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Selected Extracts Of Readings & Musings on Stock Market. |
rk_a2003
Black Belt
Joined: 21 Jan 2010
Posts: 2734
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Post: #106  Posted: Sun Oct 07, 2012 10:58 am Post subject: |
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| rk_a2003 wrote: | The Truth Behind the Tragedy of High-Frequency Trading
"It's no wonder the public is scared to invest in stocks. They believe the game is rigged.
It is, and I'm going to tell you who's behind it, what's really happening, when it started, where the sinkholes are, why they're there, how you can play in the short run, and how America can get back to investing in a successful long-term future.
The bad news is the problems infecting our capital markets are all systemic. The good news is that they can be eradicated one by one, if not all at once (which won't happen).
Today, we're going to look behind the curtain of high-frequency trading.
It's a nasty bug in the system and has long-term consequences, including the potential to kill the markets.
First of all, high-frequency trading isn't just what you think it is. It is much more than you know, and is in fact part of the fabric of the markets.
Here's what the high-frequency trading game is really about.
The HFT game is about sometimes setting-up and almost always "picking-off" trades that represent tiny discrepancies in prices across all those different trading venues.
Sometimes HFT trades are arbitrage plays where a position is bought somewhere and sold simultaneously somewhere else because price discrepancies across different exchanges make such opportunities possible.
Sometimes HFT plays are manufactured by "pinging" (sending out fake orders to try and move prices), which triggers other orders to be sent, which in turn are picked-off, or to be more politically correct, traded upon.
It's Actually High-Speed Trading
The truth is that almost all trading today is high-speed trading. So to call it all what it really is, we're going to label the problem we're highlighting today "high-speed trading," of which actual high-frequency trading is a huge part.
Who is involved in high-speed trading? Everyone.
What's going on is that competition for trades (transactions by themselves are money-makers because people pay to get their trades executed; they pay brokers, trading platform operators, and exchanges) forces intermediaries (brokers and brokerages) and some exchange venues to actually pay for "order flow."
The idea of paying for order flow is that if you have a lot of orders on your exchange to buy and sell any given stock, chances are the spread (the difference between the bid and ask) will be narrower and liquidity (the ability to trade more shares at better prices) will be deeper.
But none of that much matters if you can't get to those opportunities fast enough. So, we're back to speed being a major component.
How fast is fast, by the way? According to Celnet in the past ten years or so, the time it takes to execute a trade on the NYSE has dropped from 3.2 seconds to 48 milliseconds. And that's on a slow day.
Trades can and are routinely executed in fractions of a millisecond, partly depending on how close someone's servers are to the servers that house the exchanges bids and offers.
Feeding the Speed Machine
As I said, the problem (which, don't worry I'll get to, and you will cringe), is systemic. As far as who's involved - which is almost everyone - the exchanges are the biggest purveyors of speed. They feed the speed machine because they get paid to.
For example, in 2010 the NYSE-Euronext opened a $600 million, 400,000 square feet (that's seven football fields) server location in Mahwah, New Jersey, just across the river from the exchange's trading floor.
Why so big? Because they rent space right next to their servers for brokerages and firms and traders that want speedy access to the servers to reduce "latency" (the time it takes to get an order from one spot to another), making super-fast trade executions even faster.
It's systemic because other exchanges do the same for high speed junkies. They get paid to rent space next to their servers; they get paid for each transaction they make. It's about money.
When this all started is quite telling. Starting in 1998, electronic venues were allowed to compete with established exchanges for transaction business, and speed was one of the factors offered as a reason for more competition.
What's interesting is that if you parallel the advent of faster and faster trading, it coincides with the markets essentially being flat over the same time horizon.
Why this is happening is obvious. There's money to be made in pushing speed.
Systemically, the speed game has spawned multiple Wall Street money-making opportunities. Whether it's the exchanges co-hosting trading servers on their premises, or HFT players who now account for between 50% and 70% of trading volume on any given day, or the proliferation of traders and trading desks everywhere, speed equals greed.
