Misinformation myths of high frequency trading

Casting misinformation myths and disinformation far and wide

HFT uses both misinformation and disinformation as parts of an misinformation smoke screen. Misinformation is incorrect information, possibly spread in error. However, disinformation is another level of deceit. It is false information deliberately used to deceive or confuse. Both HFT supporters and trolls use these strategies to justify this inside scheme.

Liquidity fib of high frequency trading

Justifying liquidity is the biggest fib of the misinformation myths of high frequency trading. To be sure, there are many versions of this spin. The most common version claims HFT liquidity benefits investors and markets. At least, that is according to those profiting by preying on investor orders.

Advocates and trolls use several versions of the HFT liquidity argument. Such arguments ride the fact that any volume increase provides liquidity. But leaping from that fact to claim effective market making is a big stretch. And stretching that claim seems to be a pastime of HFT trolls.

Liquidity and market making fibs

In fact, HFT volume has grown to become a significant share of total market volume. To be sure, that volume provides liquidity. But liquidity does not always equal market making. After all, real market makers provide both buy and sell quotes in all conditions.

HFT fake market making are simply attempts to flush out investor interest or orders. Any investor falling for such HFT tricks or traps have their pockets picked. All the while HFT schemers claim the investor is benefiting. Calling that market making seems like counting a mugging as exercise.

HFT fanboys parrot variations of some foggy thinking. Their story goes, HFT volumes are market-making liquidity. In the same way, they claim that increases market depth and lowers costs for investors. They pass by the fact those HFT volumes build on the backs of investor orders.

Liquidity that rides on investor orders

This is at the heart of the misinformation myths of high frequency trading. HFT volumes have grown to be over half the total market volumes. But if investor volume went away, HFT volumes would fall to ZERO! Without investor orders to provide a base to feed on, HFT orders and volumes would disappear.

HFT market making is as certain as flying pigs. But the real market makers would still be there. Real market makers are always in the market through thick and thin. HFT skittles for cover at the first sign of trouble.

Repeating the HFT market-making myth a 1000 times, even at high volume, does not change the facts. HFT feeds on investor orders. To do that HFT needs investors to passively accept that a slice of your order will line their pockets. So far, that has worked out well for the HFT gang.

Liquidity and narrowing spreads

In any case, volume from any source, including HFT volume does affect the spread. The spread, the difference between buy and sell prices, does narrow as volume rises. But that is not something that just showed up with HFT.

Long before the creation of HFT, the options market went electronic. One result was an immediate narrowing of the spread. So, increased volume from any source can narrow spreads and increase market depth. Claiming this showed up with HFT is the liquidity rabbit hole. HFT advocates love to drag investors down this one.

High frequency trading taxing investors

Don’t bite on the HFT liquidity bait. Volume from any source adds liquidity but does not justify nefarious HFT predation. HFT feeding on investor orders adds a layer of cost to all players except themselves.

Claiming HFT volumes benefit investors is like saying any sale benefits the economy. For example some luxury real estate, supercar and casino sales are money laundering. Money laundering cleans dirty cash from criminal activity. Money laundering pushes the dirty cash through a legitimate sale. Any sale accepted as legitimate cleans the cash.

And yes, those sales do count as added economic activity. But so are revenues from all other criminal activities. But criminal activity and money laundering will never get accepted as good. In the same way all stock market volumes are not good. Especially the volume preying on investor orders. Any HFT that adds costs to all investor orders is nothing more than a private tax on the market. That tax goes to HFT schemers without benefits for investors or anyone else.

Inside high frequency trading scheme

HFT is an inside scheme that extracts billions “helping” investors pay more. You do the paying, they do the collecting. If everybody pays a little more into HFT pockets, what could be wrong with that? 

Unfortunately, investors can expect no regulator or financial service industry to come to the assistance of investors. As we learned from Lessons 6, 7 and 8, the current arrangement puts many dollars into their accounts. Bought and paid for means there will be little desire to make any change.

