Front-Running: How A High-Frequency Trading Algorithm Fed On A Tweet

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June 26, 2012 Image From HFT Alert

Check it out, here’s the run down. We caught a shady algorithm today with the help of @SellPuts and TradForProf.it chatroom.  The problem with this is that we are worried about testing a hypothesis because the SEC and the U.S. Federal Government are so well known for going after the little guy, the one who can’t pay for legal fees and would be completely upended and forced to defend himself in front of an ill-informed low-brow “jury of his peers”.

All I seek to do is what these High Frequency Traders have been doing all along, which is systematically place orders on each exchange’s book, then at once pull them away, on queue, corresponding with a Tweet, and see what happens.  However as a trader, the responsibility is on me to act ethically and morally, which the SEC would so clearly miss because they have not spent the past year reading my material and exposing themselves to our group’s collective input, hence the current debate about what HFT actually is.

It pisses me off.  I’m here sharing info in real-time from platforms produced by men much more intelligent than I only with the intention to help you the reader better understand how this shit works.  It’s not even for the money. Nanex, Joe Saluzzi and Sal Arnuk, Zero Hedge, @Sellputs, HFT Alert, and myself have all tried to reach as many people as possible to share our facts because we actually care to see the markets survive this short term malfeasance we trade around everyday.  It’s morally depleting to wake up everyday and spend hours monitoring the intricacies of the markets.  I can personally attest that Nanex, HFT Alert, ZH, and Themis have done more to help me the SEC ever has.

The very act I wish to undertake would look no different than the bullshit quotes we see everyday, yet I cannot do it because it is against regulation to place order without the intention of filling them or with the intention of manipulating the market.  Here’s a screen shot of just one, very short, very small example of today’s multiple open market algo test.  The quotes are under Count, trades under Trades, and number of times the Best Bid/Offer was changed.  Under the far right table, High Algo Sequence Count Per Exchange, the description describes Bid Size and Bid Price for VIA:

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Since I’ve joined Twitter, I’ve noticed that for some people, when they Tweet something regarding a specific asset, there is movement in that asset.  It most likely is coincidence….until it’s not.  You see, TradeForProf.it was created to get off the Twitter field, away from the noise and away from the algos gauging sentiment and reading StockTwits or what have you.  Being a remote trader, I’m not on a floor with others.  I use Twitter and TFP to interact with other intelligent people, open-source information.  We’re not seeking to pump and dump or promote ourselves.  Most of us focus on specifics groups of assets so when major movement happens we’re inclined to type just the ticker and if the other traders have time or interest they can pull it up, otherwise ignore it.

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During the day today Sellputs Tweeted a single ticker “LNKD” and we had a nice up tick.  Obviously 9.99 times out of 10 its a coincidence, except more drastic examples have happened in the past and having experience, it’s worthwhile to at least test your own instinct.

Ok, so what though?  I told you this because it’s what led to me asking in a joking manner that Sellputs mention something regarding VXX because I’m long.  I asked this in the safety of our algo-free chat room.

He agreed, since it has been a running speculative debate if his Twitter stream has been analyzed and ranked by some algo somewhere, or many algos everywhere.  At 3:24 EST I saw this after proposing my question on TFP:

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What followed blew our mind.  At that moment a VXX sequence was captured.  I’m showing as much of the table as possible so you can see I’m not cherry picking shit:

HFT Alert:

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HFT Alert Pro:

IQTS are quotes, ETRD are trades made on the exchange listed under EXG, TRD are trades on other exchanges, BBO is number of times quotes were Best Bid/Offer, CBBO are number of times quotes changed the Best Bid/Offer.  ELPS shows how long the sequence ran for.  To be picked up on the program, 1000 quotes need to be sent in under 1 second.  

So we add 1,000 to IQTS column and we get total quotes.  VXX had one sequence with 1,668 quotes with 76 trades made on Nasdaq and 189 on other exchanges over a period of 1 second at 15:24:00 changing the BBO 256 times and being the BBO 912 times.  Whoa.

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Using proprietary software I was able to determine that when these sequences were sent, the order book for VXX changed in a way that a material amount of Bids were being added to the book.  I am suspect that someone has a ranking algorithm for influential Twitter users and someone has a running gauge of their “estimated” sentiment and that it is being targeted toward resourceful traders on Twitter and be used to execute trades for short term blips, leading to potential stop-loss triggers for no reason other than some guy shared a thought that just happened to include a ticker symbol.  I’m sure you could see how this can go wrong.

To top it off, moments after all this, @NYSE_Arca became one of Sellputs newest followers.  Perhaps a coincidence.  We’re going to test a theory in for the next ten days or so and I will report back with an update regarding this suspect behavior.  Hopefully we’ll be able to identify one of the Twitter based algos, like this one.  Just one more thing to worry about.

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VXX One Minute Chart:

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Real quick before you go, here is the Best Buy blast that shows how they quote massively on all exchanges. Notice the 10K+ quotes and the ones that hit 23K in 5 seconds on EDGE:

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and the chart:

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  • Nick

    I was skeptical until:

    “To top it off, moments after all this, @NYSE_Arca became one of Sellputs newest followers.”

    Keep us posted.

  • http://www.worldcomplex.blogspot.com mickeyman

    Why don’t we send tweets back and forth filled with ticker symbols and random “bearish – bullish”

    Can you automate your twitter feed to send them out?

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