High Frequency Quote Spamming
Themis Trading points us to this Nanex analysis of nit HFT, but what they call what “HF Quote Spamming”:
It’s not High Frequency Trading that concerns us. It’s high frequency quote spamming that should be everyone’s concern and is cause for alarm. The two images below tell the story. The one on the left shows growth from high frequency quoting.
The one on the right shows (the lack of) growth from high frequency trading. Quote data from CQS, trade data from CTA, both which cover stocks listed on NYSE, AMEX, and NYSE-Arca between 2008 and 2012.
One has exploded (with no signs of stopping), the other has stalled and is actually lower than it was years ago. Each day is plotted in a separate color over the course of a trading day (9:30 to 16:00 Eastern): older data uses colors towards the violet end of the spectrum, recent data towards the red end of the spectrum.
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HFQ: High Frequency Quote Spamming
Source: Nanex
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February 16th, 2012 at 1:43 pm
It can finally be said: High Frequency Trading is a drag on our resources — too many day traitors!
On the other hand, nobody thought High Frequency Quote Spamming (HFQS) would enable us to escape the binds of recession and provide the tailwinds needed to achieve global recovery. I am HFQS’s first responder!
February 16th, 2012 at 3:06 pm
does this have any relationship to “the whale” I’ve heard about lately i.e. a day-trading program that somehow is able to “sit” on a market and make it go sideways with the expectation (apparently) of a “pop” that it waits to exploit after a certain amount of time of making the market move sideways like that???
February 16th, 2012 at 3:08 pm
I remember a simple solution for this and ITQB (“I Thus Quote Barry” ) :
“Here is a simple solution to the HFT problem: The SEC mandates that all bids and quotes must last 2 seconds.
End of problem.”
http://www.ritholtz.com/blog/2010/09/finra-censures-illicit-equities-trading-strategy-hft-trading/
Well done sir.
February 16th, 2012 at 3:56 pm
[...] High Frequency Quote Spamming [...]
February 16th, 2012 at 3:56 pm
If it remains legal and it seems to me it isn’t, then 2 seconds or more would eliminate (I think) front running….why not just kill it?
February 16th, 2012 at 4:05 pm
I can’t remember where I remember reading it, but I like the concept of a tax that is proportional to the duration of the investment. Position held less than 5 seconds? 100% rate. Held for a year? Standard capital gains rate.
February 16th, 2012 at 4:30 pm
Pardon me if I don’t care anymore. Today’s news about the probable ECB Greek debt swap and the ramifications that speak to unlimited money printing and illusory profits to the ECB to protect irresponsible debtor nations and irresponsible lenders implies HFT and HFT-Spam Quotes are a necessary tools to launder the printing. The trading environment has changed again by a quantum leap. In 50 years, history will look back on this time as the start of the 2nd Wiemar. It’s one thing to print to prevent a liquidity crisis. It’s totally different to manufacture fake profits via debt refinancing by printing euros. HFT and its derivatives will be necessary to launder the cash as this will only be the first time, not the only time.
I’ve got to figure out how to get ahead of this. Profits still matter but unlimited world wide cash from Europe and Japan to a lesser degree overrides everything. Wall Street can sell the story that makes it look legit and not like inflation, unless commodities come along for the ride and crush consumer spending. Buy now or wait for a dip? Today is the day the euro became a joke.
February 16th, 2012 at 4:32 pm
Wasn’t Quote stuffing just banned by the SEC back in December?
If so, is “quote spamming” not covered?…this garbage is endless.
Dogfish has the solution, tax trades proportional to the length of time held…if you’re getting rich scalping/scamming small traders, the least you can do is contribute to the deficit that threatens the same small guys retirement & medicare.
February 17th, 2012 at 12:31 am
Not to be nit-picking, but it would be an >inversely< proportional tax rate to time held…..
Anywho, I still think that a "super-flat" tax, or velocity tax as I like to call it, would more or less achieve the same result; I.E. tax any and all movement of money, no matter how big or small the amount, or the number of movement, to a unique rate, same for any and all, and repeal all other taxes of course. It saves a bunch of money (fire all pencil pushers at the IRS) and also simplifies calculating the "burden" of the government on the economy…. Not enough money to pay for the politician's promises? Gotta raise the tax, for everything and everyone. That would definitely kill HFT, and a bunch of other parasitic non-productive transactions….
February 17th, 2012 at 3:37 am
[...] – HFQS! [...]
February 17th, 2012 at 2:32 pm
A lot of commentors seem to have a profound lack of understanding of how the equities markets work. The tax proposals above would succeed in killing high-frequency, along with any and all professional marketmaking. I exaggerate only slightly when I say that you’d be making appointments in order to trade. At best, you’d pay an extra couple percent in transaction costs for the satisfaction of crossing the spread and trading with someone “real.”