High Frequency Trading: Why Now And What Happens Next

Prepare for collapse.


High Frequency Trading: Why Now And What Happens Next (ZeroHedge, March 31, 2014):

For all the talk about how High Frequency Trading has rigged markets, most seem to be ignoring the two most obvious questions: why now and what happens next?

Read moreHigh Frequency Trading: Why Now And What Happens Next

‘The Market Is Rigged’ – Michael Lewis Explains How HFTs ‘Screw’ Investors Every Day

H/t reader M.G.:

“The Stock Market is Rigged in favor of High Frequency trades” says an article on Reuters. No kidding.
The article says better than half of all transactions are now HFT…..actually, it is 85%. I call it skim and sell.


U.S. stock markets are rigged, says author Michael Lewis (Reuters, March 31, 2014)

“The Market Is Rigged” – Michael Lewis Explains How HFTs “Screw” Investors Every Day (ZeroHedge, March 31, 2014):

It was almost excatly five years ago to the day, on April 10, 2009, that Zero Hedge – widely mocked at the time by “experts” – began its crusade against HFT and the perils of algorithmic trading (which of course were validated a year later with the Flash Crash). In the interim period we wrote hundreds if not thousands of articles discussing and explaining the pernicious, parasitic and destabilizing role HFT plays in modern market topology, and how with every passing day, markets are becoming increasingly more brittle, illiquid and, in one word, broken. Or, as Michael Lewis put it most succinctly, “rigged.” With Lewis’ appearance last night on 60 Minutes to promote his book Flash Boys, and to finally expose the HFT scourge for all to see, we consider our crusade against HFT finished. At this point it is up to the general population to decide if this season’s participants on Dancing with the Stars or the fate of Honet Boo Boo is more important than having fair and unrigged markets (obviously, we know the answer).

For those who missed it, here is the full video again.

And broken down by segment: in the clip below, Lewis explains how an extra millisecond allows high-frequency traders to exploit computerized trading in the U.S. stock market. By “beating” investors to exchanges, Lewis argues that high-frequency traders can buy stocks and quickly sell them back at higher prices.

Read more‘The Market Is Rigged’ – Michael Lewis Explains How HFTs ‘Screw’ Investors Every Day

The Holy Grail Of Trading Has Been Found: HFT Firm Reveals 1 Losing Trading Day In 1238 Days Of Trading

The Holy Grail Of Trading Has Been Found: HFT Firm Reveals 1 Losing Trading Day In 1238 Days Of Trading (ZeroHedge, March 11, 2014):

Think JPM’s zero trading day losses in 2013 was impressive? Prepare to have your mind blown. The chart below shows the chart of daily net trading income by High Frequency Trading titan Virtu, taken from its just filed IPO prospectus. The punchline: in 4 years of trading Virtu has had one, one, day in which it lost money.

From the S-1: “The chart below illustrates our daily Adjusted Net Trading Income from January 1, 2009 through December 31, 2013. As a result of our real-time risk management strategy and technology, we had only one losing trading day during the period depicted, a total of 1,238 trading days. “

VRTU Trading Days

Let that sink in: one trading loss day and 1237 days of profits. And that, ladies and gentlemen, is the Holy Grail of the New Normal broken, manipulated markets.

Read moreThe Holy Grail Of Trading Has Been Found: HFT Firm Reveals 1 Losing Trading Day In 1238 Days Of Trading

First Ever High Frequency Trading Transaction Tax Introduced In Italy

First Ever High Frequency Trading Transaction Tax Introduced In Italy (ZeroHedge, Sep 2, 2013):

Nearly four years after Zero Hedge first suggested an HFT tax should punish algos that “churned” quotes and blasted empty bids and offers to stimulate “momentum ignition” strategies, and generally corrupt market structure in a way that lead to both the flash crash, the BATS IPO farce, the FaceBook IPO debacle and the Nasdaq 3 hour crash, the first such tax is now a reality. And while it is not, and likely never will be implemented in a major (if declining) exchange such as the NYSE or Nasdaq, the first country to finally put an end to millions of parasitic empty quotes is Italy.

