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The Wall Street Code
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The Wall Street Code

  #51 (permalink)
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what I am concerned with is a practical matter, regarding the upcoming NT8, Gomi, tick aggregation methods and display changes

on this thread we discussed how the exchanges are trying to catch up but not stop the abuses that the larger members and participants use to hide their nefarious actions and sometimes their trades,

the sophisticated retail trading block (us guys) have devised things similar to what Jigsaw trading, Gomi and others have proposed to reassemble and aggregate ticks into their original blocks or supposed blocks, so as to counter the breaking up of true size trades....

with the proposed changes to NT8, how will these services, products and packages (many of them paid subscriptions) work, when NT8 starts providing these features (of a close facsimile thereof)?

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  #52 (permalink)
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Outlier View Post
It was the long term trader who first placed his order at 20.02 and actually improved the best bid. He didn't place a bid at 20.01, it was slid back there by the exchange and later rebooked to its original submission price.

I feel that you're arguing with me for the sake of arguing.

I explained to you the trigonometry of estimating distances between 2 points on Earth, and you came back telling me that you bent a piece of paper (did you find an Earth-sized piece of paper?) and don't trust my numbers based on that logic.

And now this. You just said it yourself, his bid was at $20.01. The order at $20.02 came in AFTER his bid (so it is not front-running), AND at a better price (so it has price priority and is not "jumping the queue"). There's nothing inherently "HFT" about this, because there is plenty of time for any manual trader to do this - it's just placing an order at a better price.

What if the best ask widens to $20.10 at Direct Edge meanwhile the offers at $20.02 are present at the away markets, for another 1 minute after you've been slid back to $20.01? I have a full 1 minute to place a (hidden) bid at $20.09, $20.08, ..., $20.02. What, so you're saying that when the market unlocks, my (hidden) bid at $20.09 should now be rebooked behind your bid at $20.01? What kind of socialist matching engine is that?

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  #53 (permalink)
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kronie View Post
what I am concerned with is a practical matter, regarding the upcoming NT8, Gomi, tick aggregation methods and display changes

on this thread we discussed how the exchanges are trying to catch up but not stop the abuses that the larger members and participants use to hide their nefarious actions and sometimes their trades,

the sophisticated retail trading block (us guys) have devised things similar to what Jigsaw trading, Gomi and others have proposed to reassemble and aggregate ticks into their original blocks or supposed blocks, so as to counter the breaking up of true size trades....

I'm sorry? But it sounds to me that you're the one who is trying to profit nefariously from other, good-natured people.

An 18 year old girl just inherited $50M of MSFT stocks from her deceased grandfather and needs to pay estate tax, or she will go bankrupt.

So she decides to sell 25% of those stocks through Goldman Sachs and 25% through GETCO, to pay for her taxes. Goldman breaks up her order and places hidden offers because they don't want to move the market with such a huge trade. What? Is this abusive? Does that mean you want her to sweep the entire order book so the hard-earned $25M that her grandfather spent 20 years accumulating becomes $5M now? You're trying to detect her trade presumably to trade against her and rob the money that the old man left behind for his beloved granddaughter so that she can pay for college - and that's not abusive?

I don't trade client flow but if morality was an issue here, I'd rather GETCO be on the winning side of the trade against Joe Blow, who is using NT8 and Jigsaw Trading(?) and hoping that he lands that big winning trade that robs an old man/young girl's money, so he doesn't have to work a 9-to-5 job ever again.

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  #54 (permalink)
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artemiso View Post
I'm sorry? But it sounds to me that you're the one who is trying to profit nefariously from other, good-natured people.

An 18 year old girl just inherited $50M of MSFT stocks from her deceased grandfather and needs to pay estate tax, or she will go bankrupt.

So she decides to sell 25% of those stocks through Goldman Sachs and 25% through GETCO, to pay for her taxes. Goldman breaks up her order and places hidden offers because they don't want to move the market with such a huge trade. What? Is this abusive? Does that mean you want her to sweep the entire order book so the hard-earned $25M that her grandfather spent 20 years accumulating becomes $5M now? You're trying to detect her trade presumably to trade against her and rob the money that the old man left behind for his beloved granddaughter so that she can pay for college - and that's not abusive?

