Today's guest post comes from our friends at Lightspeed Trading. In this article, Lightspeed's CEO, Steve Ehrlich, will share his thoughts and some analysis on high frequency trading inspired by a 60 Minutes episode. Please visit their site to learn more about Lightspeed and Steve Ehrlich.
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By Steve Ehrlich
Lightspeed Financial, CEO
October 27th, 2010 – Where does the blame for the financial meltdown lie? The public is looking for a scapegoat for the financial slowdown and regulators have found one for them… High Frequency Traders. This blame game is very similar to what occurred during the Great Depression of 1929 when short sellers in the stock market were singled out and vilified as the “cause” of the economic woes in the United States. Today, it’s hedge funds, dark pools, and high frequency traders that are being targeted as the prime cause of the financial trouble in the United States and around the world.
Public pressure on the high frequency trading business hit a high point on October 9, when the respected and popular news program on CBS, 60 Minutes, aired a segment on the strategy. As expected, trading blogs and Internet message boards lit up with comments and reactions to the segment. After reading many posted opinions from a wide range of sources, it became very clear – and troubling – to me that even some “experienced” traders don’t fully understand high frequency trading, so how can we expect the general public to understand it? The only thing that we know for certain is that most in the media are telling them to be afraid of it and that high frequency trading is a way for the big players to tilt the playing field in their favor. As a result, individuals begin to put pressure on elected officials to do something about it and then the snowball effect begins with no one ever really stopping to consider that often the unintended consequences of certain actions are actually worse than the problem they set out to solve.
Let’s take a closer look at the 60 Minutes segment to debunk some of the myths it perpetrated. First, after careful analysis the SEC and CFTC concluded that the May 6 flash crash was caused by a mutual fund company unwinding a significant position, not a high frequency trading algorithm gone awry as many pundits and media outlets initially assumed to be the case. Unfortunately, this is not as sexy a story and won’t nearly grab as many viewers as casting doubt over the legitimacy of any firm engaging in high frequency trading. While the segment did correctly note that high frequency algorithmic trading is responsible for upwards of 70% of the volume in the equity markets, as a viewer, if I didn’t know any better, I would have taken away from the segment that high frequency trading firms perform no real service for any market participants other than themselves and that all other traders are at a huge disadvantage because of the speed of a high frequency trading firm’s system and its ability to co-locate its servers.
The truth is the volume generated by high frequency trading firms increases liquidity and narrows spreads. This in turn makes buying and selling stock less expensive for all market participants, not just the HFT shops. Moreover, the added liquidity makes it easier for all market participants including the individual investors to enter and exit trades at their chosen time and price. Trading successfully has never been easy and making money in today’s volatile markets are more difficult than ever before even for the most sophisticated traders, but to point the finger of blame at high frequency traders is not only wrong, it’s ignorant. Some other important points that 60 Minutes failed to mention, but are important for market participants to know is that there are many strategies that can be employed that make the existence of high frequency trading irrelevant to your bottom line. One example is Swing trading tactics, which are not affected in the least by HFT strategies. The market is a big place where different strategies can coexist and different players can find opportunities to be successful. Moreover, while the argument that co-located servers provide a speed advantage over non-co-located servers is indeed true, average traders should know that they can avail themselves to this edge. The speed advantage is not just the province of the high frequency trading firms as the 60 Minute segment led viewers to believe. In fact, Lightspeed offers direct access to co-located servers for its entire retail client base and puts all of them on equal footing with any other market participant – even the high frequency trading firms and their ‘super computers.’
The reality is that there have always been bad actors in the markets, but the answer isn’t to impugn an entire segment of market – especially one that is responsible for the lion’s share of the volume. The regulators should be commended for their thoughtful approach to tackling some of the tough issues impacting trading and market structure today and for not having a knee-jerk reaction and imposing new rules and regulations without first fully understanding all sides of the issues and the impact that any new regulations may have on the broader marketplace.
Perhaps many in the media would be better served by taking a page out of the regulators’ handbook and give due attention to all sides of an issue before reporting on it and creating confusion and making matters worse.
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To learn more please visit Lightspeed Trading. Copyright 2010 Lightspeed Financial Inc. All rights reserved. Any comments or statements made herein are not an endorsement of any trading strategy or security and are made for informational purposes only.
Drunk right? Understand...
Companies don't buy shares of shareholders (unless they choose - thru share buyback, takeover, privatization, etc). Client gets payout from other shareholders... that's the 'market'. Mutual funds do issue and redeem units though.