​High frequency trading claims fake benefits

Fans, supporters and HFT trolls all grab into any possible or perceived benefit as a positive delivered by this inside scheme. Four big misinformation myths of high frequency trading are thes fake claims including:

First Fake Claim
Market-making high frequency trading action helps benefit investors with reduced volatility

Second Fake Claim
High frequency trading systemic risks don't harm investors

Third Fake Claim
High frequency trading lowers transaction costs for investors

Fourth Fake Claim
High frequency trading has no impact on long term investors

High frequency trading volumes have huge impact

HFT market volumes are significant. Put another way, HFT volume makes up a big share of the total market trades. And yes, that indeed that is part of market liquidity. However claiming that ignores the fact HFT volume is all built on investor orders. HFT volume would be zero without investor orders to prey on.

So called HFT passive market-making and secondary market depth preying on investor orders. That is hardly a benign activity with no impact on markets, investing or investors.

HFT algorithm screw ups and errors happen and those screw ups can cost investors. As well, investor losses or higher costs traded at the cost of market integrity in the sell out for HFT fees. As earlier lessons detailed, many changes tied HFT into markets.

With the support of exchange managements and regulators, HFT became encamped in markets. To protect themselves, investors must begin by informing themselves. By doing so they will know the risks HFT puts into markets. There are four. Those four market risks that can affect investors are all traceable to HFT actions. Those four HFT related market risks include:

​1. Systemic risk amplification of high frequency trading

Because HFT trades on market action, their added trades can amplify market movements. Daily trade anomalies occur and increased as HFT became a market fixture. As a result, HFT increases any market shock. The first and prime exibit, the ​Flash Crash of May 2010  was a case of amplified market action.

​2. Volatility aggravation by high frequency trading

HFT algorithms are reactive. That means they do not start but react to real trade orders. By instantly reacting to orders and market conditions, they push or aggravate change. That is because they profit most from change. As a result, dramatic changes can occur. That can either increase or decrease volatility, spreads and market action. This volatility aggravation is now a daily occurrence because of HFT action.

3. Broadcasting market reactions by high frequency trading

The integration of global markets and economies puts the action of all markets in play. Any change, anywhere, gets instantly shared. That instant integration broadcasts the effect of any HFT action. The ripples spread to all markets and economies. For example, the U.S. sub-prime crisis. As a prime example, that crisis quickly spread recession across all markets. Another example, Oil prices routinely flow across all markets. HFT anywhere, transfers everywhere.

4. Investor uncertainty increased by high frequency trading

HFT actions have another negative side effect. The amplification, aggravation and broadcast of market actions increases uncertainty. Investor uncertainty directly affects consumer confidence. That quickly shows in economic plans. That can become reflected in market moves. Those moves can be dramatic.

Dramatic market moves cause investor concern. That can inhibit economic activity and stall the development of plans. Traders, including HFT can back off markets, add concern and chill markets. Such action triggers negative feedback. And that can soon develop into a negative feedback loop. Such a scenario could produce a bear market thinking. Any bear market action can shock consumer confidence. That can become a recession or a market meltdown.

High frequency trading impacts markets

As previous lessons discussed, HFT changed markets. Here we discuss how HFT misinformation, disinformation and myths all have impact. That impact effect continues as long as HFT continues playing investors for profit.

Catching misinformation myth perps

New investors can be mislead. Too often they think financial market professionals and regulators will protect them. When it comes to HFT predators, there is no such protection.

But even an interested regulator has a problem. To do something, a regulator would have to catch them to stop them. Often that practical step is the rub. HFT vastly outgun the technology of regulators.

Regulators are like cops on skateboards sent out to catch crooks in supercars. Regulators are vastly underfunded, understaffed and under equipped. There is no realistic possibility that they will watch or track HFT activity. That is because dated technology and limited budget keeps the SEC on the sidelines. They and other regulators are unable to monitor HFT activity.

Catch me if you can strategy

HFT uses each new strategy to play ‘catch me if you can’ with regulators. Before a new scheme gets banned it must become known as a problem. Any that catch regulator interest get changed to a new algorithm with a few keystrokes.

