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If the government really wanted to protect us from ourselves they would limit gambling, which costs poor people a lot and is known to result in unfavorable odds, and they would discontinue the lottery. Instead because the lottery and gambling make the government and big institutions money they are legal. Restricting pattern day trading is, likewise, an attempt to give those with money more leverage over those without money. This law directly discriminates against those without money and it was passed by those with money. The government has essentially passed two sets of laws, one for the rich and one for the poor.
These laws were undemocratically passed by the rich for the rich under the false pretense of protecting the poor. Such is a hallmark of an aristocracy. No nation should have a different set of laws for the rich than for the poor.
The entire Wikipedia article, especially all the criticisms, are worth reading.
FINRA (formerly National Association of Securities Dealers, Inc. or NASD) rule applies to any customer who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period; the rule applies to margin accounts, but not to cash accounts. A pattern day trader is subject to special rules. The main rule is that in order to engage in pattern day trading you must maintain an equity balance of at least $25,000 in a margin account.
[...] The SEC believes that people whose account equity is less than $25,000 may represent less-sophisticated traders, who may be less able to handle the losses that may be associated with day trades.
(Score: 1) by khallow on Monday May 15 2017, @09:09AM (11 children)
High Frequency Trading is front-running orders using their lower-latency connection to markets, in addition to placing orders in bad faith (never intending to have the orders filled by cancelling them near-instantaneously). Both are blatant violations of law. Both are used in HFT.
For the first sentence, you are incorrect. Here's a real definition [investinganswers.com] of HFT:
High frequency trading (HFT) is a computerized trading strategy used to exploit fleeting market inefficiencies. These ultra-short-term positions can be in a wide range of assets: stocks, options, futures, currencies, exchange-traded funds (ETFs), and virtually any other asset that can be traded electronically.
Second, front-running is illegal because it's a form of insider trading commonly practiced by brokerages against their clients. They learn via a variety of ways all related to their special relationship to their client of the intent to trade and then trade in advance to profit from it. An HFT program can't read your mind and anticipate your trade before it hits the market. Once it hits the market, it is no longer front running. This debate is not served by attributing magic powers to HFT.
As to placing orders in "bad faith", once the order is placed, there is always risk it'll be traded before it can be removed. I'll note here that sniping such orders wouldn't be difficult for another HFT player since even with a high failure rate, they can just try an enormous number of times.
The law forbids High Frequency Trading.
Maybe if you assert this every three microseconds, it'll be true. But at current levels of assertion, it is false.
(Score: 0) by Anonymous Coward on Monday May 15 2017, @09:22AM (10 children)
Your "real definition" of HFT is nothing more than a blatant lie. In actual practice, High Frequency Trading directly harms the market [nanex.net], via HFT-enabled front-running [nanex.net] and massive numbers of HFT trades placed in bad faith [nanex.net].
High Frequency Trading as practiced today is a criminal violation of law. Your denial of reality changes reality not one whit.
(Score: 1) by khallow on Monday May 15 2017, @09:33AM (9 children)
Your "real definition" of HFT is nothing more than a blatant lie. In actual practice, High Frequency Trading directly harms the market, via HFT-enabled front-running and massive numbers of HFT trades placed in bad faith.
I notice your links don't support your assertion. No front-running is ever mentioned. Instead, they give examples of clumsy large purchases being exploited by HFT (clue: once an order hits a market, even if it hasn't hit other markets, it's open information and no longer insider knowledge). Second, massive numbers of HFT bids are alleged to be placed in bad faith, but they have to be honored once purchased. Another HFT (and there are more) can snipe those orders. Price discover is restored.
Third, once again, no harm has been mentioned.
High Frequency Trading as practiced today is a criminal violation of law. Your denial of reality changes reality not one whit.
Sorry, you're still not asserting this at a high enough frequency for it to become true.
(Score: 0) by Anonymous Coward on Monday May 15 2017, @09:46AM (8 children)
Now you're posting in bad faith. Examples with data were given to show HFT trades being placed in advance of other market orders, stealing value from the non-HFT trades.
Harm: HFT activity going from zero to 80,000 trades per second in advance of non-HFT trades; increased costs; misleading quotes; and market flash-crashes.
(Score: 1) by khallow on Monday May 15 2017, @10:04AM (7 children)
Examples with data were given to show HFT trades being placed in advance of other market orders, stealing value from the non-HFT trades.
No, it wasn't. This was merely asserted. And you have yet to come up with a mechanism by which this advanced knowledge was obtained.
Harm: HFT activity going from zero to 80,000 trades per second in advance of non-HFT trades; increased costs; misleading quotes; and market flash-crashes.