So what's the problem with speed and greed? Systems break down when they can't handle it.
Remember the "Flash Crash" in May 2010? How about high-speed exchange BATS blowing up its own IPO on its own exchange because of a technology speed bump?
Or the Facebook Inc. (NasdaqGS: FB) IPO fiasco that imploded because the Nasdaq couldn't handle all the speed orders fast enough? Or that Knight Capital almost said goodnight to its future when its new high-speed software, meant to compete with the NYSE's new kind-of paying for order flow game, blew up in its face?
Oh, and what does Knight do? It buys order flow from the likes of Fidelity, E-Trade, TD-Ameritrade, and a whole lot more outfits.
Speed Kills
What's undermining investor confidence in stocks is that it's all about speed and what Wall Street gets from having the advantage, and what games Wall Street erected to make money from the speed circuit that drives trading.
It's about trading, not investing. It's all about punching out what incremental gains you can in the short term, not about going the distance with safe investments in the long term.
If there are more speed traps, and there will be, markets will collapse one day. When the HFT guys doing more than half the trading on every day the markets are open disappear (as they did during the Flash Crash), and the liquidity they swear they provide dries up like an Iowa cornfield, we'll see how quickly desperate sell orders are executed.
Oh, never mind. Speed won't be a problem if that happens. The SEC, in their infinite wisdom, will shut the markets down with circuit-breakers and cooling-off periods.
Instead of addressing the speed problem, they're going to use a Band-Aid on what will amount to a heart-attack victim.
It happened before and the public knows it will happen again. That's the tragedy. That's why there is no confidence in our markets.
The only way to play these days is to join the short-term trading crowd and not get burned holding onto volatile stocks that, no matter how good-looking, can be turned upside down in a New York minute by the velocity of truth.
And the truth is... speed kills.
If we ever want to fix the markets and make them safe again, we're going to have to slow down the speeding train that's taking us all over the proverbial cliff." |
When it was posted here people who read it might have thought that how is it relevant in Indian context.Now atleast no one does think so. The Friday Flash Crash is being termed as Fat Finger incident by NSE. Don’t believe them.
If they accept that it’s because of Algo trades, there could be a big demand from all the sections especially from retail investors and traders to implement the measures to control algo/high frequency trading .People may show even an example of France which recently introduced a bill regulating algo trades.
But, NSE which is allowing server installations besides their main server for algo traders may lose a money spinning opportunity if they curb /regulate it.
They are such crooks, even not answering the question that who is responsible for the losses incurred to retail traders during flash crash? And who is going to compensate them? Even if it is not algo trade, it’s a clear fault of the system. The NSE should take up the responsibility of compensating losses made due to the flash crash.Even they are not recognising it. From such an irresponsible people we may not expect fair answers. They must be hiding the facts.
I read somewhere asking why we never witness Flash Rises. Why always Crashes? I have an answer for it. The existing system has only one way flash move. It can’t move other way. At least no one believe or sponsor/participate in it. It is hard to orchestrate it. |
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vinay28
Black Belt
Joined: 24 Dec 2010
Posts: 11748
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| Post: #107 Posted: Sun Oct 07, 2012 12:16 pm Post subject: |
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rk, our govt will also introduce a bill about algo trading soon but probably after FIIs have taken their moolah!  |
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rk_a2003
Black Belt
Joined: 21 Jan 2010
Posts: 2734
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| Post: #108 Posted: Sun Oct 07, 2012 7:05 pm Post subject: |
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| vinay28 wrote: | | rk, our govt will also introduce a bill about algo trading soon but probably after FIIs have taken their moolah! |
Yes, You are right Vinay.  |
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rk_a2003
Black Belt
Joined: 21 Jan 2010
Posts: 2734
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| Post: #109 Posted: Sun Oct 07, 2012 7:14 pm Post subject: |
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Some time back I asked boarders to tell how much money is required to nail down index stocks, after taking a position in FNO. Just to know the probabilities of manipulations by big players. I couldn't get the answer and I vowed myself to keep on investigating on it till I find an answer.
