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Man vs. Machine, the HFT markets

Started by JJM, 12/11/2012 03:12PM
Posted 12/11/2012 03:12PM Opening Post
Ate you still participating in the stock market? Roughly 70% of the trades in stock markets are now made by computer programs competing against each other for pennies of arbitrage here and there. The high-frequency trading systems (HFT) are supposedly a good thing because the brokers that run them say they improve market liquidity. So what happens when a human being, an in-duh-vidual investor comes along and tries to buy or sell amongst the HFT 'bots?

http://premarketinfo.com/2012/12/11/a-five-minute-example-of-everything-that-is-wrong-with-our-markets/

Not a pretty picture for the guy typing at the keyboard. It should be illegal, but that would require market regulators that cared. 8)

Jim McSheehy
Posted 12/11/2012 04:27PM #1
If you are an investor then the bots are good. If you are a day trader then you must learn to think like a bot. Remember the bots are programmed by humans. They look for inefficiencies and ways to make very small profits on a lot of transactions.
The bit heads have programmed a lot of methods and models, but they still must be right more than they are wrong. Also keep in mind when you hear that the Wall St firms made $10B trading this month, they don't mean trading like taking risk trading. They (those thieves like GS and JPM) are allowed to shop the customer orders for a split seconds (I think 3) to find a buyer or seller at advantageous prices to the firm, of course, skimming a small amount from the customer order. This should be outlawed, but it is also not a large share of the 70% figure.
The machines of which you speak do things like, take the Fed statements off the Fed web site at release and have a word search program which looks for words that are either hawkish or dovish to monetary policy, then take actions on that, which is why the markets get really volatile, all are trying to do the same thing. I was a floor trader for 10 years and this is no different, when news came out and it was bad all the floor traders sold, you are not obligated to buy at a higher price to help out the outside inestor/speculator.

Posted 12/13/2012 10:46AM #2
Margins are slim. I made $102.00 today. Before taxes. At this rate it's going to take a looong time to earn enough for that new car for my wife.