Wherever you see red in the charts below, that’s when HFT received an unfair trading advantage and front ran other traders and investors.

 

Click through, scroll down a bit, then hit start for samples of HFT front running
chart
Source: Nanex

 

Nanex observes that:

“Each chart plots trades and quote spreads from Nasdaq and PACF (NY-ARCA) exchanges. The NBBO, when crossed, is shown in red. Note that PACF’s quote (blue) often mirrors Nasdaq’s quote (gray), but is shifted to the right. This is because PACF’s quote was lagging far behind quotes from Nasdaq and other exchanges. Other exchanges are not shown for clarity (charts get cluttered quickly when including all exchanges). PACF’s lagging quote is the source of almost all NBBO crosses in below.

Also note that PACF’s trades almost always line up with Nasdaq trades, and occur before PACF’s quote!

This is solid evidence that High Frequency Traders were illegally receiving core quote information before the consolidated feed, which is exactly what the NYSE was fined for in September 2012.”

Category: Legal, Really, really bad calls, Regulation, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

9 Responses to “HFT’s Unfair Trading Advantage / Front Running”

  1. Herman Frank says:

    “Highway robbery in plain sight!” The culprits don’t even wear masks, because the sheriff of the exchange shields them from view. Innocent naive Joe Blow still believes he should invest part of his savings! HA! He only forms the wave of money that the HFT can skim.

    “There’s something rotten in the State(-s)!” Whoever defends these practices is complicit of theft and should be charged accordingly. (“Hey, sounds like I’m one of the many naive ones who still believe in justice!”)

  2. VennData says:

    Use limit orders.

    Next problem?

  3. patslatt says:

    Not to defend front running by HFT,but won’t competition on computerised trading reduce HFT profit margins to miniscule commodity returns as has happened in most computerised trading of stocks,as well as in government bonds,foreign exchange etc?

    Twenty years ago maybe,an article I read in the Financial Analysts Journal,”The market maker’s spread”,indicated that an aggressive buying or selling programmes to move a million dollars of a stock-apart from the 50 or so most actively traded-could move the market by roughly 20%. Obviously,liquidity has improved hugely since then,thanks to computerised trading.

    • Onemoretime says:

      I believe I have read that some of that may already be occurring. On the other hand it’s hard to believe everything you read, or who’s behind it. Of course a transaction fee for each order placed would negate the effects of HFT greatly.

  4. Mr.-Vix-It says:

    This is just proof that computers are faster and smarter than the humans that created them. A bit of ominous foreshadowing for the ongoing battle between man and machine. If humans can’t even beat computers at chess, Jeopardy, Wall Street, etc., there will inevitably be a point when computers can program and fix their own code and will come to the realization that humans are inferior. There is no way man can win this battle as long as “progress” means an increasing, exponential dependence on machines.

    • The issue is not PCs faster than humans — thats a given. The key question is should ANYONE be able to info allowing them to front run actual orders.

      I say no.

  5. [...] HFT’s Unfair Trading Advantage / Front Running (The Big Picture) [...]

  6. DeDude says:

    So if you have money in a pension fund that does its trades on these exchanges then you are being fleeced. Is finally time to just shut them all down? – they clearly do more harm than good for society.