Goldman Sach's stolen algo: Tool for Legal Frontrunning

[rathcoole_exile]

so before your argument was that its unfair as Longs have to pay a slightly higher price to get in ?
Now suddenly, all those Longs are wrong and price is going to reverse anyway ??
If it's a Momentum thing, then surely I benefit anyway. If it fails and reverses, then that's just a normal part of trading ?

If their front-running is really all about squeezing out single pips, points, whatever, good luck to them.
i still really fail to see how that damages or harms me as an independent retail trader.


or am i just fick ?

 

[pedro01]

Pete, I don't want to argue about this. Basically I'll just give you a slap in the pub next time I see you and you"ll agree that I'm right.
How does that sound ?

Friday night ? :cheesy:

Sounds perfect !

 

[BSD]

Love da pub strategy Rathcoole !!!



I'm just flicking through the current european TIME magazine and found these colourful terms for Goldman Sachs:

"...Fox News talker Bill O'Reilly instead refers to the firm as an assemblage of "swine." Rolling Stone writer Matt Taibbi, showing more creativity if not sympathy, calls the firm a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

...The firm's now pilloried entwinement with Washington (some call it Government Sachs) began in those days too."

Too Much Profit? - TIME

I had no idea they have such a fan club, and with such creativity at that.

 

[MakkaPakka]

Love da pub strategy Rathcoole !!!



I'm just flicking through the current european TIME magazine and found these colourful terms for Goldman Sachs:

"...Fox News talker Bill O'Reilly instead refers to the firm as an assemblage of "swine." Rolling Stone writer Matt Taibbi, showing more creativity if not sympathy, calls the firm a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

...The firm's now pilloried entwinement with Washington (some call it Government Sachs) began in those days too."

Too Much Profit? - TIME

I had no idea they have such a fan club, and with such creativity at that.

If you write for Rolling Stone you have to try and sound like Hunter S. Thompson. Its a rule at that magazine.

MP

 

[oildaytrader]

How is this bad?
They are providing extra liquidity to the system,all these moves are liquidity induced,not information induced and they are self defeating eventually.
Just like statistical arbitrage.

What world is that extra liquidity going to?The dot com bubble was a classic example of liquidity squeeze , front running and muppet masters at the investment banks .

These investment bankers are bit like super expenses MPS filling their pockets, the investment community is doing exactly the same.

Zero returns for the ftse all share index for last 10 years , in fact losses for many investors, yet the investment community is filling their pockets by hook or crook with bonuses , leaving the investors and tax payers bailing out the city.

What liquidity are they providing?some empty words?

 

[Trader333]

yes but for every Long who would lose in this way, surely there'd be a Short (entrant) who would benefit ?
and if like me, you only used resting Buy Stops as your Long entries, surely you'd get swept up in the GS tide and carried North, which can only be good ?

I was thinking along similar lines as presumably this only applies to market or stop orders but not to Limit orders ?


Paul

 

[MakkaPakka]

Cui bono ? The real vig is in risk management

A lot of the business of investment banks these days is in the creation of individually tailor made option packages for sale to large corporates (bespoke risk management solutions). This is an attempt to return to the 3-6-3 model of banking with a 21st century twist.

If the bank is simultaneously stirring up the market as part of its market making business then the corporates will be systematically over-paying for managing their risk. Since the shareholders, fund managers, non execs and governments are always nagging them to do just that then what choice do they have but to pony up?

Corporate boards tend to think of options as a perq of their job lined up for them by IBs rather than something they need to be afraid of so they won't see this stealth tax chewing away at their already marginal profitability until too late.

By that time the hardy surviviors will be in need of a bit of a loan to keep their heads above water and the banks will have recovered the reserves to be able to deliver it.

Nice work if you can get it.

cheers,

MP

 

[Gumping]

A lot of the business of investment banks these days is in the creation of individually tailor made option packages for sale to large corporates (bespoke risk management solutions). This is an attempt to return to the 3-6-3 model of banking with a 21st century twist.

If the bank is simultaneously stirring up the market as part of its market making business then the corporates will be systematically over-paying for managing their risk. Since the shareholders, fund managers, non execs and governments are always nagging them to do just that then what choice do they have but to pony up?

Corporate boards tend to think of options as a perq of their job lined up for them by IBs rather than something they need to be afraid of so they won't see this stealth tax chewing away at their already marginal profitability until too late.

By that time the hardy surviviors will be in need of a bit of a loan to keep their heads above water and the banks will have recovered the reserves to be able to deliver it.

Nice work if you can get it.

cheers,

MP

Makka Pakka Mikka Makka Wikka Wakka Woo!! :clap:

 

[Garbanzo]

What world is that extra liquidity going to?The dot com bubble was a classic example of liquidity squeeze , front running and muppet masters at the investment banks .

