• Tag Archives HFT
  • UK Trader Fined 60,000 Pounds For Outsmarting Algos

    Yet another UK trader is being punished by overzealous regulators for an accomplishment that should instead have earned him accolades: Outsmarting the machines.
    In a case that echoes some of the circumstances surrounding the scapegoating of former UK-based trader Nav Sarao, former Bank of America Merrill Lynch bond trader Paul Walter has been fined 60,000 pounds by the FCA for a practice that regulators call ‘algo baiting’.
    Algorithm baiting is similar to spoofing – a practice that has been banned by stock-market regulators as those markets have embraced high-frequency trading practices that have broken markets and made them more vulnerable to this type of manipulation. But fixed income markets, like the Dutch loan market Walter is accused of manipulating, have been slower to embrace HFT-type trading. Because of this delay, Walter is a pioneer. Using BrokerTec, a popular fixed-income trading platform, Walter would place a bunch of bids for a given bond, triggering trend-following algos to follow suit. Then he would quickly cancel the bids. Here’s a more complete explanation per the Financial Times.
    Mr Walter entered bids for Dutch state loans that pushed up their price. Then, when other algorithmic trades followed him in response and raised their bids, Mr Walter sold to them and cancelled his quote. This happened 11 times between July and August 2014 while he was working for the bank, the FCA said, while on one occasion he did the opposite. He netted a total of 22,000 profit from this ‘algo baiting’.

    This post was published at Zero Hedge on Nov 23, 2017.

  • The Fed’s Everything Bubble And The Inevitable Asset Crash

    Do not mistake outcomes for control – remember, there is no such thing as control – there are only probabilities. – Christopher Cole, Artemis Capital
    Central Banks globally have created a massive fiat currency fueled asset bubble. Stock markets are the largest of these bubbles – a bubble made worse by the Fed’s attempt to harness the ‘power’ of HFT-driven algo trading. At least for now, the Fed can ‘control’ the stock market by pushing the buttons that unleash hedge fund black box momentum-chasing and retail ETF buy orders whenever the market is about to head south quickly.
    However, the ability to push the stock market higher without a statistically meaningful correction is a statistical ‘tail-event’ in and of itself. The probability that the Fed can continue to control the market like this becomes infinitesimally small. The market becomes like a like a coiled spring. The laws of probability tell us this ‘spring’ is pointing down.

    This post was published at Investment Research Dynamics on October 22, 2017.

  • DARPA Asks HFT Traders How Hackers Will Crash The Market

    Having been responsible for the biggest flash crashes in recent years, it is no surprise that when it comes to the market’s growing structural vulnerabilities, high frequency traders have emerged as the primary authority on how to crash the market in the blink of an eye. Which is perhaps why none other than the Pentagon is seeking advice from HFTs on how hackers could “unleash chaos” in the US financial system.
    According to the Wall Street Journal, the Department of Defense’s research arm, the Defense Advanced Research Projects Agency, better known as DARPA, has been consulting with executives at HFT firms and quant hedge funds as well as people from exchanges and other financial companies, over the past year and a half. Officials described the effort as an early-stage pilot project aimed at “identifying market vulnerabilities.” The WSJ notes that meeting participants described meetings as informal sessions in which attendees brainstorm about “how hackers might try to bring down U. S. markets, then rank the ideas by feasibility.”
    Why approach HFTs? Because of all market participants, it is the “high freaks” who, better than anyone, know how to force a market crash at will. The WSJ was a bit more diplomatic:
    High-speed traders and quant-fund managers, who use sophisticated computer programs to buy and sell stocks, sometimes in fractions of a second, form the core of the group. Such traders tend to have deep expertise in the inner workings of financial markets and the automated systems that account for huge swaths of trading activity today.
    Among the potential scenarios probed by the Pentagon: Hackers could cripple a widely used payroll system; they could inject false information into stock-data feeds, sending trading algorithms out of whack; or they could flood the stock market with fake sell orders and trigger a market crash.

    This post was published at Zero Hedge on Oct 15, 2017.

