HFT Stock Manipulation In Action - page 7
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Man, it is getting worse and worse
Obviously FED is HFTing - nobody can sue them
Nagh, FED is not doing that - they are just protecting us from vicious HFT companies
:):)
The Algo that Couldn’t Count
This is the first in MKTSTK’s HFT War Stories series. Submitted anonymously by a high frequency trader. Names of people, places, and products have been omitted:
Algo trading has a way of making your hair turn white. Sometimes it’s the wild market action. The response then is to cut risk and keep on trading. The big losses come from avoidable human errors. Those are the losses you might not come back from.
The trading world is increasingly automated. Every year there are fewer human eyes watching the market at any given time. Traders employ algorithms to cut latency and market impact. Dealers find automation indispensable in quoting thousands of different exchange traded derivatives.
If your automation is coded correctly most of the time it saves your ass. Risk management algorithms run on top of trading strategies and monitor underlying markets for signs of trouble — backing your quotes off if necessary. I have been saved by automation on numerous occasions, side-stepping big market moves and allowing me to keep trading when others ran to the sidelines.
When your automation goes haywire, however, that’s when you experience fear and anger in equal, blood-curdling, measures. Usually it’s not an obvious case of turning the strategy on and watching it go crazy, a la Knight Capital. The worst errors are subtle, they lurk in the corners of your strategy’s logic. They could be caused by code you did not write, living in lower level code that interacts directly with the market.
I discovered this risk first hand one day right before the markets closed. I was working with a new tool our developers had created to cut latency. Certain parts of the strategy which had existed within my code should have now been handled by lower level code written by developers. The changes had passed QA testing and were mission ready as far as I knew.
I had been testing this tool out on an obscure exchange listed derivative. Purchasing the contract bought a combination of separate contracts. The tool handled things fine for a week an a half. Then one day I went to turn it off and the strategy went insane, purchasing nearly two billion dollars worth of illiquid derivatives in literally the blink of an eye.
The risk limits I had coded at my level of code were worthless; the strategy launched so many orders at the market in such rapid succession that its PnL and position were not delivered to my strategy logic fast enough to catch. I had hard-coded a maximum of $80 million in risk before the strategy was supposed to kill itself.
HFT has a tendency to put you in these types of situations more often than not. You feel that visceral shot of adrenaline course through your veins. You perceive time, light, and sound as though in a tunnel. Panic must be suppressed, if only long enough to get hedged.
After fear comes anger. WHO THE **** DO I KILL? This emotion must be buried. If it isn’t I will lose my job and lifestyle — I might get combination sued by the government whilst given up as bait by my firm to regulators. All for code I did not fucking write, mind you.
Shit, now it was time to get the fuck out of my unwanted $2 billion position. Selling out directly was not possible: the market is too illiquid to reabsorb my gigantic inventory at this time of day. It’s a miracle I didn’t get worse prices. The only answer was to hedge it quickly into a more liquid market that was still open. No time to negotiate on price, I took a similarly large offsetting position in a product that I hoped would hedge me long enough to liquidate.
Now here is where shit got really fun. The product I hedged into was correlated to my unwanted position, but it certainly wasn’t a perfect hedge. This was around one of the debt ceiling farces, so I was shitting myself watching the news for someone from the government to inadvertently fuck me in the ass by causing my hedge to perform badly.
Now that the market was closed I was able to track down the developer who had coded the tool that went haywire. After talking it out and then checking his code, the problem was caused by a change he made yesterday. Because the contract was a combination of other contracts, it didn’t handle getting flat correctly. It kept buying contracts to get flat, not recognizing each fill using the correct multiplier. Thus it kept shoveling bigger orders into the market thinking it was closing out a position. In fact it was in an infinite loop, acquiring contracts until a risk check had a chance to kill it.
