[jcampbell1]

That doesn't do anything. Then you never get any shares, and the market moves higher because there is a 100,000 shares on the order book and the market will move higher for legit reasons.

The way not to get scalped, is to place the order in a way where it arrives at all the exchanges at the same time, that way the HFT guys and their microwave data links can't peek at your order on BATS, and then beat you to the other exchanges.

The accusation is they see the 100,000 share order hit BATS, 10,000 get filed, then the HFT guys buy 90,000 shares on the other exchanges before your order gets forwarded, and you are stuck paying the HFT guys $15.02.

[harryh]

The HFT guys aren't buying 90,000 shares on the other exchanges. They're just updating their ASK price on those exchanges to slightly raise the price to reflect the new information that just hit the market. If someone wants to buy 100,000 shares RIGHT NOW it's a good sign that the price should be going up. Katsuyama/RBC were used to their proprietary information staying a secret that only they knew for longer before the HFTs jumped in and made the market respond faster.

That might be a bummer for Katsuyama/RBC but it's great for everyone else on the market who now benefit from a price that updates faster.

[jcampbell1]

How do you "update" your ASK price? They are either front running by buying the shares at $15.00-$15.01, or, if they are their own orders, then they cancel them. It is the same thing.

If someone wants to buy 100,000 shares, and the market says there are 100,000 shares available at $15, the order should complete at $15.

[harryh]

You update your ASK price by canceling your order and submitting a new one with a different price.

> If someone wants to buy 100,000 shares, and the market says there are 100,000 shares available at $15, the order should complete at $15.

As long as they submit their matching order while my bid is still on the books that's fine. But why should I be required to keep my order on the books for any longer than I want to?

[jcampbell1]

You should be able to cancel you order at anytime. What you shouldn't be able to do is to stiff other people's trades, and then use a microwave antenna to change your order before the other person trade arrives.

[harryh]

What you think is happening in the world is not what's actually happening.

What's happening:

1) A large block of shares is traded on exchange #1.

2) HFTer notices #1 and very quickly updates the price at which they are willing to buy/sell on exchange #2. No one has any sure knowledge of trades on their way to exchange #2. They can guess. They can infer. But they aren't seeing any actual trades before they hit the exchange.

[001sky]

Please explain how you would do this in an open outcry market.

You're talking about front-running the trade inbetween the "sell" decision and the receipt of the signal at the exchange. In otherwords, your bid/offer is in bad faith. I can advertise a car for sale and then when you walk in remove the price and mark up the trade. You cannot do this in an open outcry market. Because it would be subject to retaliation (of various kinds).

Providing bid/ask indication in bad faith is NOT liquidity. Liquidity is not layering a trade to double the volume.

HFT does not increase liquidity. It increases volume, at best. But so does front-running. The bait and switch issue and the front-running issue not interchangeble, but they are closely linked.

Market micro-structure is difficult to discuss because most people are completely ignorant of the mechanics. Its easy to pass of volume for liquidity and to disquise front-running as "market making" or speculation. It is clearly distinct.