The Rise of the Quote Machines

by Christopher Paul on August 8, 2012


Using market data, Nanex charted how bots and algorithmic trading have affected quotes. From The Technology Review:

“The animated .gif above shows the rise of high-frequency trading across several U.S. stock exchanges over the last five years. You’ll notice that there’s relatively little activity in 2007, followed by spikes in activity at the opening and close of the market starting in 2008. And then, sometime around the start of 2010, activity becomes much, much more frenetic and erratic.”

In 2011, it just goes more berserk. Nanex has other charts to look at. It’s not the trading they’re worried about, it’s the quoting. They look at it from a technology and capacity concern. But I see it as a price concern. The hidden liquidity behind many of these exchanges and dark pools will fool a trader into accepting the bid or the offer only to discover a less favorable price.

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