New code can quickly become a yet newer strategy moving a HFT back into the gloom away from regulator view. No regulator can hope to understand or regulate it when they don't know it.

As always, HFT does not hesitate to use disinformation and myths on regulators. That gets done every bit as much as the entire market gets treated to misinformation. All this means investors must make themselves aware.

Investors need market awareness and alertness to changes or manipulations. And they should know how HFT uses disinformation and myths. That will never end so HFT can keep their advantage over investors and markets.

High frequency trading gone wrong

HFT has the profile but the financial system is the problem that needs fixing. HFT and the changed system by insiders have made the system wrong. The issue exists because manipulations of a dysfunctional system rigs markets. That rigging produces fortunes for the perpetrators.

Entrenched insiders that skim profits actively oppose any move to change things. Do not expect any move to restore market integrity or make markets fair. But we can make it work.

Knowing and understanding the HFT disinformation and myths, helps investors protect themselves. Knowing those schemes puts you well on the way to becoming a superior investor.

Capitalism clash of ethics and values

Capitalism is brilliant! It is the best economic system we humans have created in the history of the world! It focuses on private ownership of production of economic activity for profit. That has raised more billions of humans from poverty than any economic system. But it is an economic system.

Capitalism is an economic system, not a government, or social order or a plan for society. Many including leaders, who should know better, do not grasp this simple point. It is not an intimate part of democracy.

But lying cheating, bribery and corruption are all parts of economic systems. That can include the pursuit of profit by any means as a justification for rigged exchanges. A successfully rigged market gets sheltered by disinformation and myth making.

Profit pursuit can be irresponsible socially ignorant activity. But it may still be legal as we learned in lesson 6. That includes decisions rationalized and made by financial services, stock markets and HFT. There is no social justification for HFT rigging markets. HFT tilts markets against investors and favors insiders. The structural changes that rig markets made HFT dealing possible.

That produces a clash of capitalism, ethics and values. Like all such clashes before, this one concerning HFT will play out in time. Until then, investors must know how to protect themselves from HFT predation.

Deception and disinformation dastards

A huge and growing array of disinformation and myths get used by HFT to justify their existence. Those are the tools used to attack critics and release a flood of misinformation. That flood of misinformation swirls through markets, media and the internet.

Their false message being that you, other investors and markets are better off for HFT. It is true that HFT is a fact of stock market life. But claims of benefiting you are nonsense. Without doubt, HFT does produce benefits, but none are for you. But you are not forgotten, all the costs are for you, me and all other investors!

HFT picks profits from the pockets of investors large and small. None are for you or any other investor. Not now, not ever.

Exchanges, banks, brokers and high frequency traders do just fine with this arrangement. They are in on it by collecting large fees to share in the haul! Investors get something, they get to pay the costs!

9 Nuggets of disinformation: Misinformation myths of high frequency trading:

This is the laundry list of misinformation myths of high frequency trading:

1. Secret development of high frequency trading

2. Disinformation and babel strategy

3. Volume myth benefits

4. Price discovery manipulation

5. Price spread myths and traps

6. Market making myths

7. Investors taxed by high frequency trading passed on costs

8. Market bullies blame victims

9. Legal letters, lawsuits and lobbies

Tools of HFT ​misinformation myths

Following below we discuss each of the nine nuggets of misinformation myths of high frequency trading in greater depth:

1 - Secret development of high frequency trading

To begin at the beginning, development of HFT happened in secret. If HFT was beneficial for markets and investors, it would not be a secret development. From the beginning, HFT schemers would shout the benefits from rooftops.

They did not. Instead they remained silent to keep their scheme secret and work hard to keep as much as they can secret. From the beginning, it was always an inside game for insiders.

By remembering HFT began as a secret scheme we know investor benefits were never part of the plan. Presenting investors with gifts of surprise benefits was clever spin, not planning. From the start, the design included taking profit from the orders of real investors. HFT developers grew and spread the scheme in secret and have never been transparent. There still is no development transparency.

In silence, the HFT take from markets grew. They plucked and pocketed billions from investor pockets. Even the largest professional investors did not know they paid this private tax.

