Free Republic

This is an update to article written a few years ago. Everybody knows that retail and institutional investors are usually late to a trade. When they decide to buy, the wise guys are distributing or selling their shares to them and locking in their gains. When they sell, the wise guys are accumulating or buying their shares from them, again locking in their gains. How do the wise guys pull it off? The answer lies in the combination of reflexive human behavior and the use of high frequency, algorithmic (HFA) trading. With the advance of computer trading on a massive...

NEW YORK (Reuters) - Fears that high-speed traders have been rigging the U.S. stock market went mainstream last week thanks to allegations in a book by financial author Michael Lewis, but there may be a more serious threat to investors: the increasing amount of trading that happens outside of exchanges. Some former regulators and academics say so much trading is now happening away from exchanges that publicly quoted prices for stocks on exchanges may no longer properly reflect where the market is. And this problem could cost investors far more money than any shenanigans related to high frequency trading. When...

Government shouldn’t rush to judgment on Wall Street’s high-speed traders. Granted, this whole business probably looks dodgy to Main Street’s 401(k) owners and stock pickers. Financial brainiacs are employing sophisticated computer programs called algorithmic robots to quickly scan financial data streams for subtle stock-market patterns. Trading, and lots of it, happens in a flash. The algobots see what big institutional investors are doing while they’re doing it. Every millisecond counts, which is why traders pay hundreds of millions of dollars a year to rent space for their computers in stock-exchange data centers. Half of daily U.S. trading volume is now...

A single algorithm which placed and then cancelled orders on the Nasdaq accounted for 4% of all quoted traffic in the US with no clear goal. An investor gives FRANCE 24 his insight into the mystery which has concerned market watchers. A single mammoth mystery algorithm has set alarm bells ringing for market regulators and players, and underlined the market’s vulnerability to technology and the woeful lack of regulation on algorithms. A single algorithm last week placed and cancelled orders on the Nasdaq accounting for 4% of all quoted traffic in the US. Not only this, it also accounted for...

Wired magazine and the New York Times both recently published detailed stories on "flash trading" - the increasing use of high speed artificial intelligence algorithms in the financial markets. Both asked the same question: Will flash trading help the markets by improving efficiency - or will it destroy them? But while both stories covered the same basic facts, they took strikingly different approaches. Wired discussed the technology in a generally balanced fashion, whereas the New York Times adopted a more alarmist attitude, including emphasizing the problems the technology would create for government regulators. However, the concerns raised by the Times...

Scientific Proof That High Frequency Trading Induces Adverse Changes In Market Microstructure And Dynamics, And Puts Market Fairness Under QuestionUp until recently, any debate between proponents and opponents of High Frequency Trading would typically be represented by heated debates of high conviction on either side, with discussions rapidly deteriorating into ad hominem attacks and the producer screaming 'cut to commercial' to prevent fistfights. Luckily, all this is about to change. In a research paper by Reginald Smith of the Bouchet Franklin Institute in Rochester titled "Is high-frequency trading inducing changes in market microstructure and dynamics?" the author finds that he...

In 2002, after 12 years at Bear Stearns, investment banker Adam Afshar came to the conclusion that, for all their supposed expertise, most Wall Street traders really weren't very good at predicting anything. "I got the sense from my time there," says Afshar, "that market analysts have little insight and generally provide very little value to their firms." So Afshar set out to find market opportunities in, as he puts it, "a more systematic way". The result was Hyde Park Global Investments, a small trading firm based in Atlanta, Georgia, that doesn't hire market analysts or portfolio managers. Instead, its...

Well, we had another flash Crash yesterday, just like the one on May 6, 2010. The only difference is, this time the stocks in question went up instead of down. In case you missed it, Washington Post’s stock went from $458 to $900 per share in the blink of an eye. All the orders at $900 were cancelled and the market authorities did the usual, “move along folks, nothing to see here,” bit. The culprits in both incidents (May 6 and yesterday) were High Frequency Trading Programs (HFTPs). The HFTP industry (and lobbying efforts), always defend their actions by stating...

US Economist Fears Greek Debt Default in August Greece will eventually default on its debt because the country is highly indebted and the euro zone's approach towards saving it is the wrong one, Carl Weinberg, chief economist at High Frequency Economics, told CNBC Friday. A restructuring of Greek debt could happen as soon as August, when the Balkan country is due to receive another tranche of funds from its lending agreement with the International Monetary Fund (IMF) and the European Union, according to Weinberg. "You can't take a country that's over-borrowed and make it more creditworthy by lending it more...

Above the Restoration Hardware in this Jersey Shore town, not far from the Navesink River, lurks a Wall Street giant. Here, inside the humdrum offices of a tiny trading firm called Tradeworx, workers in their 20s and 30s in jeans and T-shirts quietly tend high-speed computers that typically buy and sell 80 million shares a day. But on the afternoon of May 6, as the stock market began to plunge in the “flash crash,” someone here walked up to one of those computers and typed the command HF STOP: sell everything, and shutdown.Across the country, several of Tradeworx’s counterparts did...

Federal investigators probing the “flash crash” that briefly sliced nearly 1,000 points off the Dow Thursday are zeroing in on a series of “unusually high-volume” trades in S&P futures that originated in Chicago, a government official told POLITICO. Those trades set off a chain reaction of trades that caused the biggest drop within a single day in the Dow Jones Industrial Average’s storied history.

European markets' choice: Cut milliseconds or die Wed Dec 2, 2009 1:24am EST By Jane Baird LONDON (Reuters) - Increasing demand for instantaneous trading is driving Europe's stock exchanges and other equities markets to spend heavily on technology to stay competitive -- and not all of the 33 players will survive. Small venues that cannot attract enough liquidity or afford to keep up with rivals are likely to fall by the wayside or become niche venues dedicated to specialized domestic markets. "In the end, you are going to see three or four major execution venues account for close to 80...

The price of virtually everything — from stocks to bonds to the food on your plate — is now influenced by high-frequency trading. This type of trading might seem mysterious or complicated, but it's generally just a fancy name for an old and boring practice: market making. High-frequency trading effectively becomes market making simply by offering to both buy an asset at a given price and sell it a fraction higher. High-frequency traders just change these prices much faster than ever before — mere nanoseconds between orders — reacting in real time to how other investors trade with them. Many...

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer. High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there... It was July 15, and Intel, the computer chip giant, had reporting robust earnings...