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Old 12-09-2012, 11:01 AM   #1
Big-eyed bug
 
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Suppressing price with HFT

I have only read a few books like 'Dark Pools' which describe this process so if anybody has any corrections or insights on how this all works please let me know.

Edit: I have read the HFT thread on this forum by SwissAustrian which is very informative and I think describes a similar process but it doesn't mention using dark pools and I am just wondering if these dark pools are also part of the manipulation equation?

High Frequency Trading (HFT)

Wikepedia - A third of all European Union and United States stock trades in 2006 were driven by automatic programs, or algorithms, according to Boston-based financial services industry research and consulting firm Aite Group.[4] As of 2009, HFT firms account for 73% of all US equity trading volume.[5]

One of the main tools the high frequecy trading systems use to make money is a form of front-running.

Wikepedia - Front running is the illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers

Mr. Kirilenko, the chief economist at the Commodity Futures Trading Commission, reported that high-frequency traders make an average profit of as much as $5.05 each time they go up against small traders buying and selling one of the most widely used financial contracts. http://finance.yahoo.com/news/high-s...020121745.html

So as not to get ripped off, most of the real orders by the big investment houses are done in dark pools. (10-15% of all volume.)

Wikipedia -

In finance, dark pools of liquidity (also referred to as dark liquidity or simply dark pools or black pools) is trading volume or liquidity that is not openly available to the public.[1] The bulk of these represent large trades by financial institutions that are offered away from public exchanges so that trades are anonymous.
One of the main advantages for institutional investors in using dark pools is for buying or selling large blocks of securities without showing their hand to others and thus avoiding market impact as neither the size of the trade nor the identity are revealed until the trade is filled


How to suppress the price of a stock?

Put your sell orders into the open/lit-market and your buys or covers in dark pools?

If they put their big sell orders into the open market - this has a huge impact on price as the HFT's front run the price and drive it down to ridiculous levels very fast, even more so when trading is thin.

PM bug quoted this story about how a significant part of the recent price move from $1750 to $1687 was because of large open market orders to sell coming in at the most thinly traded times.. http://gata.org/node/12000

However when they want to cover their shorts or buy instead of putting big orders into the open market which would make the HFT's raise the price by the corresponding opposite amount they do these big orders in dark pools and 'thus avoid market impact.'

Is this the kind of thing that could be going on?

Last edited by Unbeatable; 12-09-2012 at 11:22 AM.
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