High Frequency Traders -HFT and Dark Markets (or Dark Pool)

Posted: April 10, 2014 in Uncategorized
Tags: ,

What are they?

High frequency traders use computer algorithms to generate buy and sell orders on markets in milliseconds, including the ASX. High-frequency traders tend to trade on both sides of the market, to profit from incremental price differences

Now all the debate is about the High frequency Trader that are rigging the market and legally frontrunning the normal investor. I do agree that it is not something nice and I can see how the regulator will plan to do something.

The one thing to worry about that in the last year High Frequency Traders represents approximately 50% of the volumes of the US Markets volume. (Bloomberg). In the last days even 70%.

The issue here are two:

– Clearly the last bit of the rally market is a fake – not supported by real investor that buy considering valuation.

-If the Governments decide to make illegal HFT, we could have a crash as volume would disappear (they should not do it in blanket form as they should have learned from the Lehman Brother collapse*

Dark Markets or Dark Money Pool

This is another sinister form of trading. Practically the trades get done over the counter never reaching the market.

Again they account 40% of the volumes (Font Reuters, also mum and dad investor through brokers!). 

This is started as a countermeasure to the High Frequency Traders in order to avoid scalping or frontrunning from the HFT guys.

Now it is used in much more sinister way as institutional investors can sell into a rally without effecting quotations (or buy into a crash without being visible).

If you notice the listed proportion the HFT guys filled in the money that went into Dark Pool…so all looks normal to you.

So everything is rigged. So how can you do it? There are ways to see what they are doing, but it is not really available to the average person

 

 

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