What does counter trading and running circles around clueless retail traders mean?
Is that another way of saying that retail traders buy on the offer and sell on the bid while HFTs buy on the bid and sell on the offer?
Is that another way of saying that retail traders buy on the offer and sell on the bid while HFTs buy on the bid and sell on the offer?
This is market making which is the bread and butter of HFTs. This is the one thing they do which helps, not hurts, human traders.
They can do thousands of trades in the time it takes your nervous system to react and click the mouse. They parse a news headline many seconds before it ever shows up on the internet. They rent satellites to count how many trucks leave factories. They have access to person-to-person dark pool trades that never show up on the normal exchanges.
Algorithmic trading is a secretive black box, but who knows. These are just my speculations from hearsay and random research. If they can make a fraction of a cent from messing with you, they will. It can scale up infinitely. It's just software--there's no marginal cost to do so, provided they are properly hedged.
> This is the one thing they do which helps, not hurts, human traders.
Providing liquidity is their job, and it benefits the market as a whole. If market making by HFTs is a good thing, it’s difficult to malign those same firms for, well, making markets.
> They rent satellites to count how many trucks leave factories.
This isn’t their business model in the slightest. Quant funds certainly do this, but HFTs look for alpha in market microstructure.
> They have access to person-to-person dark pool trades that never show up on the normal exchanges.
Institutional investors can use dark pools to minimize market impact when trade large blocks. HFTs don’t benefit from having limited information on these flows.
> Algorithmic trading is a secretive black box
Algorithmic trading != HFT in the same manner that a rectangle is not a square.
> It can scale up infinitely.
HFT strategies don’t scale. ‘Scalable’ strategies support a large amount of capital. HFTs run high sharpe, low capacity strategies.