In the end, the code was fixed by correcting a minus sign. Me and my junior traders worked out of the position slowly over the course of the next day and only ended up losing around $40,000. HFT being HFT, we didn’t even lose money that day. Even so, it could have been a complete disaster. Every time I turn off a strategy I still get that feeling I am about to get fucked.
source
HFT Accounts For 76% Of All Orders In Europe
By now everyone knows that when it comes to the US stock market, only two things matter: i) will the NY Fed's Kevin Henry, ETF wizard extraordinaire, in conjunction with Citadel buy SPY 2% above the NBBO in the last second of tradingusing his favorite SPY and ii) how much momentum will the USDJPY ignite in cross-asset HFT algos sending the S&P to daily all time highs. In other words, in the new normal the only thing that matters for US "risk" is the symbiosis between the central bank and the HFT industry, which now dominates virtually all markets with an iron fist.
But what about Europe: just how prevalent is HFT there. Now thanks to a new report by ESMA titled "High-frequency trading activity in EU equity markets" we know: in the lifetime total of all orders, HFT accounts for 76% of all orders by, 49% of all trades and 43% of total value traded.
We provide estimations for HFT activity based on the primary business of firms (direct approach) and based on the lifetime of orders (indirect approach). The first proxy is an institution-based measure (each institution is either HFT or not), while the second proxy is a stock-based measure (an institution may be HFT for one stock but not for another one).
The results based on the primary business of firms provide a lower bound for HFT activity, as they do not capture HFT activity by investment banks, whereas the results based on the lifetime of orders are likely to be an upper bound for HFT activity.
In our sample, we observe that HFT activity account s for 24% of value traded for the HFT flag approach and 43% for the lifetime of orders approach. For the number of trades the corresponding numbers for HFT activity are 30% and 49%, and for the number of orders 58% and 76%. The difference in the results is mainly explained by HFT activity of investment banks which is captured under a lifetime of orders approach, but not under a HFT flag approach.
Which means that just like in the US, HFT will never be dethroned in Europe where the "value" of stocks is almost entirely in the hands of one Mario Draghi and a few million HFT algos.
source
"Only" 76%? That is not so bad. It means that there are live traders too (unless they decide to kill us
)
I think that the majority does not understand the basic principle how HFTs are working : in general they are "counter" traders. But not counter trend, but count-majority trader (which does not have to be the same at all)
HFTs are not bringing liquidity ( money ) into market, so they need the liquidity generated by retail traders. It is enough to see the positions of the majority (again, not the trend) and you shall see where the HFTs are going to trade. Today EURUSD long positions were over 60%. Perfect for the HFTs to manipulate the market to short. That is profit taking that everybody from banks is talking about. Not closing positions they are holding opened for months : the opened positions they are keeping opened for a long time are there to be buffers that are going to prevent too sudden changes caused by (god forbid) retail traders
I think that the majority does not understand the basic principle how HFTs are working : in general they are "counter" traders. But not counter trend, but count-majority trader (which does not have to be the same at all) HFTs are not bringing liquidity ( money ) into market, so they need the liquidity generated by retail traders. It is enough to see the positions of the majority (again, not the trend) and you shall see where the HFTs are going to trade. Today EURUSD long positions were over 60%. Perfect for the HFTs to manipulate the market to short. That is profit taking that everybody from banks is talking about. Not closing positions they are holding opened for months : the opened positions they are keeping opened for a long time are there to be buffers that are going to prevent too sudden changes caused by (god forbid) retail traders
Interesting point of view. It largely conforms with what is revealed in the last years (the news selling to hft companies). Here is one book about it : hft-pd.pdf
Last sentence would explain what you are telling. The market is rigged
Spot The Birth Of High-Frequency Trading
One of these things is not like the other... one of these things just doesn't belong...
Since the 'enabling' of high-freqnecy trading on US equity exchanges, instead of 'stability' or 'liquidity', the only word this chart screams at us is... 'noise'.
source
One of these things is not like the other... one of these things just doesn't belong...
Since the 'enabling' of high-freqnecy trading on US equity exchanges, instead of 'stability' or 'liquidity', the only word this chart screams at us is... 'noise'.
sourcenever saw the volume to quotes ratio. Well, this explains it all
They are telling that HFT helps to liquidity. This shows that they are lying