4 Years Without A Loss

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Wie kan 70% van de handel voor zijn rekening nemen en toch 4 jaar geen
enkele dag verlies lijden?

Groet / Cees

All You Need To Know About HFT: "Sell Everything, And Shutdown"; 4 Years
Without A Loss
http://www.zerohedge.com/article/all-you-need-know-about-hft-sell-everything-and-shutdown
Submitted by Tyler Durden on 05/17/2010 06:28 -0500

The reasons for last week's collapse will be probed for a long time, and
likely no firm conclusion will ever be derived, because it was caused by
a confluence of numerous factors. While there may be immediate causes
for the plunge, the one recurring reason for both that crash, and all
future ones, will be dominant role played by HFT traders as they now
control market structure when they operate, and the massive vacuum left
when they decide to simply shut down when things get too heated and
there is no regulated liquidity provider backstop. As the New York Times
reports yesterday from your typical HFT bucket shop "as the stock market
began to plunge in the “flash crash,” someone here walked up to one of
those computers and typed the command HF STOP: sell everything, and
shutdown." A vivid and brief summary of what we have been warning for
over a year. Also, we find out that just like Tradebot, which as "one of
the biggest high-frequency traders around, had not had a losing day in
four years" that Goldman, and all the other big banks who reported a
flawless first quarter, are now nothing but one large HFT prop shop:
they push the market higher on no volume, and when the selling in size
commences they all just shut down. So much for providing liquidity when
it is needed. And as for that 4 year track record... What did Madoff go
to jail for again?

 From the NYT:

     Above the Restoration Hardware in this Jersey Shore town, not far
from the Navesink River, lurks a Wall Street giant. Here, inside the
humdrum offices of a tiny trading firm called Tradeworx, workers in
their 20s and 30s in jeans and T-shirts quietly tend high-speed
computers that typically buy and sell 80 million shares a day.

     But on the afternoon of May 6, as the stock market began to plunge
in the “flash crash,” someone here walked up to one of those computers
and typed the command HF STOP: sell everything, and shutdown.

     Across the country, several of Tradeworx’s counterparts did the
same. In a blink, some of the most powerful players in the stock market
today — high-frequency traders — went dark. The result sent chills
through the financial world.

     After the brief 1,000-point plunge in the stock market that day,
the growing role of high-frequency traders in the nation’s financial
markets is drawing new scrutiny.

     Over the last decade, these high-tech operators have become sort of
a shadow Wall Street — from New Jersey to Kansas City, from Texas to
Chicago. Depending on whose estimates you believe, high-frequency
traders account for 40 to 70 percent of all trading on every stock
market in the country. Some of the biggest players trade more than a
billion shares a day.

And for the closest rendering of the enlightened gambling that occurs
each and every day, now that traditional investing is long-dead, the NYT
brings you this. Observe the similarity between Tradebot's trading
results and those of of Goldman et al this quarter.

     These are short-term bets. Very short. The founder of Tradebot, in
Kansas City, Mo., told students in 2008 that his firm typically held
stocks for 11 seconds. Tradebot, one of the biggest high-frequency
traders around, had not had a losing day in four years, he said.

     But some in Washington wonder if ordinary investors will pay a
price for this sort of lightning-quick trading. Unlike old-fashioned
specialists on the New York Stock Exchange, who are obligated to stay in
the market whether it is rising or falling, high-frequency traders can
walk away at any time.

     While market regulators are still trying to figure out what
happened on May 6, the decision of high-frequency traders to withdraw
from the marketplace is under examination.

     Did their decision create a market vacuum that caused prices to
plunge even faster?

     “We don’t know, but isn’t that the point? How are we ever going to
find out what’s going on with these high-frequency traders?” said
Senator Edward E. Kaufman, Democrat of Delaware, who wants the
Securities and Exchange Commission to collect more information on
high-frequency traders.

The HFT response: more of the same lies we have grown accustomed to
reading from the HFT lobby.

     “We are not a no-regulation crowd,” said Richard Gorelick, a
co-founder of the high-frequency trading firm RGM Advisors in Austin,
Tex. “We were all created by good regulation, the regulation that
provided for more competition, more transparency and more fairness.”

     But critics say the markets have become unfair to investors who
cannot invest millions in high-tech computers. The exchanges offer
incentives, including rebates, which can add up to meaningful profits
for high-volume traders as well.

     “The market structure has morphed from one that was equitable and
fair to one where those who get the greatest perks, who have the speed,
have all of the advantages,” said Sal Arnuk, who runs an equity trading
firm in New Jersey.

And let's not forget that old broken record and now completely
discredited standby: providing liquidity. Sure, when all the HFTs shut
down at the same time as soon as the house of cards mirage is evident
for all to see, liquidity is gone faster than any credibility this
market may have.

     “The benefits of the liquidity that we bring to the markets aren’t
theoretical,” said Cameron Smith, the general counsel for high-frequency
trading firm Quantlab Financial in Houston. “If you can buy a security
with the knowledge that you can resell it later, that creates a lot of
confidence in the market.”

     The high-frequency club consisting of 100 to 200 firms are
scattered far from the canyons of Wall Street. Most use their founders’
money to trade. A handful are run from spare bedrooms, while others,
like GetCo in Chicago, have hundreds of employees.

     Most of these firms typically hold onto stocks for a few seconds,
minutes or hours and usually end the day with little or no position in
the market. Their profits come in slivers of a penny, but they can reap
those incremental rewards over and over, all day long.

A quick glimpse into the "sophisticated" work that goes into picking
winners and losers:

     The Tradeworx computers get price quotes from the exchanges, decide
how to trade, complete a risk analysis and generate a buy or sell order
— in 20 microseconds.

     The computers trade in and out of individual stocks, indexes and
exchange-traded funds, or E.T.F.’s, all day long. Mr. Narang, for the
most part, has no idea which stocks Tradeworx is buying or selling.

     Showing a computer chart to a visitor, Mr. Narang zeroes in on one
stock that had recently been a winner for the firm. Which stock? Mr.
Narang clicks on the chart to bring up the ticker symbol: NETL. What’s
that? Mr. Narang clicks a few more times and answers slowly: “NetLogic
Microsystems.” He shrugs. “Never heard of it,” he says.

And here is what will happen every single time when panicked volume
selling picks up: the liquidity will always disappear, as long as HFT's
role in market structure is not curbed and regulated.

     Mr. Narang said Tradeworx could not tell whether something was
wrong with the data feeds from the exchanges. More important, Mr. Narang
worried that if some trades were canceled — as, indeed, many were —
Tradeworx might be left holding stocks it did not want.

It's all good as long as the market rises without any participation.
401k holders are happy. However as the market is up on nothing but ultra
short-term gambling by firms that have no clue what the stocks they
churn daily, the days to the next massive crash are already counting down.

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