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Robots run amok?

  #9 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

There's no certain argument that passive orders are disadvantaged vs aggressive orders in any scenario. If the hypothesis that "high vol/low liquidity => aggressive makes more money" were true, then this would be an amazing signal because it's so easy for anyone to trade it, and then the aggressive-passive arb would disappear - an apparent self-contradiction.

Sorry that logic is not credible on even a cursory analysis. I didn't say just any aggressive traders: I stated HFT. Most traders aren't HFT. If you look at the futures, faster aggressive HFT traders take the liquidity aggressively which causes passive liquidity providers to put out less liquidity which advantages the faster traders even more at expense of retail traders. This was really easy to see for anyone watching the market, just imagine the exact same system running on a co-located box vs. a retail platform. In less than a second the ES would move multiple points, the fast trader might capture $300-$500 or more in a second while the same strategy on retail would experience instead the loss in slippage. It doesn't have to be an arbitrage. It could be a directional strategy. The point is that in faster markets then the aggressive HFT have a greater relative advantage against other traders using market orders.

Right, it means the retail trader needs to adapt and change the way they trade. It creates new opportunity for other sorts of trading.

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