In the beginning they were not aware of the scheme or their losses. The orders of large investors made up most of the meals HFT predators fed on. That is because they hold and trade most of the stock. They were as surprised as small investors were to learn they were being served as the HFT lunch! See lesson 5 for discussion on the exposure of the HFT secret scheme to rig markets.

2 - Disinformation and babel strategy

Much of the secrecy evaporated with media exposure. As covered in Lesson 5, media exposure informed the public. Foretelling the responses since, HFT schemers howled denial. That was quickly followed by disinformation and myths. From that time HFT included claims of investor benefits.

​​Some editors were conned and some academics took the bait. Sharper minds were less inclined to join the HFT camp. To begin the campaign floated four major advantages that HFT delivered to investors. Those four HFT phantom investor benefits are:

1. better volumes

2. superior price discovery

3. market making

4. narrowed price spreads.

Babel, disinformation and doublespeak

The Biblical story in Genesis 11 1-9 tells the story of the Tower of Babel. There a common language became many. As a result, there was no communication. Without the ability to communicate, building their tower to heaven could not continue!

The plan in Babel was incredibly simple. What better way to get to heaven then simply build a tower to reach it? However, that project didn’t end so well with the people unable to communicate with one another. They experienced chaos and failure.

Now we humans are forever stuck with being good to get to heaven! We clever humans always look for the easy way!

Ever since that biblical experience, babel describes chaos, noise and confusion. Babel is incomprehensible nonsense communication, much like the HFT misinformation. HFT publicity hound babel speak hides, dodges or obfuscates the truth. That is exactly why they do it and continue to do it.

Making disinformation and myths come true

Shouting and repeating disinformation and myths does not make them true. If so, all four phantom benefit claims would be true. But they are not, even with loud and frequent repetition.

Counterattack of fury and phantoms benefits

The selection of phantom benefits offer many choices. Nonsense and mythical benefits make a long list. Once exposed, the HFT conspiracy screamed, howled and attacked critics. They tried disinformation and myths, babel and misinformation and misdirection.

With allies they built every possible roadblock to slow any regulatory move. They used deceit, deception, disinformation, distortion, evasion, fabrication, falsehood, fiction, forgery, inaccuracy, misrepresentation, slander and made up tales. They are tireless and motivated by very big dollars.

Market babel from high frequency traders

Even annoying and distracting opponents are parts of the plan. It creates a false reality of investor benefits for getting their pockets picked! Rather than investor interests, the insi de gang slices profit off investor orders.

These schemers use disinformation and myths to tell you that it is all good for you. They claim you could not have the benefits of a robust market without them. They simply get rich feeding on your assets! And they do it all with a straight face!

3 - Volume myth benefits

HFT rocked trading volumes higher! But HFT tales of benefits to investors are more disinformation and myths. Let's take a closer look at this hall of pure smoke and mirrors.

Volume helping who?

In today’s markets, huge portions of the total stock market volumes are due to HFT. That claim is correct. The schemers use that to imply that without HFT, volumes would plunge and markets would stall. That bit of nonsense needs a closer look.

On the surface the HFT volume claim seems perfectly logical. However, as so often happens in the market, things are not what the uninformed think they are. HFT are happy to confuse the new or inexperienced investor.

But the facts of HFT life are quite different from what you see on the surface. Without orders from real investors, HFT volumes would be zero. HFT only begins trading once investor orders begin. They built the entire HFT scheme on investor orders. All the smoke, mirrors and drama of HFT happens only because investors place orders. Only after, a real investor puts a real order to the market do HFT move.

Disinformation and myths of volume

The key point here is that no significant volume happens until real investors move. Real investors must place actual orders for markets to work. HFT reacts to the investor order information.

After HFT technology detects a real order to buy or sell, they act. HFT technology reacts to that real investor order by racing ahead. They race to buy (or sell) that specific stock. Then they turn around and immediately sell it to the investor.

That means for every share purchased by an investor, the high frequency trader buys and sells a share. Instantly, the volume has more than doubled! In this example three transactions happened for the investor to get their share.

