the obvious),

Stares straight ahead's picture

The lesson to the small investor (of this particular algo) is you should never, EVER, sell or buy "at market."  Use and actively manage your limits.

Any programmer out there want to start a company called, "QuikAlgos"?  I can't wait to start trading again under the crocodile template.

Goatboy's picture

I know this game - Manic Miner

Graphics were modest but it was quite addictive

gwar5's picture



This is a HFT algo arms race.

The TSA stands ready, and willing, to grope any suspicious algo that protests too much.

espirit's picture

Slowest algo is left holding an empty bag.

Flash crash in 3..2..1..

Barracuda algo's are all that is left in the pool, and there can only be one survivor until it starves to death.

moofph's picture

...looks like a digital wet dream.

papaswamp's picture

Nurse more adenaline for the patient stat!....and a matini and blow job for me.


Clearly the Tanqureray 10 is taking effect.

zorba THE GREEK's picture

Tanqueray 10, good choice. But I have switched to Mt Gay Rum and diet gingerale. No hang-over.

Rodent Freikorps's picture

This is why you shouldn't nail the secretary on your own desk.

Stares straight ahead's picture

Nailing the secretary was just the victory lap!

DormRoom's picture

I think I see green shoots.

monopoly's picture

No day trading for this guy. Gave it up and am richer for it. Gold needs to rest now, up 19 of the last 22 days. Nothing goes straight up, not even real money. Might take a little off the table tomorrow. We shall see.

papaswamp's picture

Definately a rest until friday...unless Challenger and ADP are big ugly

StormShadow's picture

Hey, you sank my battleship!

indygo55's picture

Ok all joking aside, is this actually legal, and/or, is the SEC aware/in on it?

What gives? I can't see how anyone would want to invest in the market with these theives running around like this in plain site.