These investment bankers are bit like super expenses MPS filling their pockets, the investment community is doing exactly the same.

Zero returns for the ftse all share index for last 10 years , in fact losses for many investors, yet the investment community is filling their pockets by hook or crook with bonuses , leaving the investors and tax payers bailing out the city.

What liquidity are they providing?some empty words?

Investment bankers are the praetorian guard of capitalism.
They should be held as role models for their service to society,their role in the allocation of capital throughout the economy is absolutely vital for economic growth.
The real *******s are the idiots running the central banks of the world manipulating interest rates and the money supply.
I will open a thread for you in a bit.

 

[BSD]

Good read, the founders of SMB Capital are long term traders who went on to found a prop firm:

"High frequency trading and Amazon

HFT (high frequency trading) has dominated the financial media of late. @zerohedge, Charlie Gasparino and CNBC, the StockTwits nation, @steenbab, GMan from @smbcapital, and many other talented bloggers have all weighed in. And then came Senator Schumer:

(from Bloomberg courtesy of @zerohedge): Senator Charles Schumer asked the U.S. Securities and Exchange Commission to ban “flash orders,” saying the transactions give high-speed traders an unfair advantage over other investors.

Wow!

For all those heavily invested in adjustments to HFT you cannot ask for a more powerful person to enter the room. You have gotten Senator Schumer’s attention. Well done.

I will let others discuss the merits of HFT in length. I am not an expert in market ethics or the strategies employed by sophisticated hedge funds and mutual funds employing HFT. And I do not decide policy for the securities markets. I will tell you though that I cannot get fills that I used to get. Programs touch a few shares of my order and immediately cut me. I can add there is more trading being done on exchanges that I cannot access. This is unfair. I have spotted HFT programs that are impossible to beat. So I stay clear of them. And as I trader I certainly hope the markets offer a level playing field for all of us.

Look, the players are in the room. And this is excellent work done by those who have spoken out. Senator Schumer and government agencies handle policy. I am a trader. I will focus my attention on the adjustments that I must make during this trading period that includes HFT. And I hope in this blog to offer a few helpful ideas for traders while this HFT controversy is sorted out.

Yesterday we had such an example of HFT that I have learned to avoid. At 86.60 @smbcapital tweeted:

if you want a good example of HFT manipulation watch $AMZN around 86.60

HFT was dominating trading around this level. I could not read whether AMZN would trade higher or lower. And my charts were not definitive.

A few times I thought I could read the tape and made plays around 86.60. The results? A short term short in front of 86.60 ended in a loss of 25c (and my entry and exit prices were much worse b/c I couldn’t get this seemingly liquid stock at the price I preferred). A long above 86.60 ended in a small loss. Ok so now I see a pattern. The short term longs are losing and the short term shorts are losing. And our losses are greater than normal.

Now I had a choice. I could continue to pretend that I could compete against these difficult programs at this price. This undoubtedly would have concluded with me giving back all of my gains. Or I could choose a different path. And so I tweeted:

a great example also of when we shouldn’t play in $AMZN around 86.60 bc of HFT manipulation. wait 4 it to trend then play. but not now.

I waited for AMZN to pick a direction. Around 86.40 I could read the tape again. AMZN was headed lower most likely. I reshorted. And I caught a nice move down to 85.90.

HFT makes our trading more challenging. There are set ups and time periods we need to avoid, such as AMZN 86.60. But trading is trading. We look for strong stocks and get long. We search for weak stocks and get short. Yes HFT shakes us out of more positions. Yes it is harder to get stock. And yes it would be nice if HFT were not as prevalent. But guess what? HFT is here. And it will only grow. So as a trader I must adapt.

But we as traders can limit their impact through our own trading. We can choose not to play when HFT eliminates our edge. If you go to a local restaurant and they charge too much for what they offer, then most of us choose not to revisit. And we can do the same when we spot HFT. If you do not play then they cannot take your money.

Now that does not mean that adjustments should not be made to HFT. There are solid arguments being proffered that changes must occur. Manipulation has no place in the markets. And we should all have access to the same order flow. The market should reward the best traders and not those with an unfair advantage, such as access to exchanges others of us cannot reach. But we can all still compete even with all this HFT.

When we went to 1/16ths back in the day I heard this was the end of intraday trading. When we transitioned to pennies I heard that it was all over for the intraday trader. When Hybrid was introduced this was supposed to be the final nail for us. When programs entered our markets this was supposed to manifest our dissolution. Some traders were forced out during each of these changes. But good traders adapt. They find new patterns to exploit. HFT will not be our ruination. It is just another market challenge that we must learn to overcome.

