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The Wolf Hunters of Wall Street
Started:April 1st, 2014 (11:08 AM) by aventeren Views / Replies:117 / 0
Last Reply:April 1st, 2014 (11:08 AM) Attachments:0

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The Wolf Hunters of Wall Street

Old April 1st, 2014, 11:08 AM   #1 (permalink)
Patient Discipline
Bellingham, WA USA
Futures Experience: Beginner
Platform: NT
Broker/Data: Mirus (Broker), Continuum (Data), Dorman (Clearing)
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The Wolf Hunters of Wall Street

Howdy All--

I read a NYTimes Magazine excerpt of Michael Lewis's book "Flash Boys" last night called "The Wolf Hunters of Wall Street" that discusses a whole range of HFT topics, including three mechanisms by which HFTers are able to pull value from orders. Here is a salient paragraph pulled from the article:
As they worked through the order types, the Puzzle Masters created a taxonomy of predatory behavior in the stock market. Broadly speaking, it appeared as if there were three activities that led to a vast amount of grotesquely unfair trading. The first they called electronic front-running — seeing an investor trying to do something in one place and racing ahead of him to the next (what had happened to Katsuyama when he traded at RBC). The second they called rebate arbitrage — using the new complexity to game the seizing of whatever legal kickbacks, called rebates within the industry, the exchange offered without actually providing the liquidity that the rebate was presumably meant to entice. The third, and probably by far the most widespread, they called slow-market arbitrage. This occurred when a high-frequency trader was able to see the price of a stock change on one exchange and pick off orders sitting on other exchanges before those exchanges were able to react. This happened all day, every day, and very likely generated more billions of dollars a year than the other strategies combined.
The excerpt (and likely the book, too--although I have not read it yet) is really more focused on equity exchanges as opposed to futures exchanges, which is likely what we as (formerly BMT) members are more interested in. To what extent do the three predatory methods above (electronic front running, rebate arbitrage and slow-market arbitrage) exist in the futures markets?

Additionally, how do we know that the futures brokers that we have signed up with as futures traders aren't doing one or all of the above predatory methods?

Does a futures market exist on the new IEX exchange?

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