As a result of the investor order, the exchange statistics show three shares traded. As that can happen for every share purchased by the real investor volumes explode. First, HFT rushed to buy ahead of the investor and turned around and sold to the investor.

That produces a dramatic increase in volumes! At least, compared to what would happen without HFT! Depending on the exchange and counting system the volume is 2X or more. (Some exchanges count both sides of a trade as a separate event.)

Still, the basic point remains, the investor got no benefit. In fact the investor ends with slightly higher cost. The activity provided no real investor benefit, but the raised cost became HFT profit.

Virtually all high frequency trading volume depends on finding orders from real investors to prey upon. That is why no HFT activity happens around the very quiet or thinly traded listings. Such listings offer HFT no opportunity to take their skim from investor activity. Thus, only actively traded stocks attract HFT activity.

4 - Price discovery manipulation

Claims HFT improves price discovery is more misinformation. This bit of disinformation includes the myth of solving a market problem. This is a problem investors did not know they had! But now we have the solution to your nonexistent problem. Sadly, solving this nonexistent problem is not a comedy sketch! The claimed HFT benefits include price discovery and narrowed price spreads. That needs a bit more explanation.

Bogus price discovery

Price discovery is the process of setting a price. We could bargain over the price of a stock, a house or the last slice of pizza. For price discovery, there has to be both a buyer and a seller. So price discovery is not a problem in active markets.

As price discovery is not a problem in active markets and HFT only operates in active markets. HFT adds no price discovery benefit for investors. Without HFT in active markets prices get discovered without issue.

So, HFT providing improved price discovery solves the nonexistent problem. HFT provides bogus price discovery, not superior price discovery. Backers of HFT activity claim superior price discovery benefiting investors and the market.

Claiming HFT activity, improves price discovery, can confuse the naïve and uninformed. This bit of misinformation and myth intends to either delude or distract investors. More HFT smoke and mirrors.

Investors move first, high frequency traders follow

Investors make a move, HFT reacts by jumping in front. All high frequency trading volume exists only to prey on the orders of real investors. It is only the real investor interest that moves the price. Real price discovery has nothing to do with HFT. It is all about discovering orders from you, me or any other real investor.

HFT price discovery has absolutely nothing to do with helping you. HFT do generate buy and sell orders. Those orders are not to discover market price. Those orders exist only to discover the order or interest of a real investor.

That interest is the real order and the real price an investor is willing to pay. Of course, not just your order. HFT wants to prey on all orders from you and any other real investor. Large orders of institutional investors and fund managers are the real HFT target. Our relatively small orders as individual investors are fodder in the line of fire.

Disinformation and myths of price discovery

The action starts once discovering what an investor will pay. In an instant, HFT race ahead of the order to buy on any other market for less. That means they can buy and profit from trading for even microscopically less than what you can! And your broker and exchanges are all in on this game!

When successful, HFT instantly sells to you at that higher price. A fraction or a penny here, a nickel there and soon HFT are collecting billions! With technology that can trade 30,000 times a second, profits from the scheme adds up! Then, repeating that process millions of times produces billions of real dollars picked from investor pickets a small slice at a time.

All this gets done at almost no risk! The HFT created the only 100% guaranteed profitable trading system ever invented! Nice gig if you can get it! And being absolutely clear, no, you or I can’t do this!

Up or down profits in every direction

Talk about disinformation and myths! HFT remains completely indifferent to any market price or direction. To work their game, they need investors. You, me or preferably a large institutional investor to place a buy or sell order.

Their technology and inside advantages do the rest. In the HFT scheme, investors are unwitting victims. They can skim profits from almost all real buy or sell orders.

In this case, ‘dumb investor’ or ‘dumb money’ could be substituted for any ‘real investor’. However, those real investors do not just include small investors like you and me. With mere thousands or even millions to invest, we small investors are not close to the big league.

The big league includes the buy side pension funds and investment managers. They move billions in markets! In fact, this world begins from a billion dollars up! Mere millionaires do not count as big players here!