  • ‘Broken’ Market Sparks Buying Panic In Stocks…

    t appears the crucial link between HFT algos and the options market just broke as BATS options exchanges have declared self-help again NASDAQ ISE. VIX is spiking as stocks open, but stocks limping very modestly lower.

    This post was published at Zero Hedge on Oct 2, 2017.

  • Total G-3 Central Bank Control

    There’s a lot of amazement and wonder at how the “stock market” can be up today with the devastating news out of Texas and the latest North Korean missile launch. Longtime readers of TFMR know exactly how this market levitation is accomplished so this post is designed as a public service in order to better educate and inform everyone else.
    Let’s just keep it simple…
    In 2017…and, actually, since 2008…the “markets” don’t actually exist. Oh sure, there are trades and prices but in terms of what the markets were 20 years ago?…those days are long gone. Instead, what we have now is total HFT domination. Over 90% of all volume on the NYSE and NASDAQ is now done through HFT machines that swap positions back and forth. This is common knowledge and if you and I know this, then you can be assured that The Fed, The ECB and the BoJ (known henceforth as the G-3) know this, too.
    To that end, since the G-3 are dedicated to market stability and the wealth effect, these central banks clearly seek to influence the direction of the equity markets by influencing the two key drivers of the HFT machines. And what are these drivers? The currency pair of USDJPY and the volatility index known as the VIX. Simply stated, if your wish is to drive “the stock market” higher, all you need to do is buy the USDJPY while at the same time selling the VIX. It truly is that simple.

    This post was published at GoldSeek on Tuesday, 29 August 2017.

  • Macro Manager Massarce: “Financial Markets No Longer Make Sense”

    Over the past several years we have repeatedly stated that despite protests to the contrary, the single biggest factor explaining the underperformance of the active community in general, and hedge funds in particular, has been the ubiquitous influence of the Fed and other central banks over the capital markets, coupled with the prevasive presence of quantitative strategies, HFTs, algo trading and more recently, a surge in price-indescriminate purchases by passive, ETF managers.
    Specifically, back in October 2015, we wrote that “as central planning has dominated every piece of fundamental news, and as capital flows trump actual underlying data (usually in an inverse way, with negative economic news leading to surging markets), the conventional asset management game has been turned on its head. We have said this every single year for the past 7, and we are confident that as long as the Fed and central banks double as Chief Risk Officers for the market, “hedge” funds will be on an accelerated path to extinction, quite simply because in a world where a central banker’s money printer is the best and only “hedge” (for now), there is no reason to fear capital loss – after all the bigger the drop, the greater the expected central bank response according to classical Pavlovian conditioning.”
    Several years later, Goldman Sachs confirmed that we were correct. In a note released this April, Goldman’s Robert Boroujerdi asked in a slide titled “Does Active Have A QE Hangover” and showed that the current run of active manager underperformance began shortly after the onset of QE.

    This post was published at Zero Hedge on Jul 10, 2017.

  • POSX Continues to S(t)ink

    As the US Dollar Index makes new lows for 2017, some are surprised that the Comex Digital Metals aren’t charging higher. For an explanation, one simply needs to understand the HFT drivers that move price on a daily basis.
    Lets start with the dollar as that’s where the action is today. After making new 2017 lows yesterday, we knew that today would be a pivotal day. When Count Draghi issued some “clarification” earlier to his remarks of Tuesday, it seemed a clear attempt to help the dollar of the mat. Instead, the POSX has fallen further this morning and now rests at almost exactly 96 and very near the KEY LEVEL of 95.88 that was the Trump election night reaction lows. A break of this level on a closing basis would seem to be a VERY significant development.

    This post was published at TF Metals Report on Wednesday, June 28, 2017.

