A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear.
Oh really? The motive is unclear eh?
No it's not.
The motive is to try to goad someone else into placing an order against the fake orders that are never intended to execute. This, incidentally, is illegal -- the Securities Act makes unlawful any action taken in the market with the intent to distort prices. In other words the placement of any order into the market for any purpose other than to have it executed is against the law.
Translation: The ultimate goal of many of these programs is to gum up the system so it slows down the quote feed to others and allows the computer traders (with their co-located servers at the exchanges) to gain a money-making arbitrage opportunity.
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