can someone explain flash trading

[brut]

So as I understand it: flash trading is when an exchange flashes orders to their own members before feeding them in to the market. So the order can get filled by a member of the exchange, who can then trade out a a better price in the nationwide market.

So here's what I dont understand: why does the exchange only flash the orders ? why don;t they leave them up there for minutes, or hours? why does it have to be a flash ?

I know its something to do with the fact that orders should be filled at best price, however, I can;t work out how this works. say I have an order to buy stockA at 300 and someobne else wants to sell at 299. are our orders not just matched by an exchange, or by a market maker? and if we are both entitled to best price, who gets the better price, me as the buyer or the seller ?

many thanks

 

[Technically Fundamental]

arbed by someone with a quick finger or a good algo??

 

[The Philosopher]

Explains a little in this link to Bloomberg.

Flash trading
and
Traders magazine

Mark.

 

[sandpiper]

So as I understand it: flash trading is when an exchange flashes orders to their own members before feeding them in to the market. So the order can get filled by a member of the exchange, who can then trade out a a better price in the nationwide market.

So here's what I dont understand: why does the exchange only flash the orders ? why don;t they leave them up there for minutes, or hours? why does it have to be a flash ?

I know its something to do with the fact that orders should be filled at best price, however, I can;t work out how this works. say I have an order to buy stockA at 300 and someobne else wants to sell at 299. are our orders not just matched by an exchange, or by a market maker? and if we are both entitled to best price, who gets the better price, me as the buyer or the seller ?

many thanks

If you the answer straight from the horses mouth then I think it's pretty much covered by NASDAQ Rule 4758(a)(1)(A) and the amendment to BATS rule 11.13. If the issue concerns you you should do yourself a favour and read them.

There seems to be some confusion amongst people who don't recognise them as marginally different things. Whilst both concern the flashing of orders, which are still filled immediately if they can be filled within the BBO btw. The NASDAQ orders are flashed for upto 3 seconds whilst the BATS orders are flashed for half a second. I haven't read the BATS rule in suffucient detail to tell, but the NASDAQ rule tells you that flashing is only done with orders using a certain routing strategy and crucially, is done according to the preference expressed by the party placing the order.

Neother would seem to me to present a series threat to the smalish retail trader, i.e. front-running. Rather, they seem to be intended as a rather eloborate INTRA-exchange crossing mechnism for large traders to get filled within the originating exchange at a price matching or better than the price available outside the originating exchange.

An that last bit is really the key. In originating an order, say on NASDAQ, if it is filled locally based on a flash, crucially, the fill must still represent best execution and be at a price equal to or better than could be achieved off-exchange, i.e. at the NYSE.

However, having said all that, if you want a definitive answer I would suggest that you might be better to address your query to someone like Mr. Charts or Robert Weinstien.