Broken Market Structure: Where Is The Liquidity?
- Posted by TheArmoTrader
- on October 23rd, 2011
We hear it all the time, High-Frequency Trading (HFT) provides liquidity to the markets. But they forget to mention one little caveat, that they only provide liquidity when it is convenient to them. We have a broken market structure, one that allows flash crashes (drops) and flash dashes (rips). If HFT was truly providing liquidity all the time, and not playing any games, we truly wouldn’t have these breakdowns in market liquidity.
On Wednesday, October 19, Juniper Networks, Inc. ($JNPR) was in-play as it had reported earnings, and because of that, the intraday volume was well above average. But as you will see in the video and charts below, that did not stop it from having a “flash dash” (flash crash to the upside). It ripped almost 90 cents in less the one second, which is utterly ridiculous, especially considering the fact that it was in-play.
(I doubt these were “bad/late” ticks because it was not just one abnormal tick, it was a continued series of abnormal ones-all under 1 second nontheless.)
Below are two Tick charts of Juniper provided by @BadAlgo via Nanex. The second chart is zoomed in.
So HFT, Where is the so-called provided liquidity you tout about all the time?
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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