From the FT:

Italy will on Monday become the first country to introduce a tax on high-frequency trading in a move that has become a test case for potential further crackdowns on the controversial practice.

Read moreFirst Ever High Frequency Trading Transaction Tax Introduced In Italy

Summarizing The Known Rigged Markets

Summarizing The Known Rigged Markets (ZeroHedge, June 12, 2013):

Following last night’s revelation that FX trading is the latest addition to the “rigged” column, here is a summary of the known market manipulation scandals (because it can be problematic keeping track of all by now):

  • Libor – interest rates (link)
  • ISDAfix – swaps (link)
  • Platts – oil prices (link)
  • WM/Reuters – FX (link)
  • High-Frequency Trading – equities (link)

We also know that the Fed and world central banks are engaged in a full blown (and unprecedented) Treasury curve modeling exercise courtesy of both ZIRP (short-end) and QE (long-end), and that courtesy of some $12 trillion in extra liquidity in the past 5 years, stocks are at an artificial “weath effect” sugar high.

Read moreSummarizing The Known Rigged Markets

‘This Morning, In 15 Milliseconds, 28 Million Dollars Changed Hands In The Stock Market Before Data Was Made Available To Other Investors’

(h/t M.G.:

“This morning, in 15 milliseconds, 28 million dollars changed hands in the stock market before data was made available to other investors. That space of time is less than the blinking of one’s eye. The report was on CNBC, I am following the markets due to what is happening in Japan. This is a new level of high frequency trading that ought to be outlawed, no wonder the individual investor has no chance…………”)

More articles & videos on high frequency trading here:

https://www.infiniteunknown.net/tag/high-frequency-trading/


Unraveling Monday’s Early Data Release to Traders (CNBC, June 5, 2013):

Monday’s market-moving ISM manufacturing data was inadvertently sent early by Thomson Reuters to a select group of high-frequency traders, many of whom immediately traded on the information before it was available to the wider market, CNBC has learned.

The ISM manufacturing data, which on Monday came in disappointingly low and sent traders scrambling to sell shares, was set to be released at precisely 10 a.m. by the Institute for Supply Management, a private entity that puts out the data each month.

But analysts at Nanex LLC, a Chicago-area analysis firm spotted a sharp downward market reaction just before 10 a.m., setting up a mystery: How did some traders appear to know the data would disappoint the market before the scheduled release time?

Read more‘This Morning, In 15 Milliseconds, 28 Million Dollars Changed Hands In The Stock Market Before Data Was Made Available To Other Investors’

Terrifying Video Shows One Half-Second Of High Frequency Trading In Just One Stock!

Related info:

JPMorgan Has Zero Trading Losses In The First Quarter



YouTube Added: 03.05.2013

This Video Of One Half-Second Of High Frequency Trading Is Insane, Terrifying (Huffington Post, May 9, 2013):

You have no idea just how bonkers high-frequency trading is making the stock market until you actually see it in action.

A terrifying new video by the research firm Nanex offers just such an opportunity: It shows one half-second of trading in just one stock, boring old Johnson & Johnson, on May 2. The video slows down the trades so that the milliseconds — thousandths of a second — tick slowly by, and so that human eyes can comprehend what’s happening.

What you see is trading gone haywire, hopelessly beyond the control of any regulators that might want to make sure all of these trades are legitimate. This flood of trading confuses even other machines, creating mismatches in orders that high-speed traders can exploit, millisecond by millisecond.

“These guys are not stealing dollars, they’re stealing pennies,” says Nanex founder Eric Hunsader, who presented the video at a recent Wired conference. “It’s like paper cuts instead of first-degree murder.”

Nanex is the same firm that produced a viral animated GIF last year showing the rise of high-frequency trading robots over the years. This video offers the first clear look at what those robots are doing every day, all day, now that they control more than half of all market volume.

