This handy diagram demonstrates how some high-frequency traders (allegedly) use “flash orders” to front run. Click to enlarge.
It’s basically like the scam from Office Space. Stealing a few pennies at a time, millions of times a day. Who’s gonna notice?
Some HFT firms are (once again, allegedly) using superior access, hardware, and software to essentially hack the system. In a fair market, you wouldn’t be able to front run like this. The traders pocket huge gains at the expense of everyone else, quite the recurring theme these days.
I don’t know who the author of the diagram is. It was uploaded to imgur.com, an anonymous image host. So I can’t vouch for the accuracy, This is an area of the market that very few people know about, for obvious reasons. If anyone knows who the author is, let me know and I’ll attribute it.
Update: Check out this Zero Hedge post. Lots of info about HFT and the players behind it.