  • Bundesbank’s Weidmann: Digital Currencies Will Make The Next Crisis Worse

    When global financial markets crash, it won’t be just “Trump’s fault” (and perhaps the quants and HFTs who switch from BTFD to STFR ) to keep the heat away from the Fed and central banks for blowing the biggest asset bubble in history: according to the head of the German central bank, Jens Weidmann, another “pre-crash” culprit emerged after he warned that digital currencies such as bitcoin would worsen the next financial crisis.
    As the FT reports, speaking in Frankfurt on Wednesday the Bundesbank’s president acknowledged the creation of an official digital currency by a central bank would assure the public that their money was safe. However, he warned that this could come at the expense of private banks’ ability to survive bank runs and financial panics.
    As Citigroup’s Hans Lorenzen showed yesterday, as a result of the global liquidity glut, which has pushed conventional assets to all time highs, a tangent has been a scramble for “alternatives” and resulted in the creation and dramatic rise of countless digital currencies such as Bitcoin and Ethereum. Citi effectively blamed the central banks for the cryptocoin phenomenon.

    This post was published at Zero Hedge on Jun 14, 2017.

  • Can Quant Funds Trigger a Stock Market Crash?

    Having surged for years, quant hedge funds dominate stock trading.
    Quant-focused hedge funds – they specialize in algorithmic rather than human trading – gained $4.6 billion of net new assets in the first quarter, and now hold $932 billion, or about 30% to the $3.1 trillion in total hedge-fund assets. At the same time, investors yanked $5.5 billion out of non-quant hedge funds. This comes on top of last year when investors had yanked $83 billion out of non-quant hedge funds and had poured $13 billion into quant funds.
    Trading by quant funds has soared to 27.1% of all stock market trading, up from 13.6% in 2013, according to a series of reports by the Wall Street Journal. These trades can last from minutes to months. Quant funds are different from algo-driven high-frequency trading (HFT) where trades last only milliseconds. And they’re different from ETFs which also use algorithms.
    This chart shows the soaring share of trading by quant funds (red line), compared to the largest other types of investors – traditional asset managers, non-quant hedge funds, and bank proprietary trading. Another 25% to 27% of the trading is done by other investor types, including individual investors, not shown in this chart:

    This post was published at Wolf Street on May 22, 2017.

  • A “Mysterious Antenna” Emerges In An Empty Chicago Field; Billions Depend On It

    Readers are familiar with the various microwave and laser arrays located at the real New York Stock Exchange in Mahwah, New Jersey, both of which we have written about in the past.
    This article, however, is not about the familiar antennas off Route 17 in New Jersey. Instead, demonstrating to what lengths the high frequency traders will go for just a few millisecond advantage – which makes in the HFT world makes all the different between billions in profits and losses – Bloomberg reports that a mysterious antenna has emerged in an empty field in Aurora, near Chicago, and a trading fortune depends on it.
    Strange? Of course: as BBG’s Brian Louis admits “it was an odd transaction from the outset: $14 million, double the going rate, for a 31-acre plot of flat, undeveloped land just west of Chicago. In the nine months since, the curious use of the space has only added to the intrigue. A single, nondescript pole with two antennas was erected by a row of shrubs. Some supporting equipment was rolled in. That’s it.”
    As it turns out, those antennas – as readers may imagine – were anything but ordinary. Same goes for the buyer of the property: anything but your typical land investor, although the name will be all too familiar to those who have followed our reporting on HFT over the years: it was Jump Trading LLC, “a legendary and secretive trading firm that’s a major player in some of the most important financial markets.”

    This post was published at Zero Hedge on May 12, 2017.

  • Why The Market’s “One-Sided Stability” Is Becoming Increasingly Dangerous: Deutsche Explains

    A topic that has been beaten to death both on these pages and virtually in every other financial website, has been the remarkable complacency in markets manifested, among other things, by near record low realized and implied equity vol, coupled with a recent plunge (if subsequent rebound) in cross-asset correaltions. Furthermore, as a result of habituation to both central bank and HFT dominance, and the relegation of human-driven, “actively managed” strategies, the “buy the dip” period has collapsed to a record short period of time, as every drop in risk is now simply an opportunity to “BTD.”
    While all of this is well-documented in the land of equities, less has been said about the extension of recent vol effects across other asset classes, such as rates and fixed income, and in general to the broader, cross-asset market topology.
    For one relevant discussion of how volatility is impacting the rates market, where until recently we had witnessed record shorts around the 10Y tenor, we present the latest note from DB’s Dominic Konstam, whose latest report is summarized as follows: “market dynamics during the last month indicate a change in investor perceptions of the relative pace of Fed tightening and the delivery of fiscal stimulus. We believe that despite considerable local stability, the market is vulnerable to a risk off trade. We see an asymmetric risk between rally and sell off. In our view, a bull flattening rally below 2.25% could cause substantial short covering activity, adding a tail wind to a rally below these levels.“

    This post was published at Zero Hedge on Apr 2, 2017.

