January 23, 2010
i think the main problem we have right now with the market is the high frequency trading. paying these firms to "provide liquidity" gets down to the heart of the matter and the problem. hft firms do provide liquidity but the problem is how they trade. hft firms make their money on the rebates. an ideal trade for a hft firm would be breakeven. when someone can make money on a breakeven trade then we have a serious problem. here is but just a simplified version of the complex world of hfts. they put limit order to buy on bid and as soon as the order is filled they try to "provide liquidity"... (low offer) even if it might be breakeven. they can even lose money on the trade but still make a profit by getting both sides of the rebate. (example... buy the bid (provide liquidity) @ .25 and then immediately offer shares @ the lowest possible offer without hitting the bid (taking liquidity). this could be .259, .258, .257, etc. they could potentially low offer down to .245 (depends on amount of rebate)and still make money on the trade.) is this fair to the small investor? no can i breakeven on a trade or lose on a trade and still be profitable? no do we get rebates when we place a limit order? no how is this fair it's not and needs to be stopped. what kind of mkt. do we have when these hfts. account for 70% of the volume of the mkts. where will it stop 80%, 90%, or 100%? hfts argument is that we need them to provide liquidity but we had liquidity in the mkts. before there were hfts. and we will have it if they are not around. please do something to control this unfair practice.
thank you
toby king