Are you confused by the markets slapdash action? Don’t be. Here’s the 101 primer on what’s going on. HFT’s, (High Frequency Traders), are unscrupulous trading companies that are set up based on nothing more than algo’s (algorithms) that trade in milliseconds.
There are 9 exchanges and the HFT’s have “front running” status with them in return for their trading volume. When a news scan or a queue is lined up in earnest interest for a security, the HFT’s see this and buy ahead of the interested parties only to quickly re-sell it right back to the queue at slightly marked up prices. This is called "frontrunning" and is supposed to be illegal; it also royally violates the NBBO principles of the exhanges (Next Bid Best Offer) but apparently the SEC and FINRA have turned a blind eye to it. But why? Well, the HFT’s are currently generating 70% of the volume on the exchanges—money, the root of all evils.
The NBBO problem is exasperated as more HFT’s are entering the picture. And why wouldn’t they want in this action? The largest HFT gangster says they haven’t lost money in a single day over the last 5 years. As the HFT’s increasingly compete against one another—the computers—the programmers try to gain an edge over one another by not trading in milliseconds but micro-seconds and next, nano-seconds?
While no one has officially declared why the May 6th flash crash has happened, Nanex—a research analytic company, puts HFT’s at the top rung. As the HFT’s continue to try to gain an edge over one another there is the very really possibility of them clogging the system up---creating imbalances to an otherwise placid market, creating a complete lack of liquidity. The result: a huge meltdown. May 6th might have been just the tip of the iceberg. You know, when the market crashed 1000 points in the middle of the day for apparently no reason at all?
The “fat finger” explanation for the May 6th flash crash that the media and the scoundrels want you to believe would actually be funny were it not so completely ridiculous. Sure, someone accidently punched in an extra zero. Yeah right. And I’m Butterfly---right out of a cocoon.