All of us must have observed that near and on the expiry day our markets move in their own way without bothering global cues, fundamental news or even technicals. Other day’s we can at least see some sort of correlation with Global,Fundamental and Technical cues with varied degrees of intensity.
I suspected that FNO expiries are manipulated by big players in a way favorable to them. Now after the flash crash it was confirmed for me that all FNO days closings are possibly manipulated.Of course, in relative terms, may not be in an absolute way.
Thanks Flash Crash for providing me a very valuable answer even in an undesirable way, which otherwise almost impossible to get.This can work as a great decoder in assesing the expiry moves. |
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bismillah
White Belt
Joined: 25 Sep 2009
Posts: 35
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| Post: #110 Posted: Mon Oct 08, 2012 11:56 am Post subject: Selected Extracts Of Readings & Musings on Stock Market. |
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Hi all
After reading a little from this section, i came to know that everyone here is frustrated due to algorithmic trading or High frequency trading. is it so
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pkholla
Black Belt
Joined: 04 Nov 2010
Posts: 2890
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| Post: #111 Posted: Mon Oct 08, 2012 12:42 pm Post subject: |
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| Why Bismillahji, you are not frustrated with high frequency algo trading and its nateeja? Please share your views! Prakash Holla |
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bismillah
White Belt
Joined: 25 Sep 2009
Posts: 35
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| Post: #112 Posted: Mon Oct 08, 2012 1:36 pm Post subject: Selected Extracts Of Readings & Musings on Stock Market. |
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| pkholla wrote: | | Why Bismillahji, you are not frustrated with high frequency algo trading and its nateeja? Please share your views! Prakash Holla |
Dear pkholla Sir,
Actually, some time before i was also a HFT trader so due to that i know cons & pros of HFT & as a individual investor, i know the cons & pros of individual.
after reading this thread, i came to know that their is a lot of misconceptions abt HFT,
according to me if we r in war with some country, then it will be good for us to check our ammunition & make plan to destroy other country plan & win the battle not to blame that he has advance arsenal.
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rk_a2003
Black Belt
Joined: 21 Jan 2010
Posts: 2734
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| Post: #113 Posted: Mon Oct 08, 2012 1:51 pm Post subject: Re: Selected Extracts Of Readings & Musings on Stock Mar |
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| bismillah wrote: | | pkholla wrote: | | Why Bismillahji, you are not frustrated with high frequency algo trading and its nateeja? Please share your views! Prakash Holla |
Dear pkholla Sir,
Actually, some time before i was also a HFT trader so due to that i know cons & pros of HFT & as a individual investor, i know the cons & pros of individual.
after reading this thread, i came to know that their is a lot of misconceptions abt HFT,
according to me if we r in war with some country, then it will be good for us to check our ammunition & make plan to destroy other country plan & win the battle not to blame that he has advance arsenal.
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Well,Please share your strategy to win this war. |
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pkholla
Black Belt
Joined: 04 Nov 2010
Posts: 2890
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| Post: #114 Posted: Mon Oct 08, 2012 1:52 pm Post subject: |
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Bismillahji, Share market is not a battle field. It should be as fair and equal as can be arranged by regulator. Rest is upto us. But you have also seen where 2 brokers run algo programs, 1 buys and 1 sells, price jumps with large gaps, price line falls or jumps vertically. SLs are triggered but not executed. Orders are not executed. These brokers rent space in or near NSE and save milliseconds. This is what people are objecting to.
