Fannie Mae-No Politics (FNMA)

[obiterdictum]

DrMerlot, one of the pet concerns had in trading the GSE stocks has been the appearance of HFT and algo trading. Though mentioned on a number of occasions, only a few have realized how it affects their trading results (not being able to get buy and sell orders filled), incredibly fast price changes, sudden upswings or down swings, predictable intraday patterns, channelling as well as the sudden volume of trading without clearly correlated catalysts.

For example, the playing field is not level. Many people blame MMs for what they see as clear stock manipulations. Though MMs partially account for what are seen as abnormalities in trading, there are additional explanations. HFT traders and HFT trader groups can gain access to price direction and order size information through ECNs or DMA up to a half-second before we do and start an HF algo that begins to either rapidly buy up shares while increasing the price and then resell them to slow pokes chasing increasingly higher prices or shorts or shorts buying to cover at loss while making profits all the way up, or, go in reverse by rapidly aquiring and selling short shares intiating a sudden price drop and as a selling panic is sets off and blood is in the market slow poke shorts join in, and the algo rapidly buys all to cover, making a profit all the way down leaving shorts without shares to cover and panic sellers losing gains or taking losses. In both cases, it is hard to get in or out is it not when such rapid action is occurring? How can one get in or out when the price seen on the display is not the price being matched in the market milliseconds before. Experienced traders that do not have DAT or DMA preorder to buy and sell so the order is in the market before prices have reached that level. There is no way to match the execution speeds of HFT and algo traders.

It is also the case that more than one HFT group can trade together or antagonistically. Take a look at Apple on L2 and see what HFT trading can be with conflicting and cooperating algos. We are lucky here. Intraday patterns are not difficult to follow if careful. And there is no choice but to figure out how to follow the lead wisely.



Here are two reports on decent on HFT:
http://www.scribd.com/doc/116761218/CS-HFT-DETECTION http://online.wsj.com/public/resources/documents/HFT0324.pdf