Tag Archives: HFT

How to keep High Frequency Traders (HFT) Out of Your Pocket

Michael Lewis’ new book Flash boys, out a few weeks ago, made a huge splash attracting attention of the FBI, regulators, and numerous print, and media outlets. We have a neutral view on the subject, here is why.

How to Keep HFT’s out of your pocket

Most of the discussions and illustrations include an unfair advantage gained by open access and speed obtained by the HFT’s. While this may be true there are two simple solutions.

  1. Do not trade excessively – Trading constantly opens one up to excessive HFT tricks. We would argue excessive trading is bad for investors and should be avoided.
  2. Meet the Limit Order – Do not buy anything in the open market as a market order. If you set the maximum price of what you will pay/take (limit order) , you have set your boundary price.Catfish

HFT’s which we will call for this discussion “Catfish” can get into your pocket if you are not careful, but these two steps will keep you out of harms way.

In closing, we have named HFT’s “Catfish” as they scour the bottoms of the trading floors for crumbs and score from the unaware. Shortly we will discuss a more frightening power we call “SKYNET“, which we think deserves more attention.

Have a great day!

John Kvale CFA CFP

PS Short week, such the consecutive day posts.
PSS Tax day today!!
 
http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225  

Way Too Much to Talk About …. But a Friday

As a predominantly numbers oriented gang, words sometimes come hard for us, but that is not the case at the moment. We have more to talk about than we can share in just one post.

all about Social Security and Medicare

With a Social Security and Medicare themed Newsletter for Q 2 2014, coming soon, recent law changes, history of the programs, and questions are making for a terrific Newsletter that will hit the presses soon. Of course no newsletter can be complete without a talk about the capital markets and their continued froth.

The Tom Clark interview will be available soon too, lending a much more wise view of the two, sometimes confusing government programs. (May 1, 2014 Client Roundtable event)

Top Gun Performance Cover LetterMaverick and Goose

Next week we will roll back the clocks a bit to 1986 where Maverick and Goose make an appearance to help make a fun comparative investment point. Although a slight stretch, we think you will enjoy the humor and comparison.

Month End Video with better Audio

As I write this, a new (to me) solid state personal recorder sits on the table with hopeful promise of a much clearer audio sound for the next monthly review video and for recording our May 1 roundtable event.  Where is that on and off switch?

Michael Lewis Makes a Splash

If there is an author that can really make waves when a new book arrives, it’s Michael Lewis. His latest book, Flash Boys hit the shelves this week and rocketed to number one best seller. With a 60 minutes interview and episode, FBI, SEC investigation, CNBC, Bloomberg interview and as much banter among investment professionals and the industry rags as I have ever seen, we could not help but shed some light on this subject of HFT (high frequency traders) ourselves.  Look for that soon too, after the dust settles a bit.

Ahhh, but all of that is next week and in the coming weeks. Today is a Friday and the first quarter of the year is gone….Have you spent enough time with those special in your life ?

Have a Great Day and a Super Weekend!

John Kvale CFA, CFP

http://www.jkfinancialinc.com
http://www.street-cents.com
8222 Douglas Ave # 590
Dallas, TX 75225

 

Slice….Donald’s New Algorithmic Trading tool…A High Frequency Combater

As mentioned last week, on Thursday I attended an options seminar that included fellow professionals and several options specialists. Buried in the meeting were announcements of several new tools available, one called “Slice” we found VERY interesting,  and immediately activated its’ features.

Ways to Combat High Frequency Algos

Slice is a tool that allows “Donald the Brain” through Thinkpipes our trading platform, to cut up orders in various ways when buying or selling shares. Always the highest priority is to execute trades in a seamless, efficient manner while achieving the best possible price execution…every penny counts!

Slice

Slice

Without getting into the weeds too much, one of the new issues associated with the High Frequency folks is being stepped in front of for a penny or two and adjusting the final execution price. Slicing the orders looks like a great way to combat the High Frequency machines….GO GET EM Donald!!

We are excited to utilize this new feature and yes of course…we are nerds !

Have a Great Monday!

John Kvale

214-706-4300
www.jkfinancialinc.com
8222 Douglas Ave # 590
Dallas, TX 75225

High Frequency Traders (HFT) exit the scene….

While more of a nuisance than a show stopper for us, we noticed High Frequency Traders (HFT’) have been less prevalent recently than in the past. Yesterday at a lunch meeting with fellow professionals this topic was bantered a bit. Right on time a nice supporting view from traders magazine today.HFT

HFT and the Flash Crash?

While we do not attribute all of the flash crash to HFT trading, there is a high likelihood that at least partial blame goes to these folks who all at once stepped aside allowing the markets to plunge several percentage points only to rise again. The good news from this experience are new circuit breakers have been installed to prevent this occurrence again, so possibly a good result.

HFT Profits Vanish

According to this Traders Magazine Article, Rosenblatt securities estimates

“…profits have dropped from $0.001 to 0.0015 a share to $0.0005 to $0.00075….”

“The largest electronic market maker, GETCO, saw its net income drop 82 percent in the first nine months of 2012, compared to 2011, to $24.6 million.”

