DAX Flash Crash, again and again….
Another day another flash crash. For those who still believe the markets function, take a look at today’s Dax move earlier today. The trader has argued, the ultimate collapse is still to come, when the HFT Algo Machines eventually spread the ultimate Panic, where nobody will be able to manage their risks. Welcome to Algomania.
For those interested in the HFT Trend, please read further on Nanex.net;
Lately, readers have sent us links to a few research papers extolling the virtues of HFT, namely, that they provide liquidity, reduce spreads, and probably cure cancer. At first, it appeared that some of these papers were written based on data from another planet, but, upon closer inspection, we realized that they were simply based on very old data. You see, as HFT races towards zero, the data it generates decays just as fast. In other words, any research paper written just 6 months ago, or one that does not take into account recent data, might as well have been written for people on another planet, because it won’t accurately describe what is going on in the market today.
Take a look at the images below, which show just how much, and how quickly trading has change since 2007. We plot U.S. equity quote and trade data for each minute of the trading day, from the beginning of 2007 through August 16, 2011 (about 1165 trading days). Charts are colored according to dates which are shown in the legend in the format M/YY: so 8/11 indicates August 2011. The most recent data on all the charts is colored red, with older data using colors towards the blue end of the spectrum.
Note the significant changes from late 2009 (light green/aqua-marine). That was a year that many Pro-HFT research papers are based on. If the research paper predates 2011, or worse, ignores recent data, it’s probably not worth the paper it’s printed on.