This post was originally written on June 4, 2013 at http://www.optiontiger.com/high-frequency-trading/
There was an article on Zerohedge yesterday on High Frequency Trading (HFT). You can read the complete post here
Please click the images for larger sizes (Images credit - Zerohedge / Nanex).
Summary of key points
- Yesterday's ISM numbers were supposed to be released at 10 am ET
- Some HFT firms apparently got the information 15 milliseconds earlier and executed large orders on the SPY (at 9:59:59.985 am)
- Similar activity can be noticed on the ES futures 8 milliseconds prior to 10 am (9:59:59.992 am)
- Why the difference in 7 milliseconds ? The ISM number is released in NYC, and the E-minis are traded in Chicago. That's how long it takes (7 milliseconds - speed of light to travel from NYC to Chicago) for the data to travel from NYC to Chicago.
My question is - does this kind of trading affect average people at all ? Let these guys spend a gazillion dollars on superfast computers and fight for first place in a race that's entirely between themselves. Average investors are not fighting for this edge. I'm not an expert on HFT, but it seems like this fight is completely HFT vs HFT, much like big-city rival gangs. Or am i missing something ? Please weigh in if you are knowledgeable in this area.
Regardless, it's a fascinating look at how High frequency trading works in the markets. The article seems to suggest that there could be hanky-panky involved in the fact that this data was available to certain players ahead of time. Yes, this is definitely a problem if it is true. But whose clocks are they going by ? What's to say that the data itself was not released 15 milliseconds earlier than 10 am sharp . I'm just amazed to see that transactions are being recorded and documented at the millisecond level. Both charts below show SPY and ES trading volumes at the millisecond level for different exchanges. Check out these awesome charts. Both charts show volume in a span of 150 milliseconds, which is just 15% of 1 second.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.