Jeff Miller recently wrote the following in an SA article.
Some Little-Known Information
Somewhat to my surprise, there is little understanding or information about the impact of high-frequency algorithmic trading. I do not mean the conspiracy stuff; I mean what these companies really do. My information comes from well-placed sources, familiar with the trading methods, the personnel, and the actual programs. Here are a few facts:
· For starters, most people do not know the names of the companies. They want to fly low.
· Their trades make up over 70% of total volume, up from 30% a few years ago.
· They have an exceptionally high proportion of winning trades, usually small trades in an inside market.
· Their profits come from exceptionally small discrepancies in various markets, and moving swiftly to take advantage.
· They can make money through rebates even when scratching a trade. These are liquidity providers.
· They are more active on down days than up days. Why? There are more price discrepancies and therefore more opportunities to arbitrage.
· The net effect of HFT is to reduce volatility by adding liquidity.
For the average trader there are three obvious conclusions:
1. The volume data is no longer meaningful;
2. There is a reason why volume is higher on down days;
3. The price is what it is. These firms are not moving prices, but rather reducing volatility.
I just had to write my opinions on this piece of work article.
“For starters, most people do not know the names of the companies. They want to fly low.”
*This is crap. He says that his information comes from well placed sources and then he asks you to trust him without naming these shadowy companies. As if naming them would be so bad. The author almost waves his finger in our faces as it to say, nyah, nyah na boo boo. Don’t promise candy and then drop dog shit, Jeff.
"Their trades make up over 70% of total volume, up from 30% a few years ago."
*This statement in itself PROVES there is manipulation. You can't make up 70% of something without affecting it.
"The net effect of HFT is to reduce volatility by adding liquidity."
*Bullshit. It all depends on how you look at it. That liquidity 'stays in the family'. I guarantee that I'm not seeing the micro pennies being made in HFT. How can you say that some computer's money adds liquidity when they have an "exceptionally high proportion of winning trades". That REMOVES liquidity from you and I.
“Their profits come from exceptionally small discrepancies in various markets, and moving swiftly to take advantage.”
Try getting a microsecond advantage over anyone else. This is called cheating by computer. This is not good for any human being.
Jeff Miller, who are you shittin?