Read moreTerrifying Video Shows One Half-Second Of High Frequency Trading In Just One Stock!

Keiser Report: High Frequency Scalping (Video)

FYI.



YouTube Added: 15.12.2012

Description:

In this episode, Max Keiser and Stacy Herbert look at central banking meth heads and low level broker-dealer-thieves drinking the hand sanitizer that is the high frequency scalping of the last dregs of equity left in the markets. They also ask whether the US has it in for British banks. In the second half, Max Keiser talks to Peter Antonioni, author of the Economics for Dummies, about the policy of quantitative easing as economic homeopathy – it only works on the grounds that you believe it works and about the UK monetizing its debt after transferring QE ‘surpluses’ from the Bank of England to the Treasury.

Gerald Celente Nov 5, 2012: ‘LIBOR Rig: How Much Bigger Could It Get?’ (Video – 4/5 – German Subtitles)


YouTube

Description:

Gerald Celente, the founder of the Trends Research Institute, at the Marriott Hotel in Munich, Germany, on November 3rd, 2012. Celente was holding a presentation later on on the Internationale Edelmetall- und Rohstoffmesse, the largest precious metals conference in Europe. You can find Gerald Celente at trendsresearch.com and trendsjournal.com.

Stock Market Fragility Fast Approaching ‘Flash Crash’ Levels

Stock Market Fragility Fast Approaching “Flash Crash” Levels (ZeroHedge, Oct 21, 2012):

This past Friday, on the 25th anniversary of Black Monday, Bill Gross warned that in the current centrally-planned market “central bank puts” are the modern day equivalent of “portfolio insurance”, and he is right. By sending complacency to record levels, and essentially forcing investors to no longer worry, hedge and generally ignore tail risk, the central planners, in their futile attempts to reflate stocks at all costs, are guaranteeing that the market will experience just the type of fat tail event they promise will never occur. As for the catalyst that will make sure of it is none other than our old friend: high frequency trading. Because while central planning is the mechanism by which investing is dragged away from mean reversion, price clearing and fair value discovery, it is HFT that is Bernanke’s analogue in the millisecond trading world (as all those who had stop limit orders (that did not get DKed) on May 6, 2010 very well remember). Because when the next Black ___day does happen, it will be due to central planning, but it will be enacted courtesy of HFT (which will never go away until the next and probably final market crash: too much exchange revenue depends on the perpetuation of this parasitic liquidity drain).

Which is why it is only appropriate to warn readers that when it comes to system market fragility, at least according to Nanex, whose work ZH first presented nearly two years ago and has since gone mainstream now that HFT is the universal scapegoat of even such legacy media venues as CNBC (it is always better to bash the vacuum tubes than the people who profit, or those who have made a mockery of the stock market – it is not like anything will change anyway), the frequency and magnitude of “wild price spike” events (to put it simply) are now both rising at an exponential rate, and fast approaching Flash Crash levels.

Read moreStock Market Fragility Fast Approaching ‘Flash Crash’ Levels

Germany Does What The SEC Hasn’t – Prepares To Ban HFT

Germany Does What The SEC Hasn’t – Prepares To Ban HFT (ZeroHedge, Sep 26, 2012):

The EU assembly just voted affirmatively to impose a spate of rules to control ‘high-frequency-trading that, as the WSJ reports, was advanced by Germany following their concerns that speedy traders have brought instability to markets. It is somehow reassuring that three-years after we first brought HFT to the mainstream’s agenda, at least one nation is taking it seriously, doing something about it, instead of being filibustered into the ‘liquidity-providing’ meme. The rules will initially require registration, collect fees on excessive use of HFT methods, and install circuit breakers with the goals to “limit the risks associated with high-frequency trading” per a senior German FinMin; but the more stringent rules to come will have the greatest impact as they intend to include requirements for orders to rest on the exchange book for at least half-a-second, and potentially order-to-trade ratio caps. Not surprisingly, the HFTs believe a “one-size-fits-all approach would be very harmful.” Indeed – to their profits.
Via WSJ: Germany to Tap Brakes On High-Speed Trading

BERLIN—Germany is set to advance a bill Wednesday imposing a spate of new rules on high-frequency trading, escalating Europe’s sweeping response to concerns that speedy traders have brought instability to the markets.

