Joe Saluzzi: Broken Markets

HFT, inept regulators & Fed distortion = more flash crashes
Sunday, May 3, 2015, 3:58 PM

As luck would have it, we had Joe Saluzzi lined up to record a podcast the day the news broke recently that the suspected culprit for the 2010 flash crash, Navinder Singh Sarao, had been arrested.

In this discussion, Joe shares his suspicions about Sarao (a contributor to the crash, but highly unlikely to be the actual cause) and then provides his expert assessment of what has been done in the intervening years since the flash crash to safeguard the market against a similar failure (precious little). In his opinion, a winner-take-all high-tech arms race, clueless and toothless regulators, and central bank price distortion are conspiring to make us more vulnerable -- not less -- to another systemic breakdown. » Read more


Eric Hunsader: Investors Need to Realize the Machines Have Taken Over

The blink of an eye is a lifetime for HFT algos
Saturday, October 6, 2012, 1:24 PM

In the blink of an eye, the market moves what used to take humans thirty minutes.

High frequency trading (HFT) deeply concerns Eric Hunsader, founder of Nanex. He worries that today's investors, our regulators heck, even the HFT algorithms themselves don't fully understand the risks market prices face in the brave new era of bot-dominated trading.

For instance, Hunsader estimates that HFT algorithms are responsible for 70%(!) of all completed transactions on our exchanges, and for 99.9%(!!!) of all exchange quotes.

The pictures of trading floors you see on TV, where the people in bright jackets appear frantically busy in making their trades, have no bearing claims Hunsader on the actual trading action. The real action happens across fiber-optic cables, on racks of servers in cooled rooms, where an arms race defined by cable length and switching speeds is being waged

The reality is that the machines have taken over. » Read more


Joe Saluzzi: HFT Parasites are Killing the Market Host

Our exchanges are infested
Monday, July 2, 2012, 11:05 AM

Joe Saluzzi, expert on algorithmic trading -- also known as high-frequency trading, or HFT -- returns as a guest this week to explain how the players behind this machine-driven process act as parasites that are destroying our financial markets (and, increasingly, even themselves).

Since Joe first spoke with us last year, HFT firms have only increased in size and share of market activity. Here are some staggering statistics on how influential they have become:

  • HTFs make up between 50-70% of the volume seen across market exchanges today.
  • 2% of the traders on many exchanges (HFTs, specifically) represent 80% of the volume.
  • A single large HFT firm (referred to as a Direct Market Maker) can account for 10%+ of a market's volume on a given day
  • Large HFT firms make between $8 to $21 billion a year.
  • HFT trades occur in milliseconds (i.e., a small fraction of the time it takes your eye to blink).

With such scale, speed, and profitability, HFTs have turned the market away from being an efficient price-setting mechanism and perverted it into a casino where the clientele of human investors gets fleeced. » Read more