Get your money back on your Finance for Dummies 101 course!
CM
This the best article I have never seen before…........
Mister E knows what he's talking about. The market is exactly that, a Market. Those that blame others for their own problems need to get a better education in how the market actually works. You never win every trade, that's a fact that market traders accept as fact. Fundamental investors shouldn't worry about what happens intraday. They should worry about their time line, which should be long term. I have friends who think they're traders and they consistently lose big money, because they don't know what they're doing. Its a different ballgame with different rules of play. Think about it this way, a baseball catcher has a great arm but he can't just go out and become a great pitcher. He has to practice. Muscle memory takes about 10,000 hours to establish itself. Practice and patience takes about the same amount of time. I lost a lot of money "thinking" I new what was going on in trading. Practice and perseverance wins in the end.
For a CEO of a brokerage firm, Steve seems not to understand what HFT is about and how they operate. That's a shame. Make me a favor and go to the SEC site and make a search on companies being charged for fraudulent price manipulations (or google HFT for that matter).
You will understand better how these fraudulent practices operate.
I would be afraid on have my money on your firm, and please do some research before writing something (mainly for someone at your level that can put the integrity of your firm at risk).
yes still reading.
interesting experience you had with this bio-tech.
anyway, the markets today(all of them) is nothing more than ....casino.
I'm prety sure the buy and hold strategy is dead.
cheers!
L0tt0 is completely right. (the article depends on the nievity of the general readers)
1. First of all, the liquidity factor should be determined by the specialist or the market maker. The "liquidation" excuse is bogus because they don't address the facts.
Every stock is COLLATERALIZED with liquidity of the that company, meaning if the company needed to pay out a shareholder and didn't have the cash, the company needs to liquidate itself to come up with that money.
That money does not come out from thin air. Collateral is a big deal in finance. On day one of Finance for Dummies 101 they teach you who the management is, then they teach you that EVERY financial instrument is secured with collateral. If the borrower can't repay their debt, then they need to liquidate that collateral.
No bank is going to sell a mortgage without the house, that house is collateral.
These machines are metaphorically taking a bunch of mortgages and trading them without houses.
Which is why we use financials and ratios to determine the value of the stock. If the books are cooked, like Enron that company becomes insolvent. That was a liquidity issue and it was the result of faulty accounting. The correct action would be for the banks/brokerages to seek correction to guarentee liquidity. Unfortunately, that didn't happen and Sarbanes Oxley was written with a bunch of loopholes where the lack of liquidity is going to exist for speculation purposes.
If these companies needed to pay every last one of their shareholders out, they couldn't do it. If anything, the live human beings better be getting paid out before these machines.
2. Next, according to the Chicago Federal Reserve, these machines hoarded 70% of a thinly traded market.
A THINLY traded market is easy to manipulate, which is why pump and dump schemes happen to small, thinly traded stocks (often penny stocks).
-a "pump and dump" scheme IS illegal according to the SEC. The SEC is not consistantly enforcing rules which is making the market more dangerous for the real investors.
-last, that 70% is a little MUCH to use for liquidation/speculation purposes.
3. The big banks are getting FREE loans from the Federal Reserve to do this with. The Federal Reserve gets its' capital/financial inventory off of the yields/interest of it's Treasury holdings to make the free loans with. That yield/interest comes from the taxpayers. So the taxpayers' money is being laundered into a speculation scheme that should've been called out by the SEC as illegal.
Get our tax dollars out of there.
These banks should be lobbying lawmakers to set up policies that attract global investors into our market to create volume (which would help the economy greatly). As we can see in an industry run by a bunch of Gordon Gekko wannabes (the cream did not rise to the top), corruption is the result of pure and utter incompetance.
I don't know if anybody is still reading this thread, but I wonder who the few defenders of HFT are. 🙂
As far as HFT is concerned, my remarks were about those that have a computer directly connecting and running an algorithm that plays the spread. It knows its inventory of shares and sits on both the bid and the ask. Depending on it's algorithm, you can "out bid" and "under ask" the program. I don't believe every stock symbol is targeted. Perhaps another algorithm monitors the market and chooses the symbols that are "worked. Not all symbols have the algorithmic HFT applied to them.
We are not talking about high speed connection to buy or sell the individual's shares when he places an order.
Someone misunderstood my earlier post. A share price will usually go up or go down depending on investor/trader sentiments. Whether by fundamentals of the company or trading whims, the idea is that the market will eventually get the company priced correctly. It is buying when the market has erred on the low side and shorting when the market has erred on the high side, that most individual traders try to do. I would think most individual investors may take a longer view and try to peek at the company's future value.
