Themis Trading: Toxic Equity Trading Order Flow on Wall Street
What Is The Effect of All This Toxic Trading?
1. Volume has exploded, particularly in NYSE stocks. But you can’t look at NYSE volume on the NYSE. The NYSE only executes 25% of the volume in NYSE stocks … traders Magazine estimates high frequency traders may account for more than half the volume on all U.S. market centers.
2. The number of quote changes has exploded. The reason is high frequency traders searching for hidden liquidity … this has significantly raised the bar for all firms on Wall Street to invest in the computers, storage and routing to handle all the message traffic.
3. NYSE specialists no longer provide price stability. With the advent NYSE Hybrid, specialist market share has dropped from 80% to 25%.
4. Volatility has skyrocketed. The markets’ average daily price swing year to date is about 4% versus 1% last year.
5. High frequency trading strategies have become a stealth tax on retail and institutional investors. While stock prices will probably go where they would have gone anyway, toxic trading takes money from real investors and gives it to the high frequency trader who has the best computer. The exchanges, ECNs and high frequency traders are slowly bleeding investors, causing their transaction costs to rise, and the investors don’t even know it.
Excellent read. And the controversy around intellectual property related to quant funds continues: The Cold War in high frequency trading turns hot