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"The Disruptor" Algo: A Trillion Bytes of Data Friday Hides A Lot of Sins [View All]

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girl gone mad Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Aug-14-11 11:23 PM
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"The Disruptor" Algo: A Trillion Bytes of Data Friday Hides A Lot of Sins
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A Trillion Bytes of Data Friday Hides A Lot of Sins

Jon "DRJ" Najarian | ask-drj@optionmonster.com
http://www.optionmonster.com/drj_blog/article.php?page=drj_blog/a_trillion_bytes_of_data_friday_hides_a_lot_of_sins_59719.html

Last night over 14 months after the Flash Crash, US regulators finally sent subpoenas to HFT firms. In light of that and the games that were played last week, I offer more insights into HFT from my friends at Nanex, which supports what our HeatSeeker saw as the quants had their way with the markets to the detrement of all investor classes:

On Friday, Aug 5, 2011, we processed 1 trillion bytes of data for all U.S. equities, options, futures, and indexes. This is insane. A year ago, when we processed half of that, we thought it was madness. A year before that, when it was 250 billion bytes, we thought the same. There is no new beneficial information in this monstrous pile of data compared to 3 years ago. It is noise, subterfuge, manipulation. The root of all that is wrong with today's markets.

HFT is sucking the life blood out of the markets: liquidity. It is almost comical, because this is what they claim to supply. No one with any sense wants to post a bid or ask, because they know it will only get hit when it's at their disadvantage. Some give in, and join the arms race. Others leave.

Take the electronic S&P 500 futures contract, known as the emini, for example. This is, or used to be, a very liquid market. The cumulative size in the 10 levels in the depth of book was often 20,000 contracts on each side. That means a trader could buy or sell 20,000 contracts "instantly" and only move the market 10 ticks or price levels. Even during the flash crash, before the CME halt, when hot potatoes were flying everywhere, the depth would still accommodate an instant sale of 2,000 contracts.

http://www.optionmonster.com/drj_blog/article.php?page=drj_blog/a_trillion_bytes_of_data_friday_hides_a_lot_of_sins_59719.html">more...



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