Joe Saluzzi: HFT Parasites Are Killing The Market Host - News and Current Events | futures io social day trading
futures io futures trading

Joe Saluzzi: HFT Parasites Are Killing The Market Host
Updated: Views / Replies:634 / 1
Created: by kbit Attachments:1

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 100,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Thread Tools Search this Thread

Joe Saluzzi: HFT Parasites Are Killing The Market Host

  #1 (permalink)
Elite Member
Aurora, Il USA
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: futures
kbit's Avatar
Posts: 5,886 since Nov 2010
Thanks: 3,304 given, 3,334 received

Joe Saluzzi: HFT Parasites Are Killing The Market Host

oe Saluzzi, expert on algorithmic trading -- also known as high-frequency trading, or HFT -- returns as a guest this week to explain how the players behind this machine-driven process act as parasites that are destroying our financial markets (and, increasingly, even themselves).

Since Joe first spoke with us last year, HFT firms have only increased in size and share of market activity. Here are some staggering statistics on how influential they have become:

HTFs make up between 50-70% of the volume seen across market exchanges today
2% of the traders on many exchanges (HFTs, specifically) represent 80% of the volume
a single large HFT firm (referred to as a Direct Market Maker) can account for 10%+ of a market's volume on a given day
Large HFT firms make between $8 to $21 billion a year
HFT trades occur in milliseconds (i.e. a small fraction of the time it takes your eye to blink)

With such scale, speed and profitability, HFTs have turned the market away from being an efficient price-setting mechanism and perverted it into a casino where the clientele (i.e. human investors) gets fleeced.

And our regulators are so outmatched by the scope, complexity and funding of these titanic HFT players that at moment, there are pretty much zero consequences for bad actors.

Interestingly, these HFT parasites, which live by generating fractions of pennies in millisecond-timed trades, may be sowing the seeds of their own demise through their blind gluttony and hyper-competitiveness. As their quest for incremental advantage begins to bump up against the limits of physics (such as the speed of light), the marginal cost of the next increment of advantage increases exponentially. Profitability is being squeezed out and will disappear entirely some day.

Sounds good to the rest of us investors, right? Not so fast. A key question to ask should these parasites experience a self-induced mass-extinction effect:

What will happen to asset prices when all that volume suddenly disappears?
HFT's Bloodsucking Role In the Financial Markets

There is a host-parasite relationship. The host is the traditional order or the retail or institutional order. They will always lose. There is no doubt about it. The parasites are circling around that host all day long trying to find where they are going to take advantage of them – whether it is a VWAP order (Volume-Weighted Average Price) or something like that.

If there are no hosts or the hosts are starting to decrease – because they are based on the mutual fund outflows that we talked about before – the parasites find it hard to make money. There is no more to feed off of. So they start to feed off of each other, which means that their margins by definition are going to have to start shrinking until it becomes unprofitable. And it will become unprofitable when all of a sudden they have to invest hundreds of millions of dollars to gain an extra microsecond, yet they are not getting their returns back.

o the real fear that we have is that when it becomes an unprofitable opportunity or venture for them, what will they do? Will they walk away? Who will be left holding the bag? Where did all that “liquidity” go? Who is left now? Hopefully what will happen was the market will find its own solution at that point. But you would have some scary days, I can bet, between now and then.

The Bastardization of "Investing"

If you are an investor and you want to diversify -- which everybody should be doing, right? -- you want to pick different asset classes. You want to get things that are inversely correlated because that is how you can prevent yourself from taking a large loss, especially if you are a conservative investor.

There was actually a report – I think it was a couple of months ago and it was produced by the U.N. -- they studied the correlation between oil and stocks. And they found it at record levels over the last five years. It just shot up off the charts where oil would normally be a negative correlation with stocks. And they were scratching their heads. And one of the things they pointed to was the correlation effect of the high frequency traders trading multiple asset classes.

So this has been documented now. It is not just us kind of guessing, saying, “Well, I bet it was the HFT’s correlating asset classes.” Everything trades together. That does not make for a healthy market. That does not make me feel comfortable that I can hedge my position right now unless I was just trading around a zero position all day, like most of these guys do in the high frequency trading world.

So what do you do as an investor? How do you diversify yourself? It is very, very troubling and at this point there really is not an answer to it.

The Impotence of Our Regulators

When you are dealing with this type of computing power and this heavy amount of quote traffic as well as trade traffic, the quote traffic is enormous. Every time an exchange tries to update their capacity, it immediately jumps up to the capacity level. It is a constant amount of quotes, trades, and cancellations. They do not have the systems available to track this type of behavior.

So you have got one of two options if you are a regulator. Either, a) get up to speed quickly so that you can track this behavior so the investing public could feel confident again. Or, b) you have to start limiting this type of behavior. There is no other option. You cannot allow this to continue to go on. And by limiting it, something that we would suggest is maybe a real cancellation fee, not the ones that have kind of been suggested. Maybe a minimum order timelife.

If I said to you, “Hey, we want a 50 millisecond minimum order timelife, would that be a problem?” And I would think it would not be a problem. Because, guess what? I just blink my eyes and it took me 200 milliseconds to do that. So 50 milliseconds really should be that big of an issue. And there have actually been reports – studies by academics that have said, “Any order less than 50 milliseconds really does not contribute to any liquidity.” So do not give me that you are going to be hurting liquidity.

So the bottom line is the regulators are overmatched and they need to do something now. And they have really one of two options. And the option of getting up to speed probably is not in their budget right now.

Joe Saluzzi: HFT Parasites Are Killing The Market Host | ZeroHedge

Reply With Quote
The following user says Thank You to kbit for this post:
  #2 (permalink)
Membership Revoked
Ontario, Canada
Futures Experience: None
Platform: NT
Broker/Data: IB
Favorite Futures: gold
dario1's Avatar
Posts: 405 since Jan 2012
Thanks: 62 given, 52 received

kbit View Post
With such scale, speed and profitability, HFTs have turned the market away from being an efficient price-setting mechanism and perverted it into a casino where the clientele (i.e. human investors) gets fleeced.

I'm with you on this one

Attached Thumbnails
Joe Saluzzi: HFT Parasites Are Killing The Market Host-_sheep1.jpg  
Reply With Quote
The following user says Thank You to dario1 for this post:


futures io > > > > Joe Saluzzi: HFT Parasites Are Killing The Market Host

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

July Journal Challenge - $500 in Amazon Gift Cards!


Battlestations: $750 in prizes - Show us your trading desk!


TBA: FuturesTrader71 w/Morad Askar

Elite only

Similar Threads
Thread Thread Starter Forum Replies Last Post
Apple to Host Monday Call on $100 Billion Cash Pile Quick Summary News and Current Events 0 March 18th, 2012 10:20 PM
Leibowitz: Finding New Ways to Police an Automated Market (HFT related) kbit News and Current Events 0 December 29th, 2011 11:04 AM
Commissions for ES are killing me! Jugador Traders Hideout 21 July 18th, 2011 04:35 PM
Joe Ross Hook' and 123's jimfini EasyLanguage Programming 5 December 6th, 2010 03:26 PM
Sherrif Joe Big Mike Off-Topic 5 August 27th, 2009 09:09 AM

All times are GMT -4. The time now is 06:59 PM. (this page content is cached, log in for real-time version)

Copyright © 2018 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432,
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2018-07-21 in 0.11 seconds with 15 queries on phoenix