CONCEPTUAL ORDNANCE AND SYMBOLIC MUNITIONS FOR THE PARADIGM WARRIOR.

Posts tagged “HFT

A window into the Wall Street Casino.

In case your wondering how yesterday’s trading “aberration” on the DowJonesIA could possible happen, I point you to this beautiful article I found posted on Zero Hedge by JS Kim – “The Near 1,000 Point Slide of the DJIA Compels Further Investigation of the Wall Street Casino Scam”.  I’ll share a couple of excerpts that are too great not to capture – but you really have to read the whole thing:

Predatory algorithmic HFT programs aren’t called “predatory” without good reason. Not that yesterday’s selloff wasn’t partially the result of fear injected into a Fed Reserve inflated stock market bubble, because it was. But Wall Street deployed HFT programs had a lot to do with the cascading nature of the decline in yesterday’s trading. Continuing our casino analogy, HFT programs act in the same capacity as the thugs employed by casinos that take you to the back room to rain down their “thuggery” upon you if you start winning too much.  HFT programs are designed to block the retail investor from making successful trades against the trades of the house (Wall Street) and often prevent the retail investor from obtaining fair prices in the execution of trades in numerous financial markets.

Consider the following example. Stock A’s bid is $10.10 and the ask is $10.13.  An investor places an order to buy at $10.13. Instead of his order being filled and executed as it would if human traders were executing the trade, HFT programs often immediately step up the ask price to $10.14 and screw both parties in the trade.  Depending on the orders that HFT programs “see”, sometimes the HFT will see an order at $10.13, and step up the price to $10.18 so the bids follow higher and the bid price gets reset from $10.10 to $10.13 almost immediately.  Or, if the bid price does not follow higher, then the bid-ask spread becomes grotesquely distorted from $0.03 to $0.08 for no other reason than HFT programs are blocking liquidity.  Should the human trader withdraw his order to buy at $10.13, then often the bid-ask spread almost immediately returns to $0.03 and the ask will subsequently fall from $10.18 back to $10.13.  Should he place the order again seconds later, however, the bid-ask spread will often immediately increase again with the bid price increasing to a point higher than $10.13 again.

And this:

The ratings agencies like Moodys and Standard and Poors are the pretty cocktail waitresses that lure the mark (the retail investor) into the Casino (stock markets) with free alcoholic drinks (abominably horrible and deceitful credit ratings of financial instruments) to instill the mark with the false sense of confidence necessary to induce gambling in the rigged Casino.  The regulators like the CFTC and the SEC are the pit bosses that oversee the floormen (Wall Street firm CEOs) that oversee the table games dealers (the firm’s traders) and ensure the games (stock markets, currency markets, commodity markets) you are allowed to play possess a feature (HFT trading programs) that ensures that the odds will always enormously be in favor of the house.  The pit boss oversees all floor dealers and conspire with the regulators (the cocktail waitresses) to give gamblers (the investor) a sense that all dealings are legitimate even though the odds of every table game (currency markets, commodity markets, stock markets) are insanely rigged in favor of the house (Wall Street firms).  If we consider the table game of blackjack, in a real casino, should you receive a good hand, the dealer will pay out your bet. In the case of Wall Street, due to HFT programs, in many instances, should an investor receive a favorable hand (i.e., a favorable move in the stock market) in the game he or she is playing, HFT programs move in to prevent the bet from paying out in full or paying out at all (an investor’s sell order never executes at the price at which the market has informed the investor that he or she can cash out).

Read the rest.

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