It’s in the news again: http://www.bbc.co.uk/news/business-32598084
But what I want to know is how is what this guy did different to the high-frequency trading that is common these days?
I probably shouldn’t answer as This is just my understanding of HF trading. But I think that HF trading tries to take advantage of upticks or down ticks in the market by beating other bids/offers to the table.
If done properly it sneaks in between other market orders. What the guy in the article is accused of doing is crating false orders in order to cause a perturbation and using true orders to make money when the market corrects itself
Two big differences. (1) He wasn’t using high-speed access; (2) he placed orders he didn’t intend to execute: that’s against the rules.
He did run a risk. If an external event caused the market to move against him he would not have been able to click Cancel fast enough and could have been wiped out. Using computer algorithms and HFT would probably avoid such risk.
While he supposedly caused a huge (temporary) crash, it’s possible to use a similar scheme to get regular profits while staying (almost) unnoticed. There was an interesting YouTube where someone explains the clear evidence left from such a ploy, but that YouTube has gone pay-per-view.
A tiny transaction tax would drastically reduce such opportunities and therefore systemic risks, but such a tax is not feasible when the whole U.S. political apparatus is bought and paid for by Wall Street.
Ah, but he WAS using a spoofing algorithm.