"The Bandsaw" and other high-frequency hijinks

Does this look like a picture from a free, fair, non-manipulated market?

[atsimg]http://files.abovetopsecret.com/images/member/e84b83f97632.png[/atsimg]

It is a so-called "bandsaw II" formation, indicating a certain type of high-frequency trading activity.

If you find it unsettling, you are not alone: Here, the Financial Tmes mulls the wisdom, fairness, and future of HFT (high-frequency trading).

As many or most of you are already well aware, HFT is one of the most rapidly growing (and controversial) area of finance. To simplify grossly, it uses machines and algorithms to "dip automatically in and out of markets hundreds of times faster than the blink of a human eye," as the Fincial Times puts it.

Some interesting points from the article:

-A hot buzzword in the HFT world at the moment is "co-location:" This involves setting up computers as physically close to markets as possible, in order to shave crucial microseconds off of transactions.

-HFT is worrying a number of traditional market players, such as fund managers, who fret that it is disrupting orderly pricing, destroying long-term investing, and creating a sense among investors that the market is rigged. Such perception could impact liquidity and overall trust in the markets.

- Sen. Ted Kaufman criticizes aspects of HTF, stating: that "[factors] may be combining in ways that cast doubts on the depth of liquidity, stability, transparency and fairness of our equity markets." Less-than-glowing love for HFT has been expressed by the SEC and other regulatory bodies.

-Some even allege "predatory" HFT practices, like deliberately overloading competitor's networks with signals to slow them down. Frankly illegal practices are also alleged by some.

-HTF fans say the practice delivers liquidity and benefits clients, but a chourus of doubtiful voices is rising.

Click here for source of the above summarized information. The article contians a number of other points about HTF as well.

I have been wondering about this "robot trading" for some time. It is amazing what people will do for more money. I say more because it is obviously not the poor who are doing this.

i also wonder if the big brokerage houses (like Goldman, JP Morgan, et al)
are actually trading legal shares of the stocks?

we already know that Goldman Sachs front runs trades, that is knowing just what their clients have ordered in either sales or buying certain stocks... and GS trading before they execute orders for their clients,
thus front running a certain price of a buy order & selling their client the shares they just bought a second earlier & it works for the sale strike price also.

but trading stocks you don't control is just like 'naked' shorting on the futures or the PMs...

oh well, bend-the-rules, for the masters of the economic universe

It's funny how the big brokers and bankers use high frequency trading but frown on the individual traders that scalp trade.

line

Money is the root of all evil.
If I had my way, All currency would burn.

wall street and banks and governments are all just middlemen profiting from juggling other peoples money. The money is worthless. Get over it and start producing something. Grow your own food. Make your own clothing. Trade and barter locally. Boycott foreign goods and companies that profit by outsourcing jobs overseas.