  • In Ominous Sign For Banks, Equity Trading Revenues Continue To Drop

    It’s not just the HFT industry that has cannibalized itself so much, while spooking regular traders out of the markets, there is hardly any revenue growth left (as the WSJ showed last week). After suffering a substantial drop in bank equity trading revenues over the past several years, there was hope that finally this key P&L items of sales and trading would post a modest pick up. Alas, whether due to lack of volatility, declining interest in equities, or simply because many no longer have faith in the market, this is not happening despite the S&P recently rising to an all time high of 2,400.
    In 2016, the Office of the Comptroller of the Currency reported that equity trading revenues at U. S. banks fell 13% in 2016 from the previous year. The slide contrasts with a 9% rise in overall trading driven by interest-rate and currency products. Globally, the biggest dozen banks suffered a 13% drop in equity trading in 2016, the first meaningful annual decline since 2012, according to research firm Coalition.
    And while there were some modest signs of a pick up in late 2016, this appears to have been a false dawn. According to the WSJ, as the first quarter wraps up this week bankers say the weakness experienced last year is continuing. That is prompting questions about whether banks should be preparing for a longer-lasting decline in the business, rather than a cyclical dip.

    This post was published at Zero Hedge on Mar 30, 2017.

  • Blast From the Past: James Cramer On How To Manipulate Markets – B Day (Brexit) Tomorrow

    Here is a nice synopsis of the various ‘legal’ and not so legal but overlooked-by-the-snoozing-regulators ways in which the financial trading desks and hedge funds manipulate markets intraday.
    In some ways this is from the dark ages, because HFT algos can do the job so much better.
    But all the basic principles remain the same, including manipulating the financial news and painting pictures with key markets, like the SP 500 futures for example.
    And it is always a plus if your rigging of the market is along the directions favored by the big Wall Street Banks and their Federal Reserve System.

    This post was published at Jesses Crossroads Cafe on 28 MARCH 2017.

  • BofA: The Market Is No Longer Efficient

    Almost exactly 8 years ago, in April of 2009 we wrote for the first time that as a result of the confluence of unprecedented central bank intervention meant to prop up risk prices which distort markets in the long run, and the rising dominance of HFT and algo trading strategies, which distort price formation in the ultra-short term, the market is no longer a (somewhat) efficient, discounting mechanism, but has in fact been “broken.”
    Now, in a note released overnight by BofA’s Savita Subramanian, the equity analyst comes to the same conclusion: the market is no longer efficient, primarily as a result of a wholesale scramble for short-term, data-driven trading gains, which have made a mockery of fundamental analysis and a focus on long-term investing profits.
    Here are some of her observations:
    Stocks for the long-term is an all but forgotten concept today. The rise of short-term investment strategies, which tend to rely on access to better, faster and larger stores of data and information, has attracted trillions of dollars of capital, compressing equity holding periods and likely exacerbating spikes in short-term volatility.
    Managed futures funds (also known as CTAs), which tend to trade based on quantitative algorithms, have grown rapidly over the past several decades. According to BarclayHedge, their assets have grown to over 250bn, making up close to 10% of the total hedge fund universe.

    This post was published at Zero Hedge on Mar 17, 2017.

