Comment by kasey_junk | Hacker News Reader

Comment by kasey_junk | Hacker News Reader

So again with all HFT conversations we have to be clear on what we mean with the language we are using.

I've seen quote stuffing used to mean what Chris mentions here. The implication being that HFTs were using large volumes of low quantity orders for nefarious purposes such as DoS the exchange & SIP or confusing your competitors by making the order flow to heavy to process. These kinds of games did occur, but it was very briefly a long time ago because the exchanges themselves had a vested interest in stopping it and an easy mechanism which to do so (fill ratios). I prefer the term quote spamming for this, and I agree with Chris that most of the time when this happens it's just a bad order management bug.

Quote stuffing can also refer to the practice of putting a few large orders into the order book with no intention of trading them in order to make the volume on the book look larger than it is, and then cancelling them quickly to take advantage of the "real" volume. This is a predatory activity designed explicitly to take advantage of market making strategies and is already illegal. Your mileage may vary when it comes to enforcement...

The second kind of quote-stuffing you mention, where you place larger orders outside the best bid/offer with the intention of distorting the order book (aka spoofing, see comment below) is certainly nefarious. But it's a special kind of nefarious behaviour that really only affects other market participants who can react quickly enough to the information - i.e. it's mostly HFTs taking money from other HFTs.

Using large non-bonafide orders to lean the book in the direction you want to trade is called 'Spoofing', not quote stuffing. It's been illegal for a long time.

I agree that some people call it spoofing and that is a better name for it, but other people do call it quote stuffing.

It's one of my pet peeves that when it comes to this industry there is very little standardization of the language.

Misuse of language by opponents of automated trading is intentional. When presented with examples of beneficial computerized trading like automated market making, they throw their hands in the air and say, "oh no, when I say 'HFT' I only mean these bad kinds":

"The practice of spoofing, or sending in fake orders in order to gain information about what other investors, traders and other algorithms are doing, is the corner stone of most High Frequency Trading strategies (HFT)."

http://www.nanex.net/aqck2/4371.html

I think it is more short-term day traders taking money from naive HFTs. I'm sure some people automate this type of manipulation, but I seriously doubt that any of the "big name" market making firms do it. They are under a lot of regulatory scrutiny, make more than enough through legitimate trading, and have the technology & data to enable their internal compliance auditors to detect it.

I also don't think it can make that much. It may work for a little while, but no algo is going to sit there bleeding money to you forever without hitting a risk limit or being reviewed/adjusted. If your business model depends on somebody else doing something dumb, it's not going to work for the long-haul.

The cases I know of where the SEC has cracked down were all manual traders leaning the book and essentially taking advantage of naive MM algos. Proceeds < $5mm each time I believe.

But it's a special kind of nefarious behaviour that really only affects other market participants who can react quickly enough to the information - i.e. it's mostly HFTs taking money from other HFTs.

This kind of behaviour that undermines the integrity of markets should not get a pass based on who it does or does not hurt, tho. If nothing else its bad PR that keeps people out of the markets or creates other "absences" or dark patterns from people not showing up to trade, fro whatever reason.

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