10 ms·
I'm not involved in HFT, but I imagine the following scenario is plausible: You place a limit order to buy FOO at $32 Someone else offers FOO at $31.90 A HFT
by squires 14y ago
I'm not involved in HFT, but I imagine the following scenario is plausible:
You place a limit order to buy FOO at $32
Someone else offers FOO at $31.90
A HFT algorithm buys FOO at $31.90 and immediately offers it at $32
You buy FOO at $32 from the HFT algo
So you have lost potential profit on the transaction even though you technically hit your limit price.
- yummyfajitas 14y agoYou place a limit order to buy FOO at $32 Someone else offers FOO at $31.90 At this stage, the matching engine observes that you want to buy at $32, and someone is willing to sell at less than $32. You trade directly with that person at $32. It's actually illegal for any matching engine to match the $31.90 bid, they must cross trades at the NBBO.
- chrisaycock 14y agoYou place a limit order to buy FOO at $32 Someone else offers FOO at $31.90 That scenario would result in a locked market, which can't possibly happen under RegNMS. The exchange that saw the offer for $31.90 is required to route-out to the exchange with a bid of $32. A HFT algorithm buys FOO at $31.90 That also can't happen. Even without RegNMS, the exchange's matching engine would have paired the value investor with the offer of $31.90, though the execution price would actually be $32. The HFT participant won't even see the ask price in this scenario.