lowtrade

[lowtrade]

Anyway, do you think HFT is related to the liquidity action? Or is it separate.

YES. HFT is the #1 cause in the increase in liquidity in todays market.

You got me into rant mode !!! Checkout the animation at the bottom of the page about HFT increases just before the 2008 crash. Think the crash would have happened. If markets were regulated to operate like they were formed to be. That's all changed, starting with the computer/complex derivatives age.

The complexity of the market is hard for anyone to understand. High frequency trading has become an inherent part of the markets, as computers took over quoting systems, matching systems and closing systems. With the increasing number of exchanges, black pools and derivatives available to be traded.

All this info is linked by computers (machines) and transaction speed has become the king of the market. Algorithms are programs which are designed to not only monitor data and react to the data point changes, as fast as inhumanly possible. But they have been designed to read and alter action based on what is interpreted.

The market has basically become the 1st step to artificial intelligence. With all operations at speeds millions of times faster then the human brain can process sight or sound on it's way to the brain. So forget about published news, minute day charts, let alone broker guarantees of fast order closure speed. Because in the time it takes a little retail guy to see what happens on a daily chart or read a news event. Market computers Algorithms have gone thru all the exchanges, black pools, derivatives available and read news releases. Then took actions based on results programed into the algorithms, a million times.

They stuff quotes, change price direction and reap profits on arbitrage of tenths of a penny, millions of times. While you blink!

How this effects you is there is not just 1 computer, with 1 algorithm, programed to do 1 thing. There are hundreds, doing hundreds of things, trying to beat, miss-direct or effect each other, before quotes, matches, or closures happen that you see as results. They game the market! There is a WORLD operating before the normal market can report the results.

The result is an expediential explosions of volume and liquidity. But that liquidity is not in your world. Even though that liquidity effects your world. As it can drive price direction, create unreliable quotes, and in some cases cause system failure. (flash crashes) It can add billions or take away billions of company value in seconds and because of that, cause the algorithms themselves to be fooled and over or under value stocks or markets for long periods of time. Days or weeks. Look at the past 2 weeks !!! A 5% fall and come back, for NO reason anyone can explain.

This is NOT what the stock market was designed for. It was designed to price company stock value based on financial and fundaments, showing management ability to improve growth long term.

There has been a decrease of the number of public companies and IPO's in the past 10 years. And many feel CEOs distrust of the market to fairly price their companies worth, based on stock value, is the reason for this. Facebook machine manipulated IPO disaster didn't help in the markets trust worthiness of true value, in todays market ! Also while volumes haven't decreased, because of the HFT, the number of individuals, funds, and institutional precipitation has fallen.

If this trend is aloud to continue, eventually machine trading is all there will be. Unchecked, the market will eventually self destruct, based on logic. And we haven't even begun to mention how black pools (Markets within markets) and the increasing variety of new derivatives (fragmented products within markets) are effecting market fairness and complexity.

Basic, simple and clean; The regulatory authorities needs to re-evaluate the direction complexity has been aloud to run crazy in todays market. HFT is just one part of the problems facing the markets.

Sure stocks will continue to go up and down and traders will continue to trade. Companies will continue to succeed and fail, and investors will continue to invest, but their stock value may not always reflect the company worth.

Worth/stock value may just end up as a machines reaction to how other machines reacted during the day. And when all the computers, fighting for arbitrage gains at Nano-second speeds, run out of control, the next time. Countries or the world, could face 2 men like (Bernanke & Paulson) asking for the government to print trillions to save the monetary system, not billions like the last time.

Really; think about it. Was the market formed so companies could derive funds from public investment and return fair gains for this investment. Or so wealthy could hire computer quants to become uber wealthy? Because all we have now is complex financial derivatives in far too many exchanges and markets within markets controlled by computers. Allowing the public to attempt to feed on the scraps left behind. Neither companies or investors are getting a fair reliable deal in todays system.

Don't get me wrong. I'd rather eat scraps, then work. LOL But would like to see just a little meat left on the bones for my puppies.

Rise of the HFT Machines 2007 to September 13, 2013

http://www.nanex.net/aqck/2804.html