HFT Silliness

Jun 5th, 2014 | By | Category: Ask Bella
Share on StockTwits


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!

@mikebellafiore

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.

Learn the skills necessary to identify and manage trades like these in our 10 week mentoring program. Click on banner below for details on next session in June 2014.

smb-dna-10-training-program

No relevant positions

Tags:
smb newsletter
Options Risk Disclaimer    Forex Risk Disclaimer

1. SMB TRAINING is NOT a Broker Dealer. SMB Training engages in trader education and training. SMB TRAINING offers a number of products and services, both electronical (over the internet through smbtraining.com) and in person. SMB TRAINING also offers web-based, interactive training courses on demand.

2. The seminars given by SMB TRAINING are for educational purposes only. This information neither is, nor should be construed, as an offer, or a solicitation of an offer, to buy or sell securities. You shall be fully responsible for any investment decision you make, and such decisions will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.

3. This material is being provided to you for educational purposes only. No information presented constitutes a recommendation by SMB TRAINING or its affiliates to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. You are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances. Such decisions should be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance and liquidity needs.

4. SMB Training and SMB Capital Management, LLC are separate but affiliated companies.

5. No relevant positions

6. Please note: Hypothetical computer simulated performance results are believed to be accurately presented. However, they are not guaranteed as to accuracy or completeness and are subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed; the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity, slippage and commissions. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any portfolio will, or is likely to achieve profits or losses similar to those shown. All investments and trades carry risks.

Log in | 81 queries. 1.522 seconds.