I would like to see some changes made to HFT. But you know what? If things remain the same, then I will adapt. Today I am at the office on Saturday ripping through some charts for excellent set ups on Monday. And now that SPY closed above 96.10 on heavy volume, I like the way the market is set up. This is a market overflowing with opportunity. I will figure out how to make money even with the HFT. I am a trader."

SMB Capital – Day Trading Blog Blog Archive HFT and AMZN

 

[BSD]

Also good read from Brett Steenbarger:

"Thoughts on High Frequency Trading and Stock Market Manipulation

This article from the New York Times does a nice job of giving an example of how high-speed trading algorithms can front run markets. It helps to explain why traders who only buy or sell after strength or weakness has been manifested are often the ones buying the high tick or selling the low one.

It seems to me that some of the traders who are most vulnerable to these machinations are very active traders (including prop houses) who frequently bid and offer for stocks. The algorithms are reading the order book ahead of others, which tips the hand of these traders.

Because the high-speed algos are buying and selling quickly as a rule, their effects on the markets longer-term are unclear. A stock may still travel from point A to point B, but the computers will affect the path from A to B. This may help explain why traders I work with who are more selective in their intraday trades and who tend to hold for longer intraday swings on average have been doing better than very active daytraders.

When up to half of all stock market volume consists of these algorithmic trades, one has to wonder about the edge of very active traders. "
TraderFeed: Thoughts on High Frequency Trading and Stock Market Manipulation

 

[tar]

http://www.algotradingpodcast.com/files/Algorithmic Trading - Executive Summary.pdf

 

[maxima]

I .. I am sorry.. I am not very bright... Where the 'frontrunning' thing came from? Could you guys please help and quote the exact bit?

Thank you

 

[BSD]

Err...

They see orders before us.

They can trade before us, byuing at a lower price than us.

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Front running is the illegal practice of a stock broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers. When orders previously submitted by its customers will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage, since it can expect to close out its position at a profit based on the new price level.

 

[maxima]

Right and this diagramm is a matter of fact or a journalist reconstruction/dramatisation?

I mean frontrunning is being watched by financial regulators for ages by now... How could they build a system which breaks the law in so obvious manner?

 

[BSD]

Right and this diagramm is a matter of fact or a journalist reconstruction/dramatisation?

Oh yeah it's indeed a matter of fact.

The exchanges themselves admit to the practise, it's no secret any longer.

High-Frequency Trading Faces Challenge From Schumer (Update1) Nasdaq OMX Group Inc., Bats Global Markets and Direct Edge Holdings LLC, which handle more than two-thirds of the shares traded in the U.S., offer flash orders to their customers.- Bloomberg.com

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Joe Ratterman, CEO of US equities exchange BATS, has said he would welcome further discussion around the use of controversial ‘flash’ order types, despite the fact that US regulator the Securities and Exchange Commission (SEC) has approved them.

The disputed order type, called BOLT in BATS’ case, allows unfilled orders to be held and displayed to members of a venue before being routed elsewhere. Some market participants, most notably NYSE Euronext, operator of the New York Stock Exchange, have been vocal in their opposition to such functionality, arguing that it flies in the face of Reg NMS, and in particular Rule 611 – better known as the order protection rule.
http://www.thetradenews.com/asset-classes/equities/3391

----

Nasdaq Rolls Out Flash Orders to Market Participants As Debate Stirs

NYSE Fires Off Letter to SEC As Practice Spreads to Multiple Market Centers
By Ivy Schmerken More from this author
JUNI 02, 2009
The Nasdaq Stock Market launched two types of "flash" orders on Monday that give participants a chance to fill an order by disseminating it to market participants before it's routed to the public markets.
http://www.advancedtrading.com/regulations/showArticle.jhtml?articleID=217701372

Etc.

 

[maxima]

OK, so SEC approved this parctice and NYSE is investing half-billion money in the infrastructure to support HFT... These fact hardly indicates that as an illegal activity...

But I understand I am going to be a minority here... Wont interrupt you here anymore... You were saying? "those swine capitalists..".. Go on.. :cheesy:

 

[Trader333]

This is not really about legality but more about fairness and transparency and the fact that the switch to electronic markets should have presented an equal opportunity to all.


Paul

 

[rawrschach]

OK, so SEC approved this parctice and NYSE is investing half-billion money in the infrastructure to support HFT... These fact hardly indicates that as an illegal activity...

But I understand I am going to be a minority here... Wont interrupt you here anymore... You were saying? "those swine capitalists..".. Go on.. :cheesy:

It's not HFT per se that is illegal it is flash orders, which have been banned by the CME. Apparently NASDAQ doesn't seem to share the CME's opinion and thinks it's ok to show big clients what's in the order book before you can see it.

 

[N Rothschild]

well flash orders wouldnt be that beneficial on CME as most of the markets are still driven by the pits..