Algorithmic trading systems ("algos") use mathematical formulas to buy and sell securities. High-frequency trading (HFT) is a type of algorithmic trading (or “algo") that uses high computer speeds and high volume to take advantage of even a small amount of profit on a trade. The algos often lead to such illegal activity as quote stuffing and front running.
“Criminal Algos Are a Big Problem But Not The Biggest Problem” was a title in the blog article “Rise of the Algos” on The Dividist Papers on August 2, 2012. “Seems to me that CFTC is making too much noise for something so insignificant to distract our attention from the real criminals. #Algos #HFT” was cited on Twitter on May 6, 2015.
The financial blog Zero Hedge coined the new word “criminalgo” (criminal + algo) on November 23, 2015, in the article “Why Is The NY Attorney General Not Prosecuting The Real FX Spoofing Criminalgos.”
The Free Dictionary
A computerized trading system that institutional investors use to make large transactions in securities while affecting their prices as little as possible. Algorithmic trading uses complicated mathematical formulas to identify the ideal times to buy and sell securities in large batches. Usually, algorithmic trading involves dividing trading a large number of securities as smaller groups so as not to cause panic buying or panic selling. Algorithmic trading contrasts with program trading, which is also a computerized system but does not attempt to minimize price changes. Algorithmic trading is also called black box trading.
Wikipedia: High-frequency trading
High-frequency trading (HFT) is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no single definition of HFT, among its key attributes are highly sophisticated algorithms, specialized order types, co-location, very short-term investment horizons, and high cancellation rates of orders. HFT can be viewed as a primary form of algorithmic trading in finance. Specifically, it is the use of sophisticated technological tools and computer algorithms to rapidly trade securities. HFT uses proprietary trading strategies carried out by computers to move in and out of positions in seconds or fractions of a second. It is estimated that as of 2009, HFT accounted for 60-73% of all US equity trading volume, with that number falling to approximately 50% in 2012. High-frequency traders move in and out of short-term positions at high volumes and high speeds aiming to capture sometimes a fraction of a cent in profit on every trade.
Algos and high-performance systems build the free market
By Scott Sellers
Mar 22, 2012 7:00 AM PT
In today’s market, traders need every second to execute trades and lock in profits. With trillions of trade opportunities in the market every day, the most critical front-line tools for taking advantage of those opportunities are traders’ proprietary algorithms. “Algos,” as they’re called, automatically execute trades based on pre-programmed criteria. They can process millions of trades in seconds, predict market movements, take advantage of arbitrage opportunities, speculate on trends and otherwise do whatever programmers design them for.
With high-frequency trading (HFT) platforms relying on these algorithms to drive an estimated 73 percent of the daily volume on U.S. equity markets, it’s absolutely crucial the financial services industry has the proper systems in place to ensure transactions are completed in real-time - the alternate reality without optimized systems is that an entire stock exchange can crash and shut down entirely - and that is a disastrous scenario. Sometimes, as we’ll see, the Achilles heel of these systems can be a piece of software called the Java Virtual Machine (JVM).
The Dividist Papers
Thursday, August 02, 2012
Rise of the Algos - Knight Capital and the Inevitable Catastrophic HFT Triggered Market Meltdown In Our Future
Criminal Algos Are a Big Problem But Not The Biggest Problem
Forget that competing algos executing hundreds of thousands of high speed financial transactions every second are indistinguishable from the illegal practice of Quote Stuffing and Front Running. Forget that if the identical transaction patterns were being placed by individuals at speeds that humans could comprehend we’d be seeing perp walks, indictments and convictions. All of this has been known for years but no one is enforcing the law when algos are committing the crime. Is this unconscionable malfeasance on the part of private and public regulators and compliance officers? Yes. Nevertheless, the consequences of quasi-criminal HFT trading amounts to mouse nuts when compared to the potential financial damage that these algos could and probably will ultimately inflict on the market. The big problem lives at the intersection and interaction of competing HFT programs and trading systems.
Seems to me that CFTC is making too much noise for something so insignificant to distract our attention from the real criminals. #Algos #HFT
9:34 AM - 6 May 2015
Why Is The NY Attorney General Not Prosecuting The Real FX Spoofing Criminalgos
Submitted by Tyler Durden on 11/23/2015 15:33 -0500
In a world where every market is rigged and manipulated - either by central banks, by algos, or by human actors eager to “get rich quick” - we doubt many will care that the New York Attorney General has finally figured that the FX market was also rigged by spoofing (something we have pointed out since 2013), and yet this latest development is worth pointing out.
The reason for that is not so much the companies which are named in this latest crackdown on widespread manipulation in the world’s most important market (now that all central banks are engaged in currency warfare) but which are not.
@MedicalQuack MedicalQuack Retweeted zerohedge
A new word for describing Market Code Hosers...Criminalgos… MedicalQuack added,
Why Is The NY Attorney General Not Prosecuting The Real FX Spoofing Criminalgos http://www.zerohedge.com/news/2015-11-23/why-ny-attorney-general-not-prosecuting-real-fx-spoofing-criminalgos …
3:33 PM - 23 Nov 2015
New York City • Banking/Finance/Insurance • Monday, November 23, 2015 • Permalink