5 - Price spread myths and traps

HFT place and quickly cancel buy and s ell orders to signal fake price action or interest. They do this hoping to trap traders in losing positions. Anyone who bites on those phony trading signals, loses. Such traps are possible because the HFT advantages tilts the market.

A market tilted by the HFT advantages puts all traders at risk. At least investors can use the methods revealed in Lesson 13 to avoid these trading traps set by HFT. Still, those trading risks and costs became real with the arrival of HFT.

Throughout history, price spreads narrowed as volumes grew. This bit from the disinformation and myth pile happens HFT stops it from happening. HFT becomes an impenetrable barrier stopping investors from taking the narrowed price. No real investor is benefiting from price spreads narrowed by HFT volume.

Remember, HFT technology puts them in front of your order. If you want the fill, you pay the price HFT offers you. That is not the narrowed price you thought you were going to get.

Before HFT, astute traders could pick up stock positions under an ask price. That was before HFT technology always got there first. Now, HFT eliminates possibilities of buying at more favorable prices.

So those narrowed price spreads are not benefiting investors. Still, HFT trolls tout narrowed spreads to imply investors get a mythical benefit. Check this for a bit of technological irony. The narrowed spreads exist but investors can't take them as HFT is both cause and effect!

Price spread background explained

To fully understand this we need to first, have a quick discussion about price spread basics. Then we can discuss this HFT benefit that you can’t have!

When you ask for or see a stock price quote, as an example: $49.79 – $49.83 last $49.83. This quote means a bid price of $49.79, an ask price of $49.83 and the price of the last share traded was $49.83. In this example, the spread or difference between the bid and ask price is $0.04.

The ask price is the lowest price on a market order from a prospective seller. The ask price also gets referred to as the offer price. A seller offers the stock to prospective buyers at that price. It is the higher of the two prices.

The bid is the lower of the two prices and the highest price from any prospective buyer. Some new investors get confused about what an offer price means. When dealing with prices on a stock exchange, the offer price is the ask price, not the bid price. Making that distinction avoids confusion.

HFT beats you to all price opportunities

Now we can bring our price spread discussion back to HFT disinformation and myths. Technology and tilted markets make sure you never get to the best bid or ask before HFT can snap them up. That is why you can’t have the price spread benefit that HFT volume brings to markets.

HFT only jumps on such opportunities when they know you, or another investor, want to buy. And the buyer is willing to immediately take the stock at a higher price. When there is no buyer interest, HFT makes no move to jump in front.

As always, the entire process waits until a real investor shows up with a real interest in buying. But when you try, HFT steps in front to take a slice and leave you with a slightly higher cost. The narrowed price spread is there, but not for you. The price spread benefit remains the benefit you can see but not have.

6 - Market making myths

HFT market making is another disinformation and myths benefit. When they play, which does not have to be every day, HFT begins and ends their trading day with no buy or sell orders. And no inventory. In contrast, real market makers show up every day and place and end with orders on the books. And they may also have to carry inventory.

The real market makers provide liquidity and always have both buy and sell orders. They are always in place and with orders and prices in the market. HFT play only when they choose to and run away at the first sign of trouble. HFT is not market making.

Investors misled by market making mythology

The HFT market making myth is another shameless phony claim. It attempts to cast favorable light HFT without accepting any market making obligation. HFT market rigging is not market making.

First we begin by looking at basic market making. Through market history, market makers established a traditional and useful role in markets. In essence, a market maker sees that both buyers and sellers of a security can trade. They commit to always having a bid and ask order in the market for their specific security.

Market maker orders ensure prompt and fair execution of trades for that security. With a market maker in place, there will always be a buyer or seller for investors to deal or trade with.

Basic market making

Imagine a simple market with only you and me as buyers or sellers. Let's say you want to sell 1,000 shares of a company that I want to buy. Without a market maker, our orders for the same amount to sell and buy must meet in the market at the same time. If you place your order hours before me, no trade can happen.

