On Thursday, critical natural gas inventory numbers were released at 10:30. The chart below shows a drop in price preceeded by huge cancellations of orders to buy. The description from Nanex:
..just before the anticipated 10:30 AM release of the weekly EIA Natural Gas news, a large number of orders to buy August 2013 Natural Gas Futures show up in the order book. Every single one of these buy orders magically disappears when the price suddenly drops – without executing. It was as if someone wanted to fool others that there was large buying interest, and then pulled those orders at the very last moment. It helps to remember that almost all high frequency trading algorithms use order book size information as input into their trading strategy.
Also on Thursday, there were instances of violent price swings in a few stocks. The chart below shows Verastem, Inc (ticker: VSTM). As you can see, the stock drops about 15% in less than a second.
Arguably the biggest news of the week regarding HFT malfeasance comes from CNBC. Of late Eamon Javers has been the face of HFT muckraking for the national financial media. The video below gives an explanation of a new co-location facility. Unlike the ones we’ve shown you in Mahwah and Carteret, this building is situated on K Street in Washington D.C. With such close proximity to the buildings that relase economic data, computers there are able to receive the data, formulate trades, and send them to New Jersey or Chicago via microwaves a millisecond or so before market participants up north can react.
With market reactions to these data points being so large, we can see why firms are willing to pay up to save a millisecond. Unfortunately, this is what our national stock market has degraded to. It truly is nothing more than a technological arms race to reach a latency of zero. Billions of hard-earned retirement dollars are being gambled in a textbook zero-sum game run amok.