Sunday, August 16, 2015

How And Why HFTs Make Free Money

... in the aftermath of Reg NMS, and the terminal capture of regulators by those who benefit from market fragmentation, regulators blessed a two-tier market, one in which HFTs can frontrun non-HFT order flow and not be worried one bit about the consequences.

The technical term for this gross aberration of market fairness and efficiency is latency arbitrage, and it is best shown on the following annotated "map" courtesy of Nanex' Eric Hunsader, laying out the embedded, and regulator blessed, latencies between the three big New Jersey exchange centers: Mahwah (NYSE), Secaucus (BATS), and Carteret (Nasdaq) for everyone but the top tier - the High Frequency Traders, whose only advantage is having the millions to spend both in one-time collocation setup as well as recurring microwave/laser fees to obtain faster data access which then allows them to frontrun everyone else and generate massive returns on their investment. Returns that are due only to done thing: frontrunning.

You can read the rest @

The rest of us are just wasting our time ... and money.

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