Such a dramatic drop in margins will certainly chase current players away and thwart new entrants.

Where does this leave us? No more HFT? Doubtful

In domestic and overseas equity markets, low volatility, mostly positive movement has stymied much fo the HFT trading in our opinion. Should volatility come back we would expect an increase in HFT activity, however, our bet, they are on to greener pastures…..Commodities or currencies anyone (both highly leveraged)

Again as a non day trading firm HFT were not our enemy, although there were times when we had to pull in our reins to keep from donating an extra few cents to their cause. We will keep our eyes peeled as true capitalists, it is highly likely they will show up in another area of the capital markets in the future.

Have a Great Day!

JK

214-706-4300
www.jkfinancialinc.com
8222 Douglas Ave # 590
Dallas, TX 75225

A sure thing, not so sure anymore…HFT (High Frequency Trading) slows….JK’s Travel Schedule Reminder

We along with many others have commented somewhat neutrally to the uprising of the machines… AKA High Frequency Trading (HFT) it appears their dominance may already be waning.

On May 6, 2010 HFT was thrust into the headlines as a sudden and sharp drop in capital market indexes was blamed on a collective HFT shut off by several firms, leading to thin and low trading volumes on many stocks and allowing for sporadic pricing when large orders came to the market.

Fast forward to today and as a recent New York Times Article pointed out, HFT trading dominance may be on the way out.  It appears that HFT was not as profitable as once thought, and participants once rushing for the gold pan, are now leaving the equity market. We have noticed less HFT distractions during trading as well. It is nice how markets adjust to weed out unnecessary participants.

It is worth keeping an eye out for other playgrounds as some may take their tools to another stage i.e. futures, commodities etc…. time will tell.

As a reminder, I will be traveling on Thursday and Friday (18-19) of this week, but will be tethered electronically to the office.

Have a Great Day!

JK

214-706-4300
http://www.jkfinanacialinc.com
8222 Douglas Ave # 590
Dallas, TX 75225

Thank you Ben, Overconfident on Technology Upgrade, Rise of the Machines – Traveling

In the week that just was, Big Ben scoffed the so-called “Leaks” that we also mentioned and did not add any additional “Cowbell” easing. This is just fine with us as we are hopeful the US can “Take the Training Wheels Off” and ride on its own. The longer Big Ben waits the better we are, in our opinion….no more candy please!

On a personal/office note (one in the same frequently) our mid-week victory technology dance turned out a bit premature as my personal VPN turned up the victim of our new high-speed connection, and refused to play along.  After eight hours of tethered connections to our IT folks from home attempting to remotely connect to the office, the issue has been resolved.  It is all good!  Next step VOIP phones, which are on order and due to arrive in two weeks for an end of August install….fingers crossed.

While much has been mentioned of the recent machine induced spike in trading volumes which occurred on Wednesday morning, we see it as more of a yawner than a concern. HFT (high frequency trading) is here and provides liquidity for those that correctly go to the market to exchange one investment idea for a hopeful better one. Most do not trade in terms of seconds, but rather years, so while we watch the minute to minute changes for opportunity, we rarely react to such movements. (For the record we have an unwritten rule, not to execute transactions within 30 minutes of the open or close as we have found over the years large variances can occur.)

Traveling for the next few, but of course will be happily tethered (via the eight-hour VPN setup ..ha) to the office.

Have a Great Weekend and a Super Day!

JK

PS  Next week some neat announcements including The Best Financial Planner award, a recent interview with Fidelity, and a save the date for our Kids themed Holiday party!

214-706-4300  www.jkfinancialinc.com

High Frequency Reporters…..Read Carefully

Much has been said of HFT (High Frequency Trading) the new generation of computer trading and its involvement and sway in the capital markets. In an interesting parallel, our sir named HFR (High Frequency Reporters) or computer generated stories from raw data, according to this AFP/Yahoo article are making their way into main stream media in a more prominent manner.

As you may know from our mentions of the possibly overly dramatic headlines, and while we have a huge appetite for vast amounts of data, stories, and headlines (occupational hazard), we remind you (and our selves) to carefully scrutinize the stories often as they may not always read true to the facts.

Much to our surprise/ignorance the prior mentioned AFP article, “Call him Al for algorithm” of computer generated articles, using fast paced computer algorithms (fancy word for if then analysis) opened our eyes to the artificial intelligence being uses for literature these days.

Here is out quick take on this in bullet point fashion:

  • Speed is good, but can be dangerous
  • Computers can never replace human reason 100% of the time
  • There will be errors, some may be very costly if not monitored
  • Pressure will be on real reporters to be even more dynamic
  • Checking the facts is more important than ever
  • The pendulum always swings too far and will eventually settle where it should be, somewhere in the middle

In the vein of progress, we appreciate the accelerated speed at which information travels, however the double-edged sword it also carries is worth remembering, as we feel there will be a occurence eventually where a computer algorithm generates a story that causes an issue, but hey, we humans make mistakes too!

Have a Great Day!

JK

PS As a reminder, I will be out of the office later in the week.

214-706-4300 www.jkfinancialinc.com