MMs, Dealers, Institutions and Predictability of Retail

TVC:VIX   Volatility S&P 500 Index
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This activity is proven in a number of markets.

Notice the 11th-13th price action. You will find many more examples in FX and commodities. It depends on the MMs strategy.
Comment: It’s also important to know that FX brokers who advertise small spreads will probably have a “liquidity provider”, which is a dealer or MM. The fine print will often reveal that the advertised spread is only available in certain market conditions, I.e, low volatility. These liquidity providers are 3rd parties and have the capacity to widen the spread at will. FX brokers will reveal in the fine print that they must mover the spread onto their clients (retail traders). Retail traders pay the difference in the spread, and the MMs, Dealers and brokers will make an “OTC gain” from taking the other side of the retail traders positions as less than half of these positions are profitable.
Comment: Automated Liquidity sensitive DPM - Could be tested nicely in crypto if you want a bot to capture the bid ask spread.
Comment: This isn't a joke.

Christie and Schultz (1994) document an absence of odd-eighth quotes for Nasdaq stocks. Christie et al. (1994) find a significant drop in spreads following the disclosure of the findings of Christie and Schultz (1994). Dutta and Madhavan (1997) provide a theoretical model of a dealer market and demonstrate conditions under which implicit collusion is sustainable. Barclay (1996) finds that stocks that trade with spreads of a quarter point on Nasdaq subsequently trade with spreads of an eighth of a point after they list on exchanges. Huang and Stoll (1996) document significantly higher bid-ask spreads for Nasdaq stocks than for comparable exchange stocks. However, Chan and Lakonishok (1997) find little difference in trade costs between Nasdaq and exchange stocks for a sample of institutional traders. See also Blume and Goldstein (1992), Fama et al. (1993), Shapiro (1993), Christie and Huang (1994), and Chan et al. (1995) for additional evidence on the returns and costs of trading Nasdaq stocks.
Comment: 1. The market for ABC is $25.53 bid / offered at $25.54.

2. Due to Latency Arbitrage, an HFT computer knows that there is an order that in a moment will move the NBBO quote higher, to $25.54 bid /offered at $25.56.

3. The HFT speeds ahead, scraping dark and visible pools, buying all available ABC shares at $25.54 and

4. The institutional algo gets nothing done at $25.54 (as there is no stock available at this price) and the market moves up to $25.54 bid / offered at $25.56 (as anticipated by the HFT).

5. The HFT turns around and offers ABC at $25.55 or $25.56.

6. Because it is following a volume driven formula, the institutional algo is forced to buy available shares from the HFT at $25.55 or $25.56.

7. The HFT makes $0.01-$0.02 per share at the expense of the institution.

Guess who has clearing and execution about 30 meters outside the NYSE?
btw quants are here and the bart pattern is one recent algorithmic market manipulative aspect, check and related yt. all exchanges are supported up to NANO sec level detail, can post example that shows the many forms currently abundant on all exchanges.....
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Conchobhair kobal_TT
@kobal_TT, yep I've seen on bookmap. It's pretty obvious crypto became an uregulated HFT playground. Even since 2013 Gox, algos have been running it.
kobal_TT Conchobhair
@WACC, Yep... this guy cover it all use CC auto-translate ....
This Pt II at around 25 mins shows how to move a market....
kobal_TT Conchobhair
@WACC, Yeah heard the rumour back then that some top quants got a nice budged to go play here (my guess is best HFT firm associated with Nasdaq, which well is coin base, supported on most of those platforms probably , they kept it nice (like Neo was well groomed never a spike , like a bonsai three but bigger,, ;l0 no they are here to test the good stuff and throw away the lube :D I really want to be either algo ;aying or on that side, a kill and a win is a win, i hate losers ;) Imo it makes it GREAT you can be black hat Eric Hunsader in a market with greedy folks who just like in other markets strategy/war games like poker I enjoy reading theirs souls then shredding..;) No ethical dilemmas whatsoever just a very exiting player field with some very valanced strategies out there slowly changing patterns when it has conditioned and players act accordingly, now mix it up to next phase, some small channel turned distribution.. already earned or they will but my guess is its already errand in the brief consolidation.. ok thats enough text for here..;)0.
Conchobhair kobal_TT
@kobal_TT, Yeah I think this is the way crypto will go. Even if projects fail and nothing comes of the whole blockchain thing, there will still be money to be made in the markets themselves on the algo side. Having the market exist for the sake of having the market. lol

There's already CLOBs and dark liquidity being developed for crypto so without regulations quant and HFT will further dominate. I suppose the main players are Gemini, Coinbase and Finex. However it will be interesting to see what happens once Nasdaq and Bakkt ICE quotes start trading. ICE infra could be the ticket for them.
kobal_TT Conchobhair
@WACC, yeah know about the dark pools emerging, imo with synthetic 'sniper' iceberg orders and the stuff I've seen it can't get any worse, unless its done like the stock market pools where you basically surrender to hft scalping when they front run you etc.. hopefully some dark pools . can do what they are supposed to do, offer privacy for on nefarious traders who do not want their positions known or affect the market too much, still if you btrade volume why the f.. don't you get your own tools to do the job and MOVE it.. but that's just me (hopefully ;)
Yeah i'm a bit cynical, feels like the land of the blind, where one eyed is king, bit over the top to shove them in dark pools to . get

What are CLOBs?
Conchobhair kobal_TT
@kobal_TT, Central Limit Orderbooks, aggregating books across multiple exchanges.
kobal_TT Conchobhair
@WACC, interesting where do we find these?
kobal_TT Conchobhair
iirc coinbase /nasdaq sent the quants in the first place....@WACC, all exchanges are supported they go where the rebate is sweetest and the can dominate if there are fewer large account holding quants I assume... think many on mex. etc.
When the fog is lifted... goddamn.
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