Thursday, May 09, 2013

 

This is why I quit trading




Starting in 2006 I started noticing very large orders coming into the market quickly and cancelling just as quickly.  It became impossible for a small trader to make markets because these big orders would get most of the trade and they would enter the market at just the right time to buy the bid or sell the offer.  Now I know how they were doing it.  (Although I have suspected this for years.)  It points out one aspect of high frequency trading (HFT), it doesn't add liquidity to the market.  It adds volume and that is very different from liquidity.  Liquidity means that a buyer and seller knows how many contracts they can sell or buy at a particular price.  By looking at the market at any given second you cannot tell if the contracts will be there when you press the button to execute.   One of, if not they, primary purpose of futures markets is price discovery.  HFT makes finding where the market is trading more difficult.

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