HFT Silliness

We received this question from an SMBU reader:

Hello Mike,ask Bella

I have a question regarding Move2Move trades, since the trade moves quickly do you find it is better to “Hit the Bid” then to go on the offer?

Thank you so much!


A Move2Move trade is generally a scalp trade made by an intraday trader.  You see a stock at a price inefficient and have edge that it will move to the efficient price.

The answer to the question above is…..It depends.  Generally you will hit the bids to exit in Move2Move trades as HFTs make it very difficult to get taken on the offer these days.  The best usually we can do is sell on a dark pool at a midpoint between the bid and offer.  And this requires knowledge that I find a complete waste of my mental energy but nevertheless necessary.  Sadly a midpoint dark pool sale is a huge victory within the present market structure.

If I offer even for 100 shares HFTs start going crazy like coked up party animals.  It’s as if I am Goldman displaying a million share offer to sell.  also, if I am up hidden on a dark pool and the bots scrape the stock I am trading for orders and I get taken for 100 shares that can cause the bids to immediately drop out and a sale option to hit the bids at a disadvantageous price.

I have said in the past it is very difficult to get taken on the lit market, orders that are displayed on the Level 2.  I can spook bids to drop with a 1oo share offer.  I can cause offers to lift with a 1oo share bid.  I am not trying to do this- move the market.  I am just attempting to trade in and out of my positions and the HFTs react like children overloaded on sugar.  It’s all a bit pathetic.

Further, it is even hard to hit the bids.  I will go to smack a bid even when I would rather sell on the offer, enter that bid hit and see it fail to execute, the bids drop and me still with the same size.  This is my real-life experience with being in The Matrix.

In short, you will probably have to hit the bids, at best sell on a dark pool with a midpoint sale.  If you get taken on the lit market on the offer you either have just made an awful sale and watch the stock trade much higher or have been as lucky as winning the lottery.  Such is the sad silly state of HFT execution games.

related blog posts:

How I Feel Trading Against HFTs Michael Lewis

You can be better tomorrow than you are today!

Mike Bellafiore is the Co-Founder of SMB Capital and SMBU, which provides trading education in stocks, options, forex and futures. Bella is the author of One Good Trade and The PlayBook.

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