Which let us note, didn't actually happen. The large non-HFT trade hit first, but it didn't hit all the markets simultaneously. Those delays are exploited by the secondary trading reported.
(Score: 0) by Anonymous Coward on Monday May 15 2017, @10:14AM (6 children)
Gee. It walks like front-running, it smells like front-running, it talks like front-running... I know! It must be High Frequency Trading!
(Score: 1) by khallow on Monday May 15 2017, @12:29PM (5 children)
Finally he complained so loudly that they sent the developers, the guys who came to RBC in the Carlin acquisition. “They told me it was because I was in New York and the markets were in New Jersey and my market data was slow,” Katsuyama says. “Then they said that it was all caused by the fact that there are thousands of people trading in the market. They’d say: ‘You aren’t the only one trying to do what you’re trying to do. There’s other events. There’s news.’ ”
If that was the case, he asked them, why did the market in any given stock dry up only when he was trying to trade in it? To make his point, he asked the developers to stand behind him and watch while he traded. “I’d say: ‘Watch closely. I am about to buy 100,000 shares of AMD. I am willing to pay $15 a share. There are currently 100,000 shares of AMD being offered at $15 a share — 10,000 on BATS, 35,000 on the New York Stock Exchange, 30,000 on Nasdaq and 25,000 on Direct Edge.’ You could see it all on the screens. We’d all sit there and stare at the screen, and I’d have my finger over the Enter button. I’d count out loud to five. . . .
“ ‘One. . . . “ ‘Two. . . . See, nothing’s happened.
“ ‘Three. . . . Offers are still there at 15. . . .
“ ‘Four. . . . Still no movement. . . .
“ ‘Five.’ Then I’d hit the Enter button, and — boom! — all hell would break loose. The offerings would all disappear, and the stock would pop higher.”
At which point he turned to the developers behind him and said: “You see, I’m the event. I am the news.”
Later...
Katsuyama tried sending orders to a single exchange, fairly certain that this would prove that some, or maybe even all, of the exchanges were allowing these phantom orders. But no: To his surprise, an order sent to a single exchange enabled him to buy everything on offer. The market as it appeared on his screens was, once again, the market. “I thought, [expletive], there goes that theory,” Katsuyama says. “And that’s our only theory.”
It made no sense: Why would the market on the screens be real if you sent your order to only one exchange but prove illusory when you sent your order to all the exchanges at once? The team began to send orders into various combinations of exchanges. First the New York Stock Exchange and Nasdaq. Then N.Y.S.E. and Nasdaq and BATS. Then N.Y.S.E., Nasdaq BX, Nasdaq and BATS. And so on. What came back was a further mystery. As they increased the number of exchanges, the percentage of the order that was filled decreased; the more places they tried to buy stock from, the less stock they were actually able to buy. “There was one exception,” Katsuyama says. “No matter how many exchanges we sent an order to, we always got 100 percent of what was offered on BATS.” Park had no explanation, he says. “I just thought, BATS is a great exchange!”
One morning, while taking a shower, Rob Park came up with another theory. He was picturing a bar chart he had seen that showed the time it took orders to travel from Brad Katsuyama’s trading desk in the World Financial Center to the various exchanges.
The increments of time involved were absurdly small: In theory, the fastest travel time, from Katsuyama’s desk in Manhattan to the BATS exchange in Weehawken, N.J., was about two milliseconds, and the slowest, from Katsuyama’s desk to the Nasdaq exchange in Carteret, N.J., was around four milliseconds. In practice, the times could vary much more than that, depending on network traffic, static and glitches in the equipment between any two points. It takes 100 milliseconds to blink quickly — it was hard to believe that a fraction of a blink of an eye could have any real market consequences. Allen Zhang, whom Katsuyama and Park viewed as their most talented programmer, wrote a program that built delays into the orders Katsuyama sent to exchanges that were faster to get to, so that they arrived at exactly the same time as they did at the exchanges that were slower to get to. “It was counterintuitive,” Park says, “because everyone was telling us it was all about faster. We had to go faster, and we were slowing it down.” One morning they sat down to test the program. Ordinarily when you hit the button to buy but failed to get the stock, the screens lit up red; when you got only some of the stock you were after, the screens lit up brown; and when you got everything you asked for, the screens lit up green.
The screens lit up green.
“It’s 2009,” Katsuyama says. “This had been happening to me for almost two years. There’s no way I’m the first guy to have figured this out. So what happened to everyone else?” The question seemed to answer itself: Anyone who understood the problem was making money off it.
See? This is why your front-running is imaginary. A large trade on an exchange, any exchange is a public event. The article [nanex.net] you claimed showed front-running even mentions the above story:
The trader sent us his trade execution reports, and we matched up his trades with our detailed consolidated quote and trade data to discover that the mechanism described in Michael Lewis's "Flash Boys" was alive and well on Wall Street.
