Yet another study now confirms what many of us have known for years, that high frequency traders are gleaning profits at the expense of other legitimate participants and at the expense of the systemic integrity of markets as a whole. See: High Frequency Trading Prospers at the expense of everyone
“What that data does is help explain the frenzy in today’s markets: The most aggressive firms tend to earn the biggest profits, hence the incentive to trade as quickly and as often as possible. Furthermore, these traders make their money at the expense of everyone else, including less-aggressive high- frequency traders.
The study found that the most hyperactive trading firms earned an average daily profit of $395,875 in the e-mini S&P 500 contract over the two-year period. First and foremost among those on the losing end: small retail investors. The study found that, on average, they lost $3.49 on every contract to aggressive high-frequency traders.”
Meanwhile this chart is of interest to anyone concerned with the risk to their capital invested in the HFT-dominated equity markets today. It shows that after the latest wave of speculative ramping from algo traders over the past three months, the heavily speculated S&P 500 futures market is today the most extremely net long it has been since late 2006. Here is Zerohedge:
In Late 2006, the S&P 500 futures market traded around 1435 and the commitment of traders was at an extreme net long position. The market fell shortly after only to manage a miraculous rise in the face of hedge funds going bust and an exploding and over-leveraged credit market. In mid-2008, the S&P 500 futures also traded around these levels, from where the epic collapse really began. Six years later, the S&P 500 futures traders are the most bullishly positioned they have been since those heady over-confident days. Still believe the talking heads that there is money on the sidelines waiting to be put to work? Still convinced that there will be some epic rally if the ‘fiscal cliff’ fallacy is resolved?