HFT Alert Software and Website

[Ellis Wyatt]

1. How would you or someone else employ the information to improve discretionary trading? Can illustrative examples be provided?

I am concerned there would be information overload and that the information may not prove any more valuable to my slow biological response mechanisms than a simple price and volume chart.

In particular, I can imagine the necessity of setting another screen to this service, which I must monitor as I monitor other screens that show, for example, tick readings, volume profiles, pivots, and all the tools of detection, which traders in this group employ regularly.

Nikola,

I also look forward to hearing especially Bob on this development. Having some interest in this topic myself, I can offer the observation that the screens shown in the HFTalert samples bear an identical resemblance to the screens regularly captured and displayed by Nanex, a real-time market data service provider whose reputation was made on their detailed analysis of the May 6th, 2010 Flash Crash. It would be reasonable to posit based on the resemblance, the theme, and the location of HFTalert in southern California, that Nanex is somehow involved in HFTalert, which in my mind would be a solid endorsement of the HFTalert tool.

For a good primer on the effects of high frequency trading algorithms, the effects on US equity and commodity markets of quote stuffing and the phenomenon of that practice overwhelming the National Best Bid/Offer (NBBO) system which is unique to the US, and is related to the technology capabilities of the Consolidated Quote System and Consolidated Tape System, see the below, and other, research pieces from Nanex.

As far as immediate practical intra-day trading benefits, my first reaction was similar to yours, quoted above. The apparent goal of hft quote stuffing has been to overload the CQS ad NBBO relays sufficiently to create a signal delay of enough micro-seconds that intra-exchange arbitrage opportunities can be exploited at the levels of fractional pennies per trade. Most documented instances of the phenomenon show effects lasting less than one minute, and many rogue instances result in busted trades, usually in single equity issues.

There have been rare instances in which the entire US equity complex has been affected for more than a day; the Flash Crash was one, and there may have been another related to the US equity ramp on Tuesday.

Nanex' original breakthrough research on quote-stuffing and the Flash Crash:
http://www.nanex.net/20100506/FlashC...sis_Intro.html

The dangers to short-term traders involved in the NBBO vulnerability:
http://www.nanex.net/FlashCrash/Flas...ysis_NBBO.html

A single stock case study of CQS quote stuffing creating exchange delay arbitrage:
http://www.nanex.net/FlashCrash/Flas...lysis_LOD.html

The master link to all Nanex research:
http://www.nanex.net/FlashCrash/OngoingResearch.html

I should hasten to add that the ES, the mini S&P 500 index future contract, is traded in Chicago and not New York, is not itself subject to the NBBO or CQS, and is alleged to report as close to pure volume data as is possible. Though the ES is not immune to algo interference, and its price level within the SPX complex is certainly affected by violent movements in highly correlated equity prices, it remains the safest and most liquid of intra-day instruments. Traders devoted to the ES should certainly be aware of these phenomena, but the risks of HFTs directly flash-crashing the ES should be placed in a reasonable context. In my limited experience, the CME Group has a much tighter leash on its operations than the gang in New York.