Wading into the raging debate about the impact of high-frequency trading on stock market investing, Charles Schwab has decried the practice as a "growing cancer" that needs to be excised.
sadly traders like myself have been complaining of being "pick pocketed " for years ', yet have been ignored by exchanges and regulators alike . Perhaps now we can name and shame the cheats ....some big names who are the thieves of trading .
I fully agree with Neil. There are inequalities - if you can pay you can play - and a whole industry exists for that purpose (that is to continue to leapfrog to the front of the queue with technology). As far as the preferential treatment for these firms
is concerned, simply pricing market access for super low latency access to the trading host at a premium, means that the individual trader will be late to the market - also always the case in the old open outcry markets - a membership (for a fee) put you in
the pit (an advantage) - but today using the order structures or order types as a way of getting to the front is unacceptable - exchanges should step out of the trade 'direction' business (machines do that extremely well) and simply reduce acceptable order
types to a limit or market buy or sell - period. Access should be the same for all members - part of the cost of doing business - no fast, super fast or ultra fast exchange revenue generators - this part should be up to network, technology and application
providers who sell to the trading firms. There are also plenty of best execution rules to keep the brokers honest - but even the tools to track and log the quality of execution may be doubtful with the massive amount of data and the variation of network latency
that can exist in the microseconds, never mind milliseconds that can make a difference. I think that exchanges (or any place that executes an order match) should be mandated to collect a fee per order (small, but related to the size of that order) that becomes
an economic disincentive for skimming 100s, 1000s, or 10,000s of orders for a fraction of a penny/cent.
Real traders make markets that are tradeable under normal circumstances, not always good till near, or take positions in the market based on a real value judgement, not just on the back of someone else's order that can be front runned.
Is front running using a machine any better than insider trading? To me it is the same thing - creating a disadvantage to the investor, the investor's protfolio, stealing from the real speculator - we want them in markets also - and HFT as described here
is 'high volume, low risk' trading that adds little value. A word in favour of technology - the trader can today, as long as his orders aren't being gamed, trade automatically, semi automatically (Neil probably uses a spreader tool) and on more markets with
lower access costs than ever before - the HFT guys find it harder to compete in the cross market world - too many variables compared to the single market transaction (and not trade, for these aren't traders). But unchecked this unlevel playing field is of
unparalleled proportion and can seriously damage the markets.
It is human nature to attribute success to self and failure to outside influences. When you make money as a day-trader, it is due to your knowledge, skill and intuition. When you can't make enough money, it is because of somebody or something. Can it be
the evil HFT and the rigid market infrastructure?
There are different ways of making money. One can invest in technology and infrastructure to achieve competitive advantage. Others use human psychology and desire to find somebody to blame in order to promote their own high-frequency ticker plant or equity
One of my former employers used to position its technology as providing "unfair advantage" and splash this message in its ad campaigns. Will this line become illegal? Will we soon see storekeepers operating out of back alleys demanding that stores located
on high streets be shut down?
© Finextra Research 2015