  • Not The Onion: “Fed Is Jeopardizing The Buy-The-Dip Trade”, BofA Warns

    Conceived several years ago, “buy the (fucking) dip” was a joke among traders seeking to explain the market’s nearly-instant upward mean reversion, which as we have alleged since 2009, has been pushed higher by central bank policy and various HFT strats. Since then it has, sadly, become perhaps the only “explanation” for the behavior of the most bizarre market traders have ever encountered.
    Luckily, the buy the dip quote-unquote “market” may be about to end, perhaps as soon as tomorrow, if Bank of America is right.
    In a note titled “Reasons to increasingly fear, not love, the dip“, BofA analyst Nitin Saksena writes that a “faster US rate hiking cycle jeopardizes the buy-the-dip trade.”
    His observations will be familiar to anyone who has tried to top-tick the S&P over the past 8 years, to short stocks, or to otherwise do anything besides “buy” (the dip):
    Saksena writes that a “buy-the-dip mentality is dominating US equities as Fed put has become self-fulfilling. It has now been 104 trading days since the S&P 500 last fell by more than 1% (on a close-to-close basis), a stretch of calm in US equities not seen since 1995.

    This post was published at Zero Hedge on Mar 14, 2017.

  • How to Interpret the Deliberately Ambiguous Language of US Central Bankers

    As I stated yesterday, ‘I believe that this current correction in gold and silver stocks will provide a window for a few more days to weeks to get on board at a good price for the first half of 2017.’ Yesterday, gold and silver stocks corrected further as I believed they would, but they also sold off an inordinate amount considering the slight pullback in the underlying metals themselves, with gold only correcting less than $5 an ounce and silver down less than half a percent. These minimal pullbacks in spot gold and spot silver prices shouldn’t have triggered the much larger percent sell-offs in gold and silver mining stocks that occurred in yesterday’s markets, so are the larger price sell-offs in the PM stocks predicting imminent future sell-offs in spot gold and spot silver prices?
    I believe several factors are at work here. Number one, the big banks were heavily short in gold futures going into the end of this month and were unable to take spot gold prices down, so they lost a considerable amount of money in their short positions. To balance this mistake, they could have shorted the gold and silver mining stocks and initiated the sell-off yesterday to recoup some of their losses in the PM derivative markets this month. Regarding the mechanism by which they could have taken down the stocks, I’ve written plenty of articles describing the very plausible mechanism by which bankers can execute such schemes with the aid of HFT algorithms, so I’m not going to rehash that explanation here.
    In addition, there are a couple of very important geopolitical/economic events happening next month that could cause bullishness in gold and silver asset prices. We know from history, that it is extremely rare for bankers to allow gold and silver price rises to go unopposed. Consequently, the desire of Central Bankers to offset any bullishness in gold and silver asset prices that may materialize next month likely has contributed much to the probability of a mid-March US Central Bank fed funds interest rate hike soaring from a mere insignificant 13% just two weeks ago to 34% one week ago to the present 51% as of today. Besides US Central Bankers talking up a good game and threatening to raise hikes, which they always do, whether or not they really are sincere about the execution part of the equation, the probability of a US fed funds interest rate hike next month has soared from 13% to 51% in just two weeks due to trader psychology as much as any other factor. I believe that US Central Bankers understand the possibility of bullish geopolitical/economic events happening in mid-March.

    This post was published at GoldSeek on Wednesday, 1 March 2017.

  • Will the Banker War on Cash Spread to a War on Bitcoin?