The measure seeks to require traders to register with Germany’s Federal Financial Supervisory Authority, collect fees from those who use high-speed trading systems excessively, and force stock markets to install circuit breakers that can interrupt trading if a problem is detected.

“The goal of the German law is to limit the risks associated with high-frequency trading,” he said.

Read moreGermany Does What The SEC Hasn’t – Prepares To Ban HFT

Max Keiser: Total Global Collapse By April 2013! (Video)


YouTube Added: 17.09.2012

Max Keiser: Cancer is How THEY Will Take It All (Video)


YouTube Added: 01.08.2012

Dear HFT, Please Explain This

Dear HFT, Please Explain This (ZeroHedge, Aug 25, 2011):

On August 25, 2011 at 15:45:48, in a one second period of time, there were more than 10,000 quotes and exactly zero trades in DELL. Close inspection of these quotes reveals something very disturbing. This cannot be dismissed as a computer problem or glitch. This can’t be explained as stupidity or some oversight. It is not pinging for hidden liquidity. And it’s certainly not price discovery. As far as we can tell, it’s not adding liquidity or narrowing the bid/ask spread.

Read moreDear HFT, Please Explain This

New JP Morgan Supercomputer Runs Complete Risk Analysis In 12 Seconds (Instead Of 8 Hours Before)!!!

“The project took JP Morgan around three years, and the bank is now looking to push it into other areas of the business, such as high frequency trading.”


JP Morgan supercomputer offers risk analysis in near real-time (Computerworld UK, July 11, 2011):

JP Morgan is now able to run risk analysis and price its global credit portfolio in near real-time after implementing application-led, High Performance Computing (HPC) capabilities developed by Maxeler Technologies.

The investment bank worked with HPC solutions provider Maxeler Technologies to develop an application-led, HPC system based on Field-Programmable Gate Array (FPGA) technology that would allow it to run complex banking algorithms on its credit book faster.

JP Morgan uses mainly C++ for its pure analytical models and Python programming for the facilitation. For the new Maxeler system, it flattened the C++ code down to a Java code. The company also supports Excel and all different versions of Linux.

Prior to the implementation, JP Morgan would take eight hours to do a complete risk run, and an hour to run a present value, on its entire book. If anything went wrong with the analysis, there was no time to re-run it.

It has now reduced that to about 238 seconds, with an FPGA time of 12 seconds.

“Being able to run the book in 12 seconds end-to-end and get a value on our multi-million dollar book within 12 seconds is a huge commercial advantage for us,” Stephen Weston, global head of the Applied Analytics group in the investment banking division of JP Morgan, said at a recent lecture to Stanford University students.

“If we can compress space, time and energy required to do these calculations then it has hard business values for us. It gives us ultimately a competitive edge, the ability to run our risk more frequently, and extracting more value from our books by understanding more fully is a real commercial advantage for us.”

The faster processing times means that JP Morgan can now respond to changes in its risk position more rapidly, rather than just looking back at the risk profile of the previous day, which was produced by overnight analyses.

The speed also allows the bank to identify potential problems and try to deal with them in advance. For example, JP Morgan can now run potential scenarios to assess its exposure to problems such as the Irish or Greek bank problems, which Weston said “wouldn’t have even been thinkable” before.

Read moreNew JP Morgan Supercomputer Runs Complete Risk Analysis In 12 Seconds (Instead Of 8 Hours Before)!!!

JP Morgan Established a Perfect Trading Record for Three Quarters of 2010

HFT works!