Further, note that the trader executed trades first before the HFT frenzy.
Looking at the table data, we note the first trade is 100 shares on BOST (NQ-OMX Boston) and belongs to our trader. Note, however, it was the 4th trade reported back to him ("4" in the last column). The first 3 trades, not shown here because they end up being reported dead last(!), were dark pool prints from Sigma-X (Goldman's dark pool).
So right there, this trade is public knowledge and thus, not front-running by definition (since there is no insider information). Goldman Sachs in particular would be particularly able to take advantage of this situation since their dark pool was first (and the report is suspiciously lagged compared to the rest). In fact, I wouldn't be surprised if they use their dark pool precisely for this purpose. Pays the bills, right?
This is why I keep saying that you don't understand HFT. This is straightforward exploitation of public information, but one would have to have very specialized infrastructure in place to take advantage of that information.
(Score: 0) by Anonymous Coward on Monday May 15 2017, @05:32PM (4 children)
Data shows clear evidence of theft [nanex.net] by HFTers who react to their own advantage over a trade already placed on the market, but before the trade could be completed.
Linking to a story where this HFT theft did not happen is equivalent to claiming that the blatant bloody murder of Joe Blow didn't happen because John Smith is still very much alive.
(Score: 1) by khallow on Tuesday May 16 2017, @01:31AM (3 children)
First, I quote at length extremely similar behavior witnessed by a developer at a major Canadian bank who both saw near identical symptoms and more importantly (!) found a way to make that behavior completely vanish by timing the sending of their bids so that the bids fell on the market at the exact same time (which incidentally demonstrates the absence of insider knowledge). Then we have a buyer who still engages in the sloppy behavior that leads to this behavior, years later.
You allege this is "theft". But what is being stolen? First, we have already established that the trader could have strategically timed the bids issued so that they arrive at the destination markets at the same time and this issue goes away completely! The trader could instead purchase in much smaller lots so that their trades slip by the automated trade programs that are doing this stuff. Or the trader could restricted their trading to the largest few blocks (or markets so widely separated that hostile communication can't happen before the trades complete) on these markets so as to give the least warning for the greatest gain.
if the trader has a bit of patience, then there's a variety of longer term approaches to making these trades without spooking the HFT fauna.
It's not a fraud issue because the bids are there ready to be purchased - the earlier bidder just happens to be so fast that they can react to sloppy, large bids as they propagate through the network of markets. Nor is it a theft issue since there is no expectation or right to a certain price level. Just because you saw a bid at a certain price at a certain time doesn't mean that you have a right to that price at any later time - even milliseconds later.
The key to this story is the quote from the Canadian protagonist of the first quote.
At which point he turned to the developers behind him and said: “You see, I’m the event. I am the news.”
This is routinely forgotten by people who have never traded on a market. Large trades are just as much news as anything else. By not placing the order at the same time on all markets in this situation, you are spreading the news of your bids far and wide to those who can respond to them faster than your orders can fly. And they will respond - because you are changing the market.
(Score: 0) by Anonymous Coward on Tuesday May 16 2017, @01:59AM (2 children)
So this is how you attempt to justify illegal frontrunning to yourself. "I can conjure up some handwaving to confuse most rubes enough to make them think I've found a way to make theft legal!" Legal theft; it's just like the legal murders of the National Socialist Party.
(Score: 1) by khallow on Tuesday May 16 2017, @03:28AM (1 child)
So this is how you attempt to justify illegal frontrunning to yourself.
Words mean things. Front-running only happens when there is insider knowledge. That is a key part of the definition of front-running. The front-running has insider knowledge of the existence of an incoming bid and uses that knowledge to trade ahead of the bid.
This is trading on public knowledge and thus, by definition is not front-running. That's it. As to theft, no property was taken. Those bids and the assets at sale didn't belong to the trader so it isn't theft when they disappear before his bid arrives. Thus, by definition it is not theft either.
It's quite clear by now that you don't understand anything in this debate: HFT, front-running, theft, etc and don't care to fix your ignorance. There is no value to your opinion as a result. In particular, I certainly won't start to care about your opinion that I'm some sort of industry shill. Do you even know what that word means? It doesn't mean someone who disagrees.
(Score: 0) by Anonymous Coward on Tuesday May 16 2017, @03:43AM
You don't like seeing evidence of theft and fraud by front-running, regardless of the small amount of time it took to commit, so I'll rub it in your face again. [nanex.net] Your blatant lies and gaslighting cannot change reality no matter how much you squeal.