However, I have found most of the individuals that call themselves investors are more trader than investor. They rarely day-trade and more often, week-trade or month-trade. So, the algorithmic HFT is not seen as anything good. The point being that the algorithmic HFT does NOT care which way the price may be moving and individual traders DO care which way the price moves. That alone should put traders on the anti-HFT bandwagon.
An interesting experiment. I was invested a small bio-tech and held a core position as well as swing trading the fluctuations in price based on news of clinical trials and publications. I noticed a continual fluctuation of bid ask, rapid changes of a penny, during pre-market hours without a single share changing hands. I decided to enter a bid a penny higher than what I was seeing. I was connected through TDAmeritrade with "real-time" quotes. By the time I got back to the quote screen from the buy screen, I was out-bid by a penny. I went back and revised my order up a penny more and had the same result. I did this a number of times until I finally exceeded the algorithms BID price. I then did the same thing with the ASK. This would only work with a thinly traded stock in before or after hours trading when the spread tended to take a big spread. Anyhow, that was several years ago and after that experience, I started looking into it what was happening. My conclusion at the time was that it wasn't good and still believe that those say it is good are somehow profiting from it.
A simple solution: implement a Tobin Tax just big enough to cut the manic swings caused by HFT but hardly even be noticed by everyone else. This idea has been around for along time, it should be implemented.
The result of the May 6 Flash Crash was just a HUGE, MASSIVE STOP RUN. When a stop run happens, lots of people get taken out. So the question is, who bought up all / majority of stock after that happened? When one player, or a group of players benefits so much from a "freak" occurrence, I don't think it can be labeled co-incidental. Follow the money. The "regulators" should do a full and transparent audit of that and see who was doing all the buying up of cheap issues when the crash happened. This kind of BS is not new, bankers have employed these kinds of schemes before. Who ever did it this time, just has a more sophisticated way to do it now.
Now you can ruuuun and tell thaaaaaaaaaat!!
I'm still waiting for the crash...ho hum
Going to buck the trend here... I agree with the article and comments by Mister E. The more trading that occurs, the more liquidity, the better for all of us. If you're aware of HFT, then take that into account in setting up your trades. I occasionally day trade QQQQ, one of the highest volume stocks/ETFs. Even with all the volume, it consistently presents reliable trending.
I have a little different take on things.
1) Once a stock is issued by a company (IPO or subsequent offering), its value (price) on any exchange only has an in-direct relationship to the company. Its exchange price is just a perceived value among players, not a true value of the company. Consequently, this perceived value of many individuals is what is actually traded and is the market.
2) For me, HFT becomes a question of fairness. If I can place my order (whether limit or market) and get my price, then HFT has not impact on any particular trade I take.
3) Where I do have a problem is with the cost to trade -- for which I do not have the answer. For example, if I pay $6.00 round turn, and the HFT pays $2.00 a round turn, then they have gained an advantage because they can make three trades to my one. Consequently, I may trade more if I had their commission structure, and in my opinion have gained an advantage.
Wanna fix the market, start with fixing this HFT problem! Shame on you MarketClub for posting such nonsense!
When only three guys are trading, and they a take a coffee break this will happen.
HFTP are a manipulating and controlling force that needs to be illegalized FAST! Why didn't 60 minutes or the pro-HFTP author of this article pull the SEC reports from the gang of 12 before writing this white wash article. The Gang(sters) of 12 have perfected their mainframes and systems to perfection!!! NO LOSSES in the latest quarter for two firms. The author of this white wash paper is definitely a paid and for profit lobbyist for these same firms!!!Do your hoework beofre posting this sort of crap!!!
I am an individual, independent trader who is active in the markets every day. I trade intraday, swing and position. I was there for the flash crash - I watched it happen. As one who trades for a living, without the benefit of algorithms, I have several problems with a number of the comments.
First, let's not confuse algorithmic trading with HFT. I believe the article above tends to confuse the two. They are different beasts. The origin and basis of algorithmic trading was looking for arbitrage opportunities based upon differences that arise across markets at various times. HFT, as it is called, was a highly questionable practice that amounted to rapid scanning for order flow and, in effect, "front running" the flow based upon speed (not true front running in the traditional sense, but in effect the same thing).