Flashback:

I bet Assistant U.S. Attorney Joseph Facciponti has already deeply regretted saying this:

Goldman Sachs Loses Grip on Its Doomsday Machine (Bloomberg)

It wasn’t just Goldman that faced imminent harm if Aleynikov were to be released, Assistant U.S. Attorney Joseph Facciponti told a federal magistrate judge at his July 4 bail hearing in New York. The 34-year-old prosecutor also dropped this bombshell: The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

And Goldman Sachs and JP Morgan would never manipulate the markets in unfair ways, or would they? ROFL!

Some related info on HFT:

Joe Saluzzi on High-Frequency Trading: The Equity Market Is Now Controlled By The Machines

Joe Saluzzi of Themis Trading on High Frequency Trading (Bloomberg)

China Has Built The Fastest Supercomputer Ever Made, Wrests Title From US (New York Times)

All You Need To Know About High Frequency Trading: ‘Sell Everything, And Shutdown’; 4 Years Without A Loss


Feb. 15 (Bloomberg) — JP Morgan Chase & Co. racked up a perfect trading record for the second half of last year, making money every day after accomplishing the same feat in the first three months of the year.

Traders at the New York-based bank made an average of $76 million a day last year, down from $84 million in 2009, according to an investor presentation today at the bank’s New York headquarters. The investment bank lost money on eight days last year, all in the second quarter.

“We don’t expect that to be repeated,” said Jes Staley, chief executive officer of the investment bank. “I imagine I’ll be up here next year and you’ll see a number higher than eight, but I think it underscores how well we’ve been managing our business.”

Read moreJP Morgan Established a Perfect Trading Record for Three Quarters of 2010

Corn Opens Limit Up As HFT Robots Parse What ‘Ninefold Chinese Import Increase’ Means In Fortran


It was less than three short days ago that we wrote about what is poised to be an imminent surge in corn prices.

To wit, we said: “If revised Chinese import estimates by the US Grain Council are even remotely correct, look for corn prices of $6.80 a bushel at last check to jump by at least 15% in a very short amount of time.

As the FT reports, “Corn prices – and with them, the price of meat – are set to explode if the latest import estimates from China are correct.

The US Grain Council, the industry body, said late on Thursday that it has received information pointing to Chinese imports as high as 9m tonnes in 2011-12, up from 1.3m in 2010-11.

Why is this a concern? Because “the US Department of Agriculture, which compiles benchmark estimates of supply, demand and stocks, forecast Chinese imports at just 1m tonnes in 2011-12.

In other words, the whole forecast supply-demand equilibrium is about to be torn to shreds.”

Read moreCorn Opens Limit Up As HFT Robots Parse What ‘Ninefold Chinese Import Increase’ Means In Fortran

Joe Saluzzi on High-Frequency Trading: The Equity Market Is Now Controlled By The Machines

Joe Saluzzi, co-founder of Themis Trading LLC and outspoken exchange expert, is concerned with how high-frequency trading has brought the capital markets into uncharted – and dangerous – territory.

“Things have changed,” he cautions. With 50-70% of all trades being conducted by algorithms at micro-second time intervals, real human traders are increasingly challenged to understand how our markets actually work. “No longer do the technical patterns – that have lasted for years and years, and are written about all over – work anymore.”

In the following interview, Joe and Chris plunge into “dark pools” and other poorly-understood elements of our now-machine-dominated financial exchanges. The current system is fraught with risks of further “flash crash”-like disruptions, and at a fundmental level, feels a lot like sanctioned theft by the deep-pocketed institutions who can outspend on technology and speed. This is an important interview for anyone involved in trading (professionally or personally), as well as investors who want to know how today’s markets truly operate.

Download/Play the Podcast
Read the Transcript of the Podcast (You’ll find the transcript also below.)

