tag:blogger.com,1999:blog-14963913.post1469376607139060803..comments2023-10-27T20:27:57.900-04:00Comments on Kid Dynamite's World: Dark Pools Are Not Scary Shady Places That Rip Off Average InvestorsKid Dynamitehttp://www.blogger.com/profile/17475987512856310577noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-14963913.post-30416344449130080012010-01-28T22:43:47.345-05:002010-01-28T22:43:47.345-05:00You are wrong.
Measuring Arbitrage in Millisecond...You are wrong.<br /><br />Measuring Arbitrage in Milliseconds<br /><br />http://blogs.wsj.com/marketbeat/2009/03/09/measuring-arbitrage-in-milliseconds/tab/article/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-65403959101446024032009-10-30T14:42:23.220-04:002009-10-30T14:42:23.220-04:00The biggest problem with the practice of pinging/p...The biggest problem with the practice of pinging/probing dark pools is that the confused minds of the ignorati (I dig that term!) have morphed this into something that also happens on regular exchanges.<br /><br />The problem is that it doesn't work because a 100sh fill is *not* indicative of a large order. And then you have 100sh to dispose of.<br /><br />A couple of months ago Denninger wrote a deeply flawed example of how HFT used pings to find the absolute worst price a trader would accept. The biggest flaw was the assumption that all other market participants went home. He also ignored the fact that his algorithm would also act in cases where there was no size (ie one and done), the algo would accumulate shares on the wrong side of the trade, and it was easily gamed.<br /><br />The so-called market "professionals" at Zero Hedge didn't notice any of these flaws when they posted a piece celebrating Denninger's analysis. Shows why it's so important (and difficult) to educate people on how these things really work. I don't think the ZH owners have any interest in learning the facts but there's a lot of others who have the capacity to understand and I think you're doing a great job reaching them.Stevenoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-87679893632162564952009-10-29T19:39:06.676-04:002009-10-29T19:39:06.676-04:00i actually tried to implement a strategy like this...i actually tried to implement a strategy like this about 8 years ago, by assuming that fills i got in the overnight cross were adverse selection - and reversing them... it didn't work.Kid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-31052527798988445112009-10-29T19:26:09.625-04:002009-10-29T19:26:09.625-04:00Thanks for another great post.
There was a "...Thanks for another great post.<br /><br />There was a "pattern map" game played against dark pool traders where small orders would be entered to probe for larger orders. If you get a fill on your 100sh order it is quite reasonable to assume that there's a much bigger order in there to trade ahead of (also reasonable to assume that the contra is simultaneously working this large order in other open and closed venues as well).<br /><br />At the time, various countermeasures were being discussed. I haven't heard of this practice in a while so maybe it has been thwarted.<br /><br />While this is "pattern-mapping" it isn't necessarily an HFT strategy because it's simple enough to do manually. (BTW, I'm not digging the "pattern map" phrase. Sounds like you wanted to say pattern *match* but even that may not be the best term).Stevenoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-32075631349619721232009-10-28T21:50:48.804-04:002009-10-28T21:50:48.804-04:00ah yes... i was waiting for someone to bring this ...ah yes... i was waiting for someone to bring this up. Absolutely- HFT algo's are big users of dark pools - for liquidity. but they cannot "pattern map" the dark pools like they can with the visible bids and offers in the "open" exchanges. That's the whole point of dark pools. do dark pools prevent any sort of knowledge of what's happening with the trades in them? of course not - they report all trades, just like other exchanges, which is why people don't need to be upset about "lack of transparency"<br /><br />the main goal is to avoid the "pattern mapping" algo's that people are very afraid of and angry about - the ones that buy stock when they see other bids, and sell stock when they see other offers.<br /><br />any way you cut it, taking away the informational edge by eliminating displayed bid/ask sizes is an improvement, even though there is still information to be gained/gamed within these tradesKid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-80505808719305232242009-10-28T20:31:25.207-04:002009-10-28T20:31:25.207-04:00I think you are spreading a common misconception. ...I think you are spreading a common misconception. <br /><br />A lot of HFT algos ping dark pools... They have a pretty good idea of who is hiding in them and they do a good job of modelling the liquidity in them. Dark pools are not the "antidote" they are simply another venue for old-school traders to get nailed. <br /><br />If a human trader places a large block trade - an algo will either source liquidity away from the dark pool and break up the trade onto the normal exchanges, or it will source cheaper liquidity from exchanges to the dark pool. Either way the algorithm is going to capture a liquidity premium.<br /><br />Sorry.PKnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-48443435009629402362009-10-28T15:01:13.096-04:002009-10-28T15:01:13.096-04:00Spot on. The big guys have to have someplace wher...Spot on. The big guys have to have someplace where they can bid and offer in size without freaking out the retail market. The trades get reported, and clever traders lean a lot from seeing where block trades go down.David Merkelhttps://www.blogger.com/profile/05073877918072914309noreply@blogger.com