“As a quick background, I’ve been working in HFT since graduating with an undergrad in mathematics and CS, I trade primarily equities (stocks, basically), market making (posting bids and offers and collecting the spread in between) in ~1700 different stocks…”
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“Markets today are even more susceptible to sudden failure than they were two years ago during the flash crash, which brought the stock market down by about 1,000 points in mere minutes…”
“…intermediate traders are backing away from the market at critical times lest they get tricked by HFTs, and all the traffic being generated by HFTs gaming each other is raising the costs for those intermediate traders, accelerating their flight from the market.”
The system closed the month of March with a modest gain (+2.5%). With the exception of a few days, most of the market’s movement continues to be in the gaps, with relatively narrow intraday ranges. Again and again the market gaps up/down and then just lays there. Everyone seems to be guarding their chips and waiting for the other guy to make the first move.
So why all the caution? My personal view is that the ever-looming Euro debt crisis has instilled quite a bit of fear into the markets and the retail investor (after loosing all of his home equity and most of his 401K) has run screaming, fleeing equities for the foreseeable future. Thus, what we seem to have now is a listless market comprised largely of HFT bots trading money back and forth. A zero sum game and a difficult environment for the retail day trader, to be sure.
Full length video of all four episodes can be found at PBS FRONTLINE
“We think that HFT strategies, in particular the trend-following ones, are playing a key role…the very existence of cross-market correlations at high frequencies favours the presence of automated trading strategies operated by robots on multiple assets. Our analysis suggests that commodity markets are more and more prone to events in global financial markets and likely to deviate from their fundamentals.”
In this TED talk, Yan Ohayon demystifies and shares his experience with algorithmic trading and its impact on markets, our lives, and everything in between.
“Banks should be banned from giving outside brokers direct access to markets as part of a sweeping crackdown on computerised high-frequency trading, a European Parliament report said on Monday. The report was the assembly’s initial response to a draft law aimed at reining in computerised or algorithmic trading and other advances in technology which have made it harder for supervisors to see the full picture and control markets”
“We examined 50-years of historical S&P 500 Index data and compared the actual tail risk frequency and magnitude to the expectations of a typical investor operating under modern portfolio theory. The difference between the two is surprising, and it suggests that investors have significantly underestimated tail risk frequency and severity”
Kevin Slavin’s TED talk on high-frequency trading. He shows how these complex computer programs determine: espionage tactics, stock prices, movie scripts, and architecture. And he warns that we are writing code we can’t understand, with implications we can’t control.