Broker-dealer internalization, queue jumping, flash trading. Regulators are years behind the traders on methods.
Trading center proximity is a big one. The Internet travels at the speed of light (actually, somewhat less than that). Which is finite and within the bounds of algorithmic trading. The HFTs get pricing data before the general public, even if it's just a few thousandths of a second (5000 km is about 0.01 light seconds, 500km is 0.001 ls).
With HFT operating at the 250 microsecond level, 75 km is significant.
http://www.stocktrading.com/HFTDennis.ppt
http://online.wsj.com/news/articles/SB1000087239639044403240...
Broker-dealer internalization, queue jumping, flash trading. Regulators are years behind the traders on methods.
Trading center proximity is a big one. The Internet travels at the speed of light (actually, somewhat less than that). Which is finite and within the bounds of algorithmic trading. The HFTs get pricing data before the general public, even if it's just a few thousandths of a second (5000 km is about 0.01 light seconds, 500km is 0.001 ls).
With HFT operating at the 250 microsecond level, 75 km is significant.
http://queue.acm.org/detail.cfm?ref=rss&id=2536492
Or just plain cheating. Remember the Chicago Faster-Than-Light trades?
http://www.theverge.com/2013/10/3/4798542/whats-faster-than-...