L0tt0's comments leave me baffled. It appears he/she wants market action and prices to make sense on a fundamental basis. Investing on the basis of fundamentals is one way to approach markets. It is time honored and the principal behind the success of many great market mavens. If that is your approach to investing or trading then I suggest you forget the market's price action and focus on the fundamentals. Aberrations such as the flash crash then will be of no bother to you (unless you had your fundamentals wrong and that move is not an aberration). The problem comes when you want to invest on fundamentals, but then expect market price action to match your views and it doesn't. I suggest you pick an approach and stick to it and not mix them.
DrK asserts "High frequency traders distort the market and truly defeat the purpose of the stock market". That leads me to a question -- what exactly is the purpose of the stock market ? Is it not simply to exist as a place, a marketplace, to allow those interested in buying to transact with those interested in selling in the most efficient way possible? It's a market and nothing more. Caveat emptor. It's not rigged, it is just what it is. If you expect anything different then you are asking for it to be rigged in a way that you would like or prefer.
Finally, think about this. If algorithmic trading (not HFT) is responsible for 70% of typical market volume (a statement I have heard many times), then consider what the market would be like if you eliminated 70% of the volume. It's not additive volume, it is a way of transacting. Whose doing the trading and who's money is behind it? Let's remember that most of the institutional money is simply assets belonging to individuals (mutual funds, ETF's, 401k's, IRA's, 403b's, pension funds, etc.). Wipe out algorithms and those who are transacting via algorithms will simply go back to how they did it before, via traders, which is exactly how the algorithms were derived. It's not different, just more efficient.
I hope that they really nailed the cause of this flash crash but I have my doubts about it. They have a way to put the dust under the carpet and I don't really trust them.
Regarding HFT, I personally don't have a problem with that. Sitting in front of my PC, 3,000 mi away, I will always have a disadvantage to somebody and I trade accordingly; buy and hold 2 year TBs (just joking).
I must agree with image substrate.The article provides very little content re HFT and seeks to refute arguments with minimal facts. After reading the article we know as little about the reality of HFT than before. The 60 min piece is refuted on hypothetical arguments only. The markets functioned without HFT for many years and can do so now. The liquidity provided by split second trading is a kind of pseudo liquidity which, as someone noted above, provides liquidity onlhy in certain issues at certain times. Also as noted above there have been many flash crashes in individual stocks in the past year,not likely due to Mutual Funds liquidating positions. In general the defense of HFT was unsatisfying and lacking in depth and detail.
Yes, I have to agree with you. I'll be 68 February next, and I feel I've only this past year finally "got it" in regard of trading in a disciplined, profitable way. In 1987 I wrote the Canadian Commodities Broker Exam, as I was considering a mid-life career change, did not become a broker, but got an enormous insight into and a start on better trading.
Churning client accounts has long been a classic way for brokers to increase their income: imagine how HFT plays into their hands! Having sat on both sides of the table, I warn you that all-too-many brokers do not respect their clients, and treat them as income venues. The 'greater fool' theory may come into play here, but s/he is fleeced by the greater thief! By the bye, a commodity broker is likely the most honest of all the lot, as s/he only gets a flat fee, whether one or one thousand contracts are traded.
High frequency trading is based on nothing more than an arbitrage opportunity,
Effectively they pay the exchanges to have their servers located AT the exchange so that the algorythms can detect usual volume/ trade activity sooner than someone operating elsewhere and take a very short term arbitrage opportunity to effectively "front-run" orders...
Most people do not know that large institutions cannot put a large order into the market in one chunk otherwise people will scramble to buy it before them and sell it to them at a higher price, so what they do is break the order into smaller "chunks" or orders that they fill incrementally if the volume increases to a point where their order will not affect the price substantially.
This is usually done with such methods as using VWAP (Volume weighted average price) and other such measures as a benchmark and trying to fill below (for a long order) and above (for a short order) the vwap at the end of the day, Of course that is only one of many ways this is achieved
Brokers often get paid on the total order fill they achieved that day relative to vwap (or whatever other benchmark)
What I believe some HFT systems do is detect these "incremental order" patterns and buy or sell when some of these systems kick in as these programmers know how most of the institutions fill large orders and what to look for.
It is effectively scalping/ front running another institution electronically (and their clients)... and they use such orders as FOK (Fill or Kill) to test for liquidity and scalp a few points repeatly
There are pros and cons to liquidity, but I believe FOK orders should be abolished and the "2 second rule" (a rule where an order must be present in the market for at least 2 seconds) reintroduced,
This would increase the risk to HFT dramatically and reduce such devastating moves as May 6 as all arbitrage systems kick in the same direction without circuit breakers to stop them.