You also saw what happened recently to Knight in US. If an advanced country like US cannot control algo trading and its fallout, then better in India to ban it outright before it turns rogue again and again. Even on Friday, Emkay client lost Rs 70 cr on paper, but small investors lost thousands of crores in stop losses exec at very low prices. Is this battlefield? No, this is slaughter house with Emkay client/s enjoying chicken biriyani and mutton cutlets over weekend. Prakash Holla |
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bismillah
White Belt
Joined: 25 Sep 2009
Posts: 35
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| Post: #115 Posted: Mon Oct 08, 2012 2:18 pm Post subject: Selected Extracts Of Readings & Musings on Stock Market. |
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Dear Pkholla Sir
Their will be always 2 side of any debate, well ur only taking cons of algo trading but if u see other side then u caome to know that algo is providing virtual liquidity if u stop algo u will come to know that their will be no more liquidity means depth in mkts just like friday case of emkay global.
& yes, as per my knowledge no algo system is given so much margin like 600 crores, it was only the case of manipulating mkts,
i have seen a lot of cases of this type when doing algo, when a non algo dealer put a heavy order in any script & depth vacant, i was also a victim of depth & taken huge losses,
& in last i have a simple question,
when everyone including u & me are buying who is selling,
& wht u call him ----- FOOL or Most Knowledgefull,
& YES IT IS A BATTLE FIELD
DEFEND URSELF OTHERWISE GET VANISHED
Last edited by bismillah on Mon Oct 08, 2012 2:20 pm; edited 1 time in total |
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umesh1
Brown Belt
Joined: 24 Nov 2008
Posts: 1974
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| Post: #116 Posted: Mon Oct 08, 2012 2:18 pm Post subject: Re: Selected Extracts Of Readings & Musings on Stock Mar |
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| bismillah wrote: | | pkholla wrote: | | Why Bismillahji, you are not frustrated with high frequency algo trading and its nateeja? Please share your views! Prakash Holla |
Dear pkholla Sir,
Actually, some time before i was also a HFT trader so due to that i know cons & pros of HFT & as a individual investor, i know the cons & pros of individual.
after reading this thread, i came to know that their is a lot of misconceptions abt HFT,
according to me if we r in war with some country, then it will be good for us to check our ammunition & make plan to destroy other country plan & win the battle not to blame that he has advance arsenal.
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Bismillah
I am fully with you on this, not to blame others if they have advance arsenal,on friday investors got the benefit who had kept buy at lower prices,since investors dont trade intraday none of them lost if they are investors but benefitted from the dip.this wasnt the first time neither the last .without algo you will have large spreads where you wont get easy entry nor easy exit.always expect the unexpected This is market
Cheers |
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bismillah
White Belt
Joined: 25 Sep 2009
Posts: 35
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| Post: #117 Posted: Mon Oct 08, 2012 2:27 pm Post subject: Re: Selected Extracts Of Readings & Musings on Stock Mar |
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| umesh1 wrote: | | bismillah wrote: | | pkholla wrote: | | Why Bismillahji, you are not frustrated with high frequency algo trading and its nateeja? Please share your views! Prakash Holla |
Dear pkholla Sir,
Actually, some time before i was also a HFT trader so due to that i know cons & pros of HFT & as a individual investor, i know the cons & pros of individual.
after reading this thread, i came to know that their is a lot of misconceptions abt HFT,
according to me if we r in war with some country, then it will be good for us to check our ammunition & make plan to destroy other country plan & win the battle not to blame that he has advance arsenal.
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Bismillah
I am fully with you on this, not to blame others if they have advance arsenal,on friday investors got the benefit who had kept buy at lower prices,since investors dont trade intraday none of them lost if they are investors but benefitted from the dip.this wasnt the first time neither the last .always expect the unexpected This is market
Cheers |
dear Umesh sir
thanx for comments
& yes ur exactly right, prepare urself for upcoming not to blame anyone
safar me dhoop to hogi jo chal sako to chalo
sabhi hain bheed me, tum bhi nikal sako to chalo
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umesh1
Brown Belt
Joined: 24 Nov 2008
Posts: 1974
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| Post: #118 Posted: Mon Oct 08, 2012 2:39 pm Post subject: Re: Selected Extracts Of Readings & Musings on Stock Mar |
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| bismillah wrote: | | umesh1 wrote: | | bismillah wrote: | | pkholla wrote: | | Why Bismillahji, you are not frustrated with high frequency algo trading and its nateeja? Please share your views! Prakash Holla |
Dear pkholla Sir,
Actually, some time before i was also a HFT trader so due to that i know cons & pros of HFT & as a individual investor, i know the cons & pros of individual.
