Study: High Speed Trading Hurts Long-Term Investors

Re:Study: High Speed Trading Hurts Long-Term Investors by squires on Sunday July 29, 2012 @07:39AM (#4308178)

I'm not involved in HFT, but I imagine the following scenario is plausible:

You place a limit order to buy FOO at $32

Someone else offers FOO at $31.90

A HFT algorithm buys FOO at $31.90 and immediately offers it at $32

You buy FOO at $32 from the HFT algo

So you have lost potential profit on the transaction even though you technically hit your limit price.

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Re:Study: High Speed Trading Hurts Long-Term Investors by yummyfajitas on Sunday July 29, 2012 @08:33AM (#4308275)

You place a limit order to buy FOO at $32

Someone else offers FOO at $31.90

At this stage, the matching engine observes that you want to buy at $32, and someone is willing to sell at less than $32. You trade directly with that person at $32.

It's actually illegal for any matching engine to match the $31.90 bid, they must cross trades at the NBBO.

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Re:Study: High Speed Trading Hurts Long-Term Investors by chrisaycock on Sunday July 29, 2012 @08:48AM (#4308318)

  You place a limit order to buy FOO at $32
  Someone else offers FOO at $31.90

That scenario would result in a locked market, which can't possibly happen under RegNMS. The exchange that saw the offer for $31.90 is required to route-out to the exchange with a bid of $32.

  A HFT algorithm buys FOO at $31.90

That also can't happen. Even without RegNMS, the exchange's matching engine would have paired the value investor with the offer of $31.90, though the execution price would actually be $32. The HFT participant won't even see the ask price in this scenario.

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