    Over the years, I’ve written a number of articles regarding why I prefer physical gold and physical silver over bitcoin (BTC). I believe in monetary competition, however, and believe that different forms of money should be allowed to compete, because the best form will eventually and quite rapidly always rise to the top. However, we are far from such an environment, as government/banking cartels have banned the use of gold and silver as systemically-wide accepted forms of money worldwide while ensuring that their rapidly devaluing fiat currencies remain the norm. So where does BTC fit into this picture? Again, I think that BTC has its place in the economy, especially since transaction fees using BTC are well below the highway-robbery rates of global banking institutions. However, BTC has yet to prove itself in preserving purchasing power over decades of time as has gold and silver, nor does it meet all 9 qualities that I deem necessary for sound money.
    In any event, as some of you may well know, BTC has exhibited massive volatility in 2017, far beyond even the sometimes volatile price fluctuations in spot gold and spot silver prices. BTC started out this year reaching an interim high of $1,129.87 per BTC, then plunged a maddening 31% in just 5 trading days to $775 after the Chinese government placed more restrictions on BTC trading, but since then, has nicely recovered 24% of that plunge and has risen back to $1,052.54 per BTC. At the time, BTC rose to $1,129, many posed the question of whether BTC was better than gold, which in my opinion, it will never be due to its digital nature. Some ask why would Chinese regulations cause BTC to plunge 31% in five trading days, and the answer is simple. Chinese speculators were almost entirely responsible for the rise of BTC from $800 to $1,129 at the end of 2016 into the start of 2017. As the Chinese government took more measures to clamp down on black money leaving China, wealthy Chinese turned increasingly towards BTC as their preferred mechanism to move black money out of China, thus fueling a speculative, unsustainable rise in BTC price. Furthermore, Chinese traders not even using BTC to move black money out of the country piggybacked off of this rising, easy trade because most Chinese BTC exchanges charged no fees on either end of the buy and sell transactions for BTC. However, when regulators changed these rules and implemented a 0.2% transaction fee on both ends of the trade, the easy speculative profits disappeared, and in response, BTC volumes collapsed 90% almost overnight on every Chinese BTC exchange.
    Though the easy profits of HFT bankers trading the Chinese BTC exchanges disappeared, this was a constructive development for the BTC market, because though HFT traders always claim that they benefit markets by providing ‘liquidity’, such claims are rubbish, and most HFT traders destroy markets by destroying real price discovery. Thus, the less HFT traders that exist in any market, the less volatility in prices there should be. However, since Chinese traders alone fueled the vast majority of the rise in BTC price at the end of 2016 into the start of 2017, it is always critical to track what is happening to the Chinese BTC market to understand what may happen to BTC prices in the future. As an analogous example, ask yourself what would happen to a company’s revenues if the company received 90% of its revenues from one customer and that customer decided not to renew its contract with that company? For now, this is how much influence the Chinese can have over short-term BTC prices.

    This post was published at GoldSeek on 9 February 2017.

  • HFT trading radio towers defeated by local council in U.K.

    Flash traders have had their bid to build a giant telecoms mast on the Kent coast turned down by councillors.
    Dover District Council rejected the bid by two secretive American high-frequency trading firms to build two masts taller than the Eiffel Tower, which is 1,063 feet high to its tip.
    Vigilant Global — which is owned by Chicago trading firm DRW — and New Line Networks — which is part owned by New York firm Jump Trading — wanted to each build a radio mast in Richborough, north of Sandwich, to increase trading speeds between London and Frankfurt.
    But on Thursday night their plans were voted down by Dover council’s planning committee after huge local opposition. The council’s planning department warned the structures – as tall as the Eiffel Tower – would damage local views and harm the character of the area.

    This post was published at Daily Mail

  • Citadel Pays $22 Million Settlement For Frontrunning Its Clients

    Last May we reported that, after years of railing against Citadel’s dominant position at the intersection of HFT trading and retail orderflow – Citadel was recently found to be the largest private US trading venue – Federal authorities were investigating the market-making arms of Citadel LLC and KCG Holdings looking into the possibility that the two giants of electronic trading are giving small investors a poor deal when executing stock transactions on their behalf.
    As a reminder, Citadel is so big and its own private stock-trading platform is so large that, if it were an official exchange recognized by the Securities and Exchange Commission, it would one of the largest registered exchanges in the United States – bigger than Nasdaq. Citadel Execution Services, the firm’s wholesale market-making unit, recently executed 35% of all trades by retail investors in U. S.-listed stocks.

    This post was published at Zero Hedge on Jan 13, 2017.

  • Silver Prices for the Year 2017

    How low and how high will the price of silver range on the PAPER markets during 2017? Knowing the influence central bankers, politicians, HFT algos, bullion banks and JPMorgan exercise over increasingly managed markets … it is impossible to answer the question, and it is probably the wrong question to ask.
    Instead, what do we know with a high degree of certainty? The U. S. national debt will substantially increase as it has almost every year since 1913. We can trust politicians and central bankers to act in their best interests to spend in excess of their revenues and increase total debt. See chart below. Politicians and central bankers are unlikely to change a century of their spend, borrow, tax and inflate behaviors.

    This post was published at Deviant Investor on January 13, 2017.