In this simple example, the market maker steps in. The market maker buys your shares and later I buy from the market maker. In each case, by taking the other side of each trade, the market maker ensures the market worked for us.

Although we placed our orders some time apart, our separate orders to buy or sell were both filled. The market maker served the valuable role of making a market for us. Buying when you wanted to sell and selling when I wanted to buy.

Buyers and sellers need each other

Think of market makers like shock absorbers on a vehicle that provide a safer and smoother ride. Rather than smoothing a road trip, market makers smooth the bumps, dip and hills of the market. As a result, we get a better ride!

Another example, you likely benefited from market making when you purchased foreign currency. For example, using U.S. dollars to buy Canadian dollars gets quoted at a specific price. Doing the reverse, selling Canadian to buy American, gets quoted at a different price. That difference is the spread. The spread serves as the margin the dealer or bank takes as profit. That is a form of market making. HFT provides none of that to investors.

Disinformation and myths of market making

For most investors, the NASDAQ market provides the most easily seen market making. Market makers get assigned to each listed company. Those market makers are picked from the hundreds of market making firms. Large companies have many assigned and smaller companies have fewer.

As retail investors, we place a buy or sell order for a security listed on that exchange. When we hit enter, it goes to the screens of assigned market makers. Thousands of broker-dealer firms see and can trade those orders from their screens.

To help trading, market makers accept the risk of holding inventory in the security. Market makers in the security compete by displaying orders for a guaranteed number of shares. Remember, market makers make profit on the spread. But to have a spread they need sales. Pressures them to price so they attract the trade.

That competition, inventory obligation and transaction guarantee are essential elements of market making. HFT does not do that and do not show up at all times. HFT is not market making.

Market makers chase the spread or hope to make profit by selling slightly above the price they pay to buy. They hope to make a small profit on the spread over many thousands of transactions. Competition between market makers keeps that spread narrow.

Another high frequency trading benefit denied!

Experienced investors, traders and financial advisors knowing market action see another HFT game. They are aware HFT never lets large buy side orders fill at the bid in rising markets. In times past, some regarded a price halfway between the bid and ask as the fair price. Often referred to as the midpoint price it often became the transaction price. For the most conservative valuations used the lower bid price to calculate values.

However, none of this matters when you must always pay the asking price. Spreads of a penny, a dollar or 10 dollars simply don’t matter if you can only buy at the ask price. HFT pick off all other buying opportunities before you can even see them.

HFT action may narrow price spreads but bring no benefit to you or any other long-term investor. In fact, this benefit is a double illusion of HFT. Not only can you not have the benefit, it is HFT itself that causes this. HFT makes certain all buy side investors never benefit from narrowed price spreads!

As noted previously, in this disinformation and myth world, HFT are both the cause and effect! Any price spreads narrowed by HFT are illusions for investors. HFT parasites have the effect of making certain no buy side investors ever benefit!

Market making myth strikes out!

HFT market making is part-time pretenders that accept no obligations or responsibility. They don't show up at all times and in all conditions. They only show up in favorable conditions. To use a baseball analogy they get three strikes and you are out! At least in baseball it is only three. In the case of HFT they pitch again and again without a count! Check out their market making pitch count:

• Strike One!

 HFT closes each market day with no inventory.

• Strike Two!

HFT never assigned as traditional market makers.

• Strike Three! 

HFT have no trade obligation or guarantee a trade.

That would put you out and on the bench in baseball but HFT just keep pitching as long as rigged markets remain in play!

Three strikes calls out myths of market making!

The myth strikes out but HFT remains very ready to reach into your pocket on every order. HFT seeks risk free ways to rip off a profit by paying regulators and exchanges to take advantage and use technology to rig markets. That is not market making! HFT only move after they discover real orders from real investors. Real market makers are in place with bid and ask prices before we or other real investors place an order.

Superpower market magic advantages

HFT strategies push another unfair advantage. Phony price discovery can increase market volatility and stability risks. Like superpowered villains HFT have market magic advantages over investors. HFT produces vast numbers of bid and ask orders across markets that vaporize and turn to smoke.

