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News Link • Conspiracies

Look At The "Crop Circles" High Frequency Traders Make When They Trade

• Businessinsider.com/
 
Where quotes have occured, Nanex's pictures show them shaded in color. Because the quotes aren't random, but are formulaic, patterns emerge from HFT trade sequences. Sometimes the pattern is pretty simple. Other times it's unbelievable. High frequency traders get a lot of heat for gaming the market and now there's clear photo evidence of why. Zerohedge had a great post last night where they show the software firm Nanex's pictures of the market at times when high frequency traders have literally flooded the market with quotes. Where quotes have occured, Nanex's pictures show them shaded in color. Because the quotes aren't random, but are formulaic, patterns emerge from HFT trade sequences. Sometimes the pattern is pretty simple. Other times it's unbelievable. This first image Nanex calls the BATS "Flag Repeater." It shows HFT traders asking 15,000 quotes in 11 seconds. The pattern emerges from their dropping the ASK price 1 penny each quote from $9.36 to $8.58 and back up again. It seems pretty normal that HFT traders, many of whom use algos that are essentially just formulas that quants have determined will be profitable when they are applied to the market, would use algos that wind up making patterns like these. Now we have a number of real pictures of how the formulas work, as well as what functions inside of them. Clearly the formulas depend a lot on time as a function. But that first pattern was pretty basic. Check out this one: The thin blue line up top shows the number of quotes and the wild pattern beneath is the pattern in which the HFT algo is bidding. Nanex calls it "The Crown." Now the patterns really start getting fun. This one below is of a sequence of asks. The following is one Nanex calls the NASDAQ "Double Dip". Symbol SH. The pattern shows 10,000 Quotes in 4 seconds, each affecting the Best Bid. And here's a trade sequence Nanex calls "Puzzle Pieces." Nanex says the patterns are a result of "Quote Stuffing", in which bursts of quotes (at very high rates) with extremely unusual characteristics are observed. Zerohedge thinks the patterns are an example of potentially illegal behavior: Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific "shapes" as it actually moves the NBBO actively higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred.

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