Penny jump of high-frequency trading strategy

Today, suppose there is a big, stupid institutional Investor (mutual funds, banks, retirement funds ...). , he wants to buy a stock, but does not want to put the market price to buy, so in the market to hang a big order to buy. At this time all the people in the market will see the limit order book inside someone hung into a big single ready to buy this stock.

Suppose the original order book of the market is 200 | $1.01 x $1.03 | 200, and then suddenly this stupid institutional investor comes in and hangs up a 3000-share $1.01, when order book becomes 3,200 | $1.01 x $1.03 | 200. And we often call this stupid institutional investor "elephant, elephant", while high-frequency traders know that $1.01 's price has a prop to pay, so they raise their bid prices by 1 cents to $1.02, a strategy called Penny Jump. Because the high-frequency trader knows where the next gear is, an "elephant" is propped up. So if the price goes up to $1.03 x $1.05, he can earn $0.01 profits right away.

If the high-frequency trader buys the stock, even if the price does not go up, because there is an elephant under the support, so he can quickly backhand with $1.01 price to sell the elephant.

For high-frequency traders, the way they profit is also very simple, is the market micro-structure (microstrucutre) to speculate on the intentions of the counterparty, and then the first step to establish the position of others. Then make small profits within a short period of time and then quickly leave the market.

For the elephant, he exposed his trading intentions because he had a huge bill in the market, and naturally became the target of high-frequency traders hunting.

And in the real world of stock trading, there should be few such dumb institutional investors who would blatantly put up a huge amount of pay (or sell orders) in the market. Instead, a large institutional investor, who wants to unwound a stock, deliberately hangs out a huge amount of pay to create the illusion of attracting high-frequency traders into the market to push up the stock price, and then pour out the goods in a single brain, and this is the world of trading intrigues.

For high-frequency traders, once the strategy is seen through and "Gaming", they will return to "oppose to do", develop strategies to eat this kind of institutional investors "to do" tofu.

Penny jump of high-frequency trading strategy