Like a market magic act, HFT orders disappear the instant you or another real investor reacts. Those phantom or ghost liquidity orders mislead investors.

They are part of the cat and mouse games played between rival algorithms. Mythical disappearing liquidity produces spoils that exchanges and market insiders share. But nothing for you or other investors.

High frequency trading cooks markets

The HFT advocates are in for profit, not to benefit investors or markets. All such benefit claims are self serving spin. Bright and skilled HFT creators blend and bake the needed elements together. They are new creations cooked up and serving investor orders as the main course! In the same way, the proven brilliant HFT scheme works well for those inside the game!

Exchange revised for high frequency trading

Exchanges revised systems, operations and policies for HFT. Well before the financi al crisis of 2008, HFT was already entrenched in markets. But then produced a fraction of the volume that it now produces. A few secret firms grew into thousands of HFT players across the globe.

HFT trades and volumes grew to become more that half total market volumes. Stock exchanges came to view HFT as their most valuable and important users.

Changes impact small investors

Accounts of even millions are small potatoes in the investing world. The big fish are the institutional accounts. That accounts for the large majority of real investing activity. Professional managers run those billion dollar funds. The necessary size of their trades make them the most attractive HFT targets. With millions or not, you and I are small time collateral.

HFT players focus their interest on the orders of funds with billions in play. They pay millions on co-location, data and technology to get advantages. Those advantages come with high price tags. That puts such services well beyond what investors can afford as individuals.

Those high cost put small investors at a disadvantage. Pile on HFT liquidity rebates the cost environment stays beyond investor reach. To avoid being collateral damage we must learn how to manage the risk of HFT risks and predication. Lesson 13 does that.

7 - Investors taxed by HFT costs

One of the most evil aspects of HFT is the thin spread of costs across markets. Those costs are like a tax that raises investor costs. Because HFT technology and speed advantages step in to the front, real investors must pay. That increases costs for investors.

That cost imposition amounts to a cost tax that benefits HFT. Through fees, exchanges and their managements also benefit. As for disinformation and myths, HFT tells a whopper. They say there are no costs only benefits of investors. Big league disinformation!

8 - Market bullies blame victims

HFT disinformation and myths to diverts attention and blames victims. Selling mythical advantages of predation and victim benefits are more fibs.

Greedy manipulator disinformation and myths

Anyone convinced being a victim is good, needs serious counseling. Saying your investments benefit from HFT is pitching toxic investment snake oil. Statements to convince you being an investing victim has benefits are nonsense. Mugging is not exercise.

Picking off investor trades robs funds from investors. That skins their portfolios as the source of the billions market rigging delivers to inside enabled HFT predators.

Like victims of any other abuse or manipulation, allowing the unfair predation to continue hurts the victims. HFT takes from investors only to benefit the market predators. The billions in benefits goes to the handful of market insiders. You, me or all other buy side investors are not in that unfairly privileged group. Legitimate buy side investors receive no benefits from being ripped off by these HFT market riggers.

9 - Legal letters, lawsuits and lobbies

When disinformation and myths do not work or can not be relied on, HFT calls in the lawyers. Legal thuggery may ensue. Launched or threatened lawsuits are standard operating procedure. Any opponent can become a target. Opponents include market participants, regulators and critics. The goal is to try and force the knowledgeable or anyone who could be a threat into silence or inaction.

HFT firms and supporters use threats of lawsuits against any suggestion of opposition. They want the tilted market and their advantages to be left just as is. That even includes any regulator including proposed when the SEC proposed research. Any real regulatory activity or regulation will certainly get a legal response. The purpose is to neutralize, silence or delay a threat when disinformation and myths do not do their job.

For example, disinformation and myths were not going to stop the IEX exchange. The details of its creation and development are in lesson 12. Lawsuits, threats and legal action made certain IEX faced continual legal challenges. The legal action, HFT activity and changes to the markets all neutralize the SEC. SEC passed National Market System (NMS) regulations, the system intended to improve investing exchange fairness was detailed in Lesson 8. HFT actions and activity does all they can to see that does not happen.