Comments on: The victims of high-frequency trading http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/ Mon, 26 Sep 2016 03:26:00 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: kosmik http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-379 Tue, 13 Oct 2009 21:25:34 +0000 http://blogs.reuters.com/columns/?p=696#comment-379 I can understand the social value behind arbitrageurs, behind _professional_ money managers and long-term investors. But the only function of naive uninformed noice traders, be they retail, institutional, using HFT or not is to feed those groups.This is a story of naive trader which, instead of indexing, doing long-term investing or outsourcing money management to someone else, tried to _gamble_ on the market and failed. I state that he wasn’t an _investor_. He expressed a view on the market behavior and it has happened to be wrong. What is the problem with that? If the problem is actually stock volatility, then depending on market structure liquidity providers should be encourage to add liquidity in this case and value traders to take speculative positions in it. But maybe these stock were not interesting enough for them, comparing to either someone “predatory” trading or just impatient liquidity demand.BTW: people were telling such stories ten years ago without any HFT stuff at all.

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By: Ray Pellecchia http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-370 Tue, 13 Oct 2009 16:39:20 +0000 http://blogs.reuters.com/columns/?p=696#comment-370 Matt — Disclosure: I do PR for NYSE Euronext, which runs the New York Stock Exchange and other markets.One aspect not discussed above: had Dendreon been listed on the NYSE, I don’t think there’s any way the stock would have lost almost $17 in 70 seconds. Had it been on NYSE, a designated market maker would have spotted the move and worked with exchange staff to immediately halt the stock until the situation could be sorted out. The rapid price change also would have triggered Liquidity Replenishment Points, which pause automated trading briefly and also would have called attention to it.We have seen this movie before, for example, last year with the stock of UAL Corp., as I blogged about here:http://exchanges.nyse.com/archives/ 2008/09/ual.phpI am not kicking fully automated markets — we operate several ourselves — but I am suggesting that having people with assigned responsibilities to make fair and orderly markets in specific issues, and take action before such mistakes get to be much of a problem, is a benefit of the NYSE market model that is often overlooked. — Ray

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By: left_line http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-367 Tue, 13 Oct 2009 12:21:36 +0000 http://blogs.reuters.com/columns/?p=696#comment-367 “It is one reason, as my Reuters colleagues Jonathan Spicer and Herbert Lash pointed on Oct. 9, that a small group of high-frequency traders want to create a market-wide monitor to be on guard for malfunctioning computer trading programs”Yeh, right. Institutionalize high speed trading but requiring the GOVERNMENT to pull the switch when the BUSINESS owned programs screw up.Much better to either:(1) Hold the owners LIABLE when their programs screw up;or (2) Only allow the programs to enter or cancel bids at fixed and known times (ie our bid starting at this second is)or (3) Ban high speed trading

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By: Ramon Ayala http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-366 Tue, 13 Oct 2009 12:04:08 +0000 http://blogs.reuters.com/columns/?p=696#comment-366 It’s very simple just don’t use stop-loss orders. No body is obliged to sell or buy at a particular moment. Traders should look at the fundamentals and the medium to long term moves not the daily suspicious moves.

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By: Dan http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-365 Tue, 13 Oct 2009 11:50:41 +0000 http://blogs.reuters.com/columns/?p=696#comment-365 Gold, as a solid tangible metal I can grab with my hands, seems more and more alluring. Not only it’s pretty to look at, it also has practical industrial applications. Melt it and it’s back to new again.So, the more volatile the computer systems make the stockmarkets, the more interesting something solid becomes. What are numbers? Abstract representations of things.When there are no things to represent, merely numbers for numbers sake, backed up by less than nothing, ghosts that will never leave the loop of a computer system, they can’t be reliable enough to bet your money on them.High frequency trading is like the guy on the corner of the street with three cups and a pea. He will use his skills in manovering the objects and hussle you into giving him your money by arousing your ego and curiosity.It means high frequency trading is a place for only two type of people: husslers and berries.