Maybe a random time interval (and length) circuit breaker would disrupt the HFT systems and slow down such drastic events inthe future...
leverage in such cases (may 6th) work.... prety well 🙂
Absolutely correct, Patrick Nolan. I was watching my online trading screen on May 6th. I was short the Dow and the S&P. All of a sudden I saw this red line below the charts and I tried to cover but before I could enter my orders, the line was back up. Individual investors with a home computer are worse off than gamblers in Las Vegas. At least there I KNOW what the odds are.
I wondered how long after the broadcast that someone would tell us
that we have nothing to fear. Takes awhile to formulate an article
that would reaffirm the deed.
they give volume you can not if volume goes up with price positive volume goes up with down price negative. the market always tries to fool everyone.
i used basketball to help understand a fake is to make one make a mistake the market is the same. we all trade for our own benefit, no one else. i feel insiders make moves we must try to read there moves.
Listen LOTTo. I agree almost everything, exept the fact that it's because HFTrading.
HFT is hapening ALL THE TIME and for HFT traiding the -TREND- means nothing. up or down. these super computers make contracts in parts of seconds, every second ALL the TIME (that's just add good liquidity )
so anyway... HTF, mutual fund, is just a kids playing in the sand box. WHO is the box owner? - 70% trasactions go through .... GS
Goldman sachs
cheers.
It should be outlawed.
This article should start out..."ONCE UPON A TIME...."
The article is an artificial review of HFT and the mini crash.
It does not exlain:
1. how exactly are the HFT trades executed - this is very significant.
2. how are the HFT programs place orders and when, relative to investor orders?
3. what volume of orders are placed by HFT traders, beyond what is executed?
4. is there intent to execute the orders placed by HFT traders?
5. how impartial can the SEC and CFTC be towards their best, by far, clients?
6. can an independent public inquiry with subpoena powers be set up to investigate?
Only a few questions that spring to mind.
On November 10th, Larry Levin mentioned work by ZeroHedge and Nanex showing that there have been several hundred mini-flash crashes in 2010 in which a stock would move 1-5% within seconds. HFT is a wonderful thing unless you're expecting markets to be orderly and continuous. After the May 6th flash crash, I decided that I didn't want to risk my capital trading against HFT. Any advantages of HFT go to the HFT shops, not the average investor.
"Unfortunately, this is not as sexy a story and won’t nearly grab as many viewers as casting doubt over the legitimacy of any firm engaging in high frequency trading."
The author has pretty much put his finger on how a show like 60 Minutes actually chooses its stories. The relative importance or veracity of the pieces are irrelevant. What matters is the anticipated 'splash' (how sensationally can we market this?) and of course the ratings.
The author concludes by saying that perhaps big media should mend its ways. Yeah, well - good luck with that.
What the commenters here SHOULD be concerned about is that the marketmakers - and our government - may use negative perceptions of high-speed trading as an excuse to interfere in the markets. It's already happened once this year, and unfortunately it won't be the last time.
In fact, take a good look at the now-infamous 'Flash crash', which the marketmakers took it upon themselves to reset. What really came of that? Well, anyone shorting the market at that time lost their shirts. Meanwhile, the reset market wandered higher for a short time, and then resumed falling. In other words - the market was going to fall ANYWAY - and should have been left alone.
Re complaints that 'flash crashes' can cause a stock to fall 1 to 5% in a matter of seconds - excuse me, but does the phrase 'buying opportunity' mean nothing to you? Or do you only buy, as most people do, when someone tells you it's "safe" to do so? In that case, too bad for you. Let a bolder investor than you scoop up a bargain caused by someone else's trading error.
I agree 100% with writer LOttO above. My wife and I are INVESTORS. (She is 76, I am 83) We first entered the Stock Market in 1964 to try to increase part of our savings. We bought Dow stocks after researching the chosen companies, and the "Bible" "STOCK TRENDS" by R. C. Edwards and J. Magee. My wife took to charting and became an excellent analyst. I am an engineer so I helped her with mathematical analysis. We researched companies and charts and bought and sold stocks accordingly. It was a lot of work but mostly profitable. Today, it seems to us, The Stock Market is A Casino with hotshot young traders with computers trading THE PAPER, NOT THE COMPANIES to try to become millionaires in one or two years with little work or personal effort on their part.
Why as a trader not entilted to the info the same as everyone else. Why are comnpanies tapping into (hedgefunds,GS, big banks getting it first. Thats like me tapping into the power coming to my house before the meter reads it. Its against the law.