I don't trade client flow but if morality was an issue here, I'd rather GETCO be on the winning side of the trade against Joe Blow, who is using NT8 and Jigsaw Trading(?) and hoping that he lands that big winning trade that robs an old man/young girl's money, so he doesn't have to work a 9-to-5 job ever again.

HFT's (high frequency trading shops, algos and such) are the nefarious ones, who eat so many lunches away from that poor example and us poor (sophisticated retail traders) blokes....

hope you're keeping up with current news events, instead of carefully crafted stories...

hope you're succeeding in your emini trading, although just mentioning "emini" doesn't limit the discussion solely to that vehicle, it could be equities, equity options, indexes, index options, futures, futures options, etf's, bonds, or whatever...

hope your succeeding,

normally we participate on these threads with some assemblence of reality of thought and intention, but, every so often, comments like these come along and expose whom we really are, for that brief moment (of the comment)...

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  #55 (permalink)
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Granted I am half asleep, but I think both of you guys are right.

First. The institution seems to be a complete dummy by sending a non-routable order at $22.02. When they took the 1000 off that exchanges book, then got the rest of their order slid back to $22.01 to comply with Reg NMS. The HFT immediately knew what was up. Almost like playing poker with your cards facing up for everyone to see.

At this point, the HFT puts in a HNS order at $22.02. Thanks to Reg-NMS it too cannot be shown at $22.02. Even though the order appears to be slid and showing at 22.01, it is basically in the que at 22.02 waiting to be lit when the NBB moves. (The institution entered the original order at 22.02, their order actually slid and left the 22.02 que. Whereas the HFT did not.)

When the institutions order moved back to 22.02 after the NBB moved up, it had to take a back seat to the HFT order even though technically, they (institution) entered theirs first. When it originally slid to 22.01 and then moved again to 22.02, it screwed up their positioning because they used the wrong order type and while had time priority, they didn't have order priority. (Think of it this way.. Their order was at 22.01 and when the market moved up, the order was cancelled and a new one was entered at 22.02 moving them to the back of the line)

So everyone is right.. Yes, the institution was first, but at the same time, they weren't!

It has been a long day for me, hopefully this makes a bit of sense.


Last edited by lookOutBelow; December 3rd, 2013 at 01:06 AM. Reason: hopelessly trying to make sense
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  #56 (permalink)
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kronie View Post
on this thread we discussed how the exchanges are trying to catch up but not stop the abuses that the larger members and participants use to hide their nefarious actions and sometimes their trades,

I don't think the exchanges are trying to catch up. They know exactly what is going on because they created these order types to bring in volume from the fast traders. Exchanges and Reg NMS are the problems. Not HFT traders. They are playing by the rules. To their detriment, most participants just don't know what the rules are.

I'd also go out on a limb and say that a big reason why a lot of these order types were created was to limit messaging traffic on exchanges. The HFT firms can now use HNS instead of constantly bombarding them with orders/cancels to get a better que position.

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  #57 (permalink)
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kronie
you know, if you were licensed with your Series and such, and paid salary to be a public broker, I would agree, but from the perspective of private traders, such as on these threads, one's perspective takes time to realize its you (p[personally] against all others on the other side of the trade, and every time you lose on a trade, someone on the other side got the better of your position, so making up auntie annie and such

1. I gave a real example. I also know many instances where a $300B fund of IRAs, university endowments and charities that has its own trading desk, still handing 50% of its flow to 2 broker-dealers' high-frequency algorithmic trading groups, to reduce their slippage costs. Again, an IRA/university endowment/charity makes more meaningful contributions to society, yet Joe Blow uses NT8 and Jigsaw Trading(?) hoping to front-run their large trades so he could buy a nicer car for himself.

2. I have my series licenses but I don't think it's relevant here.

3. I've never been a 'public broker', but I've worked at a broker-dealer in NY before. (Not that this matters much, because we had Chinese walls: There were 2 secured entrances to the same firm on every floor - 2 sets of ID cards; 1 set gave you access to the left door and the brokerage and clearing functions of the firm; 1 set gave you access to the right and the principal activities of the firm.)


Last edited by artemiso; December 3rd, 2013 at 01:46 PM.
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  #58 (permalink)
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artemiso View Post
I can prove to you with very solid evidence that:

1. We provide liquidity and decrease trading costs for long-term investors.
2. We don't compete against retail. Our strategies compete in a totally different space.