after reading this thread, i came to know that their is a lot of misconceptions abt HFT,
according to me if we r in war with some country, then it will be good for us to check our ammunition & make plan to destroy other country plan & win the battle not to blame that he has advance arsenal.
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Bismillah
I am fully with you on this, not to blame others if they have advance arsenal,on friday investors got the benefit who had kept buy at lower prices,since investors dont trade intraday none of them lost if they are investors but benefitted from the dip.this wasnt the first time neither the last .always expect the unexpected This is market
Cheers |
dear Umesh sir
thanx for comments
& yes ur exactly right, prepare urself for upcoming not to blame anyone
safar me dhoop to hogi jo chal sako to chalo
sabhi hain bheed me, tum bhi nikal sako to chalo
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safar me dhoop to hogi jo chal sako to chalo
sabhi hain bheed me, tum bhi nikal sako to chalo
Jo is bheed se nikal na sa ke
toh is bheed mein rah jaoge
is bheed ke saath nikal jao ge
ya is bheed mein nigal jao ge
cheers |
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rk_a2003
Black Belt
Joined: 21 Jan 2010
Posts: 2734
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| Post: #119 Posted: Tue Oct 16, 2012 9:36 pm Post subject: |
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Every bit of high quality information you received from reading books attending trading courses or conferences improves your odds of executing profitable trades. Every hour you spend in front of your screen soaking up market action leads to adding up to your knowledge store and boosts your level of confidence and expertise.
But the one aspect of trading though, that overweighs all others…..I reiterate All OTHERS….. is YOU .The CORE YOU. When you click “buy “or “sell” the decision that signals your hands to act, emerges from with in you .You—the totality of thoughts, feelings and actions previously experienced-processes your flow of information and filters it through your personal operating system.
“IF YOU DON”T KNOW WHO YOU ARE, THE STOCK MARKET IS AN EXPENSIVE PLACE TO FIND OUT “----George Goodman (aka Adam Smith) |
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rk_a2003
Black Belt
Joined: 21 Jan 2010
Posts: 2734
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| Post: #120 Posted: Fri Oct 19, 2012 9:34 pm Post subject: |
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Conquer Emotional enemies Fear and Perfectionism
"Fear in all its disguises, lurks as the trader’s most constant companion. We’ve all felt it one time or another. If you want to say that you never felt it, soon you are going to have a gigantic Pinocchio nose.
We fear losing money. We fear being wrong—not being right and we fear missing out by letting the ‘Big one’ get away. All of these fears serve as emotions detrimental to accumulating wealth.
Consider these techniques.
Check your analysis process and methodology for planning trades. Make sure your processes, including identifying setups, risk-reward assessment and money management strategies are valid and deliver high % of positive results. Once you become secure in your overall course of action, fears attached to losing money should disappear.
Shed your fear of being wrong by ditching your need to be right. It makes you hold on to losing trades.
Accept that the controlled losses are part of the game. Trade your plan, not your emotions. You are not ‘right’ or ‘wrong’. You develop a plan of action and implement it to the best of your ability. The only time you’re wrong is when you ignore your plan and expose your capital to unnecessary risk.
Finally realize that the fear of missing out is truly one bad dude, it’s the devilish fear that goads people to buy high and sell low. If high-flying green candle or racing screen tempts you to click and join the other folks in euphoria….stop. Push back your chair ,stand up and walk away. Do that until you gain enough discipline to shrug off the sight of running stocks."
We will visit perfectionism or trying to be 100% right very soon… |
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