So far at least all the comments are on the side opposing HFT and I will have to add one more. Whether or not HFT add "liquidity" and adds some benefits in some sense, the reality is these HFT traders are gaming the markets. Their complicated algorithms and formulas, developed by Ph.D. mathemeticians and scientists are almost foolproof market beaters. The 60 Minutes story showed how these powerful computer systems are set up right in the stock exchange so these folks can get the fastest jump on market activity. They are often front running price action. As comments above indicate, they can distort and manipulate market moves in one direction or another completely separate from any fundamentals. There is a reason that companies like Goldman Sachs can make profits every single day for 90 straight days. The market is rigged in their favor. Las Vegas doesn't allow high speed computers on the Black Jack tables. Why should the stock market allow their tables to be rigged as well? All the HFT traders' profits are coming from somewhere. The money isn't created out of thin air. The profits are coming from you, me and all the other suckers out there that are allowing this sham to continue.
I disagree with the above article, too. When one or more HFT traders representing large accounts stop trading, even for a couple of seconds, a "mini-flash crash" can occur due to the increase variance in market liquidity, slamming a stock from 1 to 5% in a matter of seconds. This might have been an unintended consequence due to some glitch in their system as they work out their algorithms, but now is used selectively to run stops at millisec speeds and then obtain better pricing. Running stops has been a factor in trading for a long time -- now the effect can be magnified in milliseconds. So, it becomes strategic war games between the various HFT traders and the little retail guy is just along for the unpredicatable ride, as usual, with potentially greater unexpected volatility and risk to the downside. It takes the "average" retail trader out of the market due to a complete lack of any remaining trust --- fear trumps greed. Let's call HFT for what it is: a more sophisticated way of attempting to game the system.
Amen to LOttO. High frequency traders distort the market and truly defeat the purpose of the stock market. Another example of American (and other) greed - anything for a buck.
Swing Trading is the answer!
At least it's worked much better for me, and I have lots of spare time now.
Thank You LOttO!!!
That is exactly my reaction too. The greed factor is wholly evident when the volume is manipulated and manifested as a real-time price move, either up or down. The speed of the transactions may benefit all, but the underlying
presumption should be: Do I trust this information trending up or down in nano seconds. Multiple players biting
on the same misinformation does construe a distorted outcome which may last for days and don't you know...they
are counting on that.
First, after careful analysis ( mmm.. realy?) the SEC and CFTC concluded that the May 6 flash crash was caused by a mutual fund company,
-that's not true. then we can have flash crash every half year? when that fund decide to change their portfolio? cm'on!
The GOLDMAN SUX did funny thing taking out all the BID's so there left any buyer, exept these for 0,01 $ a share.
Somebody believe, that fund managers so stupid, to sell their shares for pennies accidently?
I would have to agree with the above comment by L0tt0. I believe the burden of proof rests with HFT that they are providing some benefit vs the overall reduction in market makers.
How can 1 mutual fund unwinding a position affect an entire market and send ALL stocks and all issues in both stock and futures markets crashing down? I'm sure HFTrading contributed because they jumped on the "developing trend" and exacerbated it with volume, however, I don't think they are the full cause either.
In fact, I'm sure there were many contributing factors, but one factor that I personally noticed was a huge move in the Japanese Yen currency on May 6 that was almost completely inversely correlated to the stock index future's moves. I can't explain how or why this would happen, but I don't think it is a co-incidence. The footprints are in the chart sands. I think it's becoming glaringly obvious, with QE1 and QE2 and other Federal Reserve (which is not government btw) AND government initiatives, that the market is experiencing more "Government-inspired volatility" than "market volatility". As time goes on, it is becoming more and more obvious.
In fact, I think it's time that we changed the term from "market volatility" to "government-inspired volatility" instead.
I am sorry, but disagree. First, the high speed traders only add liquidity to the stocks their computers are "working". The problem is the high speed traders have no interest in the company. They care not whether the management is good, or the company's future bright. They care about the spread and just create volume where in the normal course of events there should be none. They exacerbate a price move up or down (they care not which) by sending false signals to current shareholders in the case of a downward move or with those watching and waiting to purchase. A move in either direction with the added volume of high speed traders creates a false impression. A price change on small volume is not as significant. Now, how is a party to know if the volume is because of some real factor or purely the creation of the high speed traders? They go long, they go short, they work the spread and take their kickbacks for providing volume without any interest in the companies whose shares they trade.
We know the market is rigged in favor of the big guys. Who is doing the high frequency trading? Who is defending them?