I happen to know the CEOs at 4 of the fastest firms in the world. Over the course of this year, the firm that I launched has become one of the fastest, at least in the instruments that we trade. One day, I coordinated an experiment that allowed us to share our trading histories without exposing our strategies.

This was simple. Each of us generated a random matrix of integers, {R1, R2, R3, R4, R5}, and overlay it over the sizes of our orders {O1, O2, O3, O4, O5} so we each obtained an augmented matrix {O1+R1, ..., O5+R5}.

The first person sent O1+R1 to the second person, who sent (O2+R2)+(O1+R2) to the third person. After this went through everyone, I sent O5+R5+O4+R4+O3+R3+O2+R2+O1+R1 back to the first person, whose order matrix O1 is now anonymous and can now remove R1, and send O5+R5+O4+R4+O3+R3+O2+R2+O1 to the second person. This repeats and finally I received O5+R5+O4+O3+O2+O1 and deducted my own key, R5, so I have the sum of all of our order sizes without knowing each firm's strategy. It's easier to visualize this if I illustrate each step:

1st: O1+R1
2nd: O2+R2+O1+R1
3nd: O3+R3+O2+R2+O1+R1
4th: O4+R4+O3+R3+O2+R2+O1+R1
5th: O5+R5+O4+R4+O3+R3+O2+R2+O1+R1
1st: O5+R5+O4+R4+O3+R3+O2+R2+O1
2nd: O5+R5+O4+R4+O3+R3+O2+O1
3rd: O5+R5+O4+R4+O3+O2+O1
4th: O5+R5+O4+O3+O2+O1
5th: O5+O4+O3+O2+O1

Unlike the CFTC/CME Section 8 audit trail data, which didn't actually identify the "HFT" participants and needed some deduction based on trading volumes (not a measure of speed), I knew specifically that our 5 firms dominated this particular instrument in terms of speed. Agreeing on the instrument and time period was a more difficult problem. We agreed on a fairly uneventful and short time, but an instrument that we knew each other dominated. I translated the price levels and made the instrument and date anonymous because this data was shared in trust.

Here are the 250 levels of best bids and asks of our trading strategies:

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Now, I add the trading activity of all other participants on this instrument (pink and light blue graphs):

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@Outlier said that a "HFT" erodes your return during the trade entry and exit. Well, imagine a market without low latency electronic market-makers then. In this instrument, most of your liquidity would have vanished and the spreads would've been 10-20 ticks wide. The problem is really when you get greedy: we've already brought the spread down to 1 tick wide and you are still trading passively on both ends hoping that you pay 0 ticks on the entry and exit. Your job is really to use market orders on both ends.

My graphs also show something important: We have a huge forecasting advantage over anyone. It has nothing to do with speed but rather that we have very sophisticated research that allows us to participate in 250 over price levels very intelligently. There's honestly no competition at all between us and even the 'sophisticated retail traders' (using NxCore or something) because your forecasts have practically no overlap with ours. During volatile times, our 5 firms are actually supplying most of the liquidity near the top of the book (see the parts where the orange and dark blue peaks are above the other participants' volume).



1. I gave a real example. I also know many instances where a $300B fund of IRAs, university endowments and charities that has its own trading desk, still handing 50% of its flow to 2 broker-dealers' high-frequency algorithmic trading groups, to reduce their slippage costs. Again, an IRA/university endowment/charity makes more meaningful contributions to society, yet Joe Blow uses NT8 and Jigsaw Trading(?) hoping to front-run their large trades so he could buy a nicer car for himself.

2. I have my series licenses but I don't think it's relevant here.

3. I've never been a 'public broker', but I've worked at a broker-dealer in NY before. (Not that this matters much, because we had Chinese walls: There were 2 secured entrances to the same firm on every floor - 2 sets of ID cards; 1 set gave you access to the left door and the brokerage and clearing functions of the firm; 1 set gave you access to the right and the principal activities of the firm.)

Very insightful, thank you for sharing.

Mike

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  #59 (permalink)
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artemiso View Post
I can prove to you with very solid evidence that:

1. We provide liquidity and decrease trading costs for long-term investors.
2. We don't compete against retail. Our strategies compete in a totally different space.

I'd say that this is a really insightful post, but I can't follow enough of it to know for sure.

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  #60 (permalink)
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The Great Fed Robbery


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I was going to reply to it.

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