Nanex ~ 08-Jan-2014 ~ Exaggerated Prices Moves around News Events
In today's markets, with the presence of High Frequency Trading (HFT) machines
that place and cancel orders in less than a millisecond, financial markets are significantly
more volatile during a news release. The same volume that would barely budge the
market during normal times, can cause severe price swings right before and during a
This is because there is no liquidity (resting orders) when news is expected,
because only the fastest traders are able to participate in this sub-second
ecosystem. The "slower traders" aren't willing to leave orders near the top of the book, and have
learned that they need to be more aggressive after digesting the news, because of the
fickle nature of HFT quotes (many are placed for the sole purpose of giving the appearance
of liquidity, but are canceled and won't be honored if the algorithm determines it might
get a better price milliseconds later).
The faster we allow orders to be canceled, the fewer participants we'll have
to take advantage of short term price dislocations and cushion the market from severe
There are simply no market makers anymore as the term was once defined. Today's
HFT market makers can, and will, disappear immediately, when it's to their advantage:
it would be naive to think otherwise. This is what Andrew Haldane from the Bank of England
meant when he said HFT provides liquidity
during a monsoon, but withdraws it during a drought.
1. March 2014 5-Year Treasury Note (ZF) Futures.
2. March 2014 2-Year Treasury Note (ZN) Futures.
3. March 2014 Dollar Index (DX) Futures.
4. March 2014 eMini (ES) Futures.