In this podcast, Joe sheds light on why:

  • The flash crash happened and why our vulnerability to future crashes is even higher now.
  • How the majority of trades that happen on a daily basis are now conducted by machines that have no underlying concern or understanding for the companies who’s securities they trade. The market has become volume for the sake of volume – which is not healthy.
  • How the complexity and pace of the current technology driving trades has become so complex that it has effectively evolved beyond our ability to fully understand its risks.
  • Why the government agencies responsible for understanding and overseeing exchanges are woefully under-resourced and unprepared to be effective in this new era.
  • How the average trader is destined to lose in today’s market, while the big banks & HFT firms who can afford to win the arms race are making essentially-guaranteed profits.

As with our recent interviews with Jim RogersMarc Faber and Bill Fleckenstein, Jim ends the interview with his specific advice for the average trader/investor.


Transcript for Joe Saluzzi on High-Frequency Trading: The Equity Market Is Now Controlled By The Machines

Below is the transcript to Joe Saluzzi on High-Frequency Trading: The Equity Market Is Now Controlled By The Machines:

Chris: Hello this is Chris Martenson of ChrisMartenson.com, and today we’re going to be talking about a very important subject: how the stock market works. Specifically, about something called high frequency trading and its importance to you, its importance to the markets and its importance to our future. We are very fortunate today to be talking with Joe Saluzzi, a partner, cofounder and co-head of the equity trading firm Themis Trading, a leading independent agency brokerage firm that trades equities for institutional money managers and hedge funds. Prior to Themis, Joe headed the team responsible for equity sales and trading for major institutional accounts at Instinet corporation for more than 9 years. He’s a frequent speaker on issues involving market access, algorithmic trading, other sell and buy side concerns. He’s provided expert commentary for media outlets such as 60 minutes, Bloomberg, CNBC, Wall St Journal and many others.

Joe, welcome, it’s a real pleasure to be able to talk to you today.

Joe: Thanks a lot, Chris. Thanks for having me.

Read moreJoe Saluzzi on High-Frequency Trading: The Equity Market Is Now Controlled By The Machines

Max Keiser: Big Banks Retroactively Allocate Losing Trades to Clients, Keep Winning Trades for Themselves

Max Keiser – journalist, former Wall Street broker and options trader, and inventor of the software which is now being used for high frequency trading – claims that the big banks retroactively allocate losing trades to their clients, and keep the winning trades for their own proprietary trading desks:

Keiser Report: Goldman Sachs, Undeclared Enemy of the State

Added: 25. May 2010

This is the second time in the couple of weeks that Keiser has made this allegation. When he first brought this up, Keiser said that he has first-hand knowledge of this unlawful activity because – when he was a trader – he and everyone else did the same thing.

Submitted by George Washington on 05/27/2010 17:08 -0500

Source: ZeroHedge

More on Goldman Sachs ‘doing God’s work’:

Stock Market Collapse: More Goldman Sachs Market Rigging?!

Dr. Len Horowitz: Profitable Depopulation Plot Links JPMorgan and Goldman Sachs to Vaccination Contaminations and Big Pharma Corruption

Goldman Sachs Bankster Blankfein Supports Financial Reform Bill

Goldman Sachs Banksters ‘Made Fortune Betting Against Clients’

Computerized Front-Running: How a Computer Program Designed to Save the Free Market Turned Into a Monster

Goldman Sachs taps President Obama’s former White House counsel, Gregory Craig

President Obama Repaying His Masters At Goldman Sachs

Goldman Sachs Banksters Implicated in Shorting Lehman Shares

Perfect Timing: Goldman Sachs Set to Pay £3.5 Billion in Bonuses For Just 3 Months’ Work!

SEC Accuses Goldman Sachs of Civil Fraud

Looting Main Street: How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece

Goldman Sachs Squeezes Hedge Funds in $110 Billion ‘Collateral Arbitrage’

Read moreMax Keiser: Big Banks Retroactively Allocate Losing Trades to Clients, Keep Winning Trades for Themselves