Is it possible that many of the market-making strategies that are harmed by "spoofing" are in fact increasing instability by reducing the incentive for large, highly capitalized traders with significant staying power to use limit orders?

They get tired of price crashing to their level, and then literally turning to the tick there, so they switch to other execution approaches that do not absorb energy in the same way–the risk/reward of such activity becomes more and more skewed do to the hft strategies that lean on them. The problem is that when these hft market-makers see one sided order flow, they shut off their computers–yet now, do to their practice of continually leaning on large "real money" orders, the real money traders are mostly gone so no one is there with any capital to absorb or slow the decline.

I am not saying it is good or bad, right or wrong, or even if what I just wrote is completely accurate or even partly accurate, only that there are alternative narratives to events that we never seem to read.

Here is the full email from the fellow. 





Speak your mind

3 Comments so far

  1. Jim Davis on April 22, 2015 1:54 pm

    The only thing thats clear, is the regulators are 5 years behind the curve.

    All these games and WORSE, were painfully obvious to the NAKED EYE during the period in question.

    Many of the worst abuses have stopped, presumably out of fear of prosecution, or having become ineffective as the ‘last sucker’ caught on.

  2. Spekulatn on April 23, 2015 1:01 am
  3. anand on April 24, 2015 3:22 pm

    does anyone understand what he was actually doing here?

    is spoofing actually illegal or is it a grey area?

    from what little I understand I cant see whats wrong with spoofing HFT algos attempting to front run orders … seems like a david vs. goliath struggle.


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