Quote from: nicoin on June 21, 2013, 12:51:58 PM

Hey notme, thanks for clear explanation, I didn't realize this. Quite unbelieveable this is allowed to go on! Do you have some links with more details? That really eases my worries about HFT and BTC, it will really be down on exchanges to make sure this does not happen, and if they don't their customers can move elsewhere.

Quote from: notme on June 20, 2013, 05:35:23 PM

No need to fear bots. HFT in traditional markets has two components that make it nasty:
1. Algorithms are allowed to place orders with no intention to allow them to fill. In fact, if an order comes in that would fill them, they are given time to pull the order. As a human, it is illegal to place an order without the intention to allow it to fill. This is possible because of:
2. Algorithms have direct access to the actual orderbook, whereas retail traders only have access to a order queue. These orders will eventually hit the market, but the algorithms get to peak at them ahead of time and even make trades before they hit.

I don't yet see either of these problems in bitcoin. Nobody but the exchanges has access to orders before they hit the book, and any order placed is capital at risk. Playing both sides is what traditional human market makers have done for centuries and is certainly not without risk (consider what happens when the market trends in one direction). However, it is these players that provide the liquidity you so clearly desire.

BTW
#Day 2, and it's not looking pretty.

"Dive! Take cover! Or, at least, hold on to your pants in the scramble. The Chinese bubble has just burst. It looks like the world is going to have egg on its face and elsewhere as Chinese banks are scrambling to get the hands on cash."
http://www.zerohedge.com/contributed/2013-06-21/chinese-banks-ready-go-bust

There is a really good article that specifically addresses two points I mentioned, but I can't seem to find it now. I did find another article [1], which looks to hit those points and a few other nuances. It also includes quite a bit of introduction to the generic market concepts you need to know if you need to brush up on that. Overall, it seems to be fairly negative on HFT, but keep in mind they talking about the status quo where the algorithms are allowed to do things that are illegal for humans to do and they are given access to a priority order queue as well as early knowledge of retail trades. Take away these advantages, and you put the risk/reward back where it belongs, IMO.

1. http://www.demos.org/publication/cracks-pipeline-part-two-high-frequency-trading