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By: Paul J. Weighell http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-363 Tue, 13 Oct 2009 11:32:32 +0000 http://blogs.reuters.com/columns/?p=696#comment-363 The stop loss guy can help protect against HF blips by setting his stop losses to work on a moving average price not the instantaneous market price. This will smooth out short-term HF blips but will delay exit if it’s a real trend against the position. It maybe good to have the length of the MA cover at least overnight as most HF/ algo trading firms need to be square before close of day so prices tend to settle again.It’s no good crying though as your stop loss proves that you too are trying to take the upside but without the downside risk which is just what HF/ algo traders also do …

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By: TW http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-362 Tue, 13 Oct 2009 11:13:16 +0000 http://blogs.reuters.com/columns/?p=696#comment-362 It is really irresponsible to pin the blame on HF trading for this particular incident without a thorough analysis of the trade history. The author mentioned a few potential causes for the anomalous price movement and proceeded swiftly to conclude inexplicably that it must be due to HF trading. Then in a following paragraph, he suggested that if the HF machines pulled the bids without an active aggressive sell order, the stock would have plummeted anyway. This is quite telling; (1) This acknowledges that HF trading provided a comparatively tight market by being active in the market, and (2) If you subtract HF activity from the market, it would have revealed a far larger spread and just as violent moves in markets. For retail investors trading in smaller sizes, the HF trading firms provides a great service in almost all cases in terms of immediate liquidity at a tight spread. Do you know what the markets looked like before the advent of HF trading firms to the ordinary retail investor?I understand that it is difficult for journalists to penetrate trading secrets of HF trading and it must seem threatening to have algorithms trading. But projecting fears, extrapolating algorithm behaviour and hypothesizing market reaction is bad journalism. Please find a reputable HF trading firm, sign an NDA and find out more. You’ll likely be surprised how many ‘species’ of HF trading there are.In my experience, sudden anomalous size and aggressive price of trades over a sustained period are more likely to cause the kind of large fluctuations in stock prices illustrated above. It is also my understanding that a lot of the the liquidity providing algorithm of the HF trading firms generating a significant proportion of normal trading volumes would have stepped away during periods of extreme volatility.To make things more folksy: No one in his/her right mind would walk into an ecosystem and decree that entire species are bad and should be eliminated without careful study. Even then, we have learnt that we always run the risk of unintended consequences. Let me try to define some subspecies of HF trading:a. There are the herbivore grazing species that like fairly orderly markets and provide liquidity with tight spreads in order to earn rebates from exchanges. They compete with each other to provide better prices so as to be able to trade. I am fairly confident that this class of market participants generate the lion share of the HF trading volume. These are fairly dumb creatures who care only to collect rebates.b. There are the small predatory species that act like small retail investors on steroids. They typically do not collect rebate and act to take advantage of price inefficiencies with small bet sizes. They are important to the ecosystem as they provide liquidity to species (a) like other investors. Without (b), (a) would probably starve to death.c. Finally, there are the big scary dinosaurs with huge appetite for risk. They are characterized by very big orders and aggressive prices. Unlike species (b), they are not interested in microscopic profits. They jump in when they judge that price dislocations are large enough to justify their risk and trading costs. They are only thought of as subspecies of HF trading only because they are utilizing algorithms to take liquidity aggressively over a short time interval. Without (c) to provide macro or long term price correction, (b) will have not much information to trade on and (a) will starve.When all (a..c) die, you’ll find that retail investors would have to deal with human specialists and market makers with much wider spreads and lower liquidity and they have the same incentives to probe your stop orders. You’ll pay more to your brokers and competition drops off. I have not even started describing how this drop off in liquidity would affect derivatives pricing and trading and this snowballs into ETF market making and annuities costs.I hope the above helps. BTW, I do not work at a HF stock trading firm.

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By: John http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-361 Tue, 13 Oct 2009 11:04:39 +0000 http://blogs.reuters.com/columns/?p=696#comment-361 Interesting that the example used in this article was a investor/speculator who got gapped out of a stop-loss order… dont they teach you that in an intro finance course? Market discontinuities can wreak havoc on those with stop-loss orders.Markets need the HFT to lower bid/ask spreads and allow more seamless pricing. As noted above, if HFT account for 50% of the volume. Imagine the difficulties that may be encountered if they were not in the market.

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By: Gregory http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-360 Tue, 13 Oct 2009 10:31:31 +0000 http://blogs.reuters.com/columns/?p=696#comment-360 Oh really, this is supposed to be news?The high speed algorithmic programs operate across all markets: stocks, resources and currency and they are driven by the market makers. If you don’t enjoy the excitement of gambling/speculating then stay away from casinos, horse racing and the financial markets because they are all the same thing and operate in similar fashion.The computers and stop loss hunters that do the work for the market makers can be beaten but it is very difficult to do. Losing money is easy and winning is hard.

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By: Marian http://blogs.reuters.com/breakingviews/2009/10/12/the-victims-of-high-frequency-trading/comment-page-1/#comment-359 Tue, 13 Oct 2009 10:23:00 +0000 http://blogs.reuters.com/columns/?p=696#comment-359 Who cares what happens on the Wall Street anyways? Let them boil in their own juice and die a slow death. Now this is what I call a crisis.

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