How did Easton Trade Company cause the market to stall? He automatically ordered in bulk, quickly ordered, and earned over 2 billion yuan with an initial capital of only 7 million yuan.
What exactly is high-frequency trading? Does high-frequency trading manipulate the market, affect prices? How to make a quick profit from high-frequency trading?
Racing with speed
High-frequency trading is a type of programmatic trading, a special kind of algorithmic trading, with high liquidity, extremely short holding time, and computers that constantly react extremely quickly to changes in the market.
The application of high-frequency trading on futures and options is more widespread, and some high-frequency trading also appears in the day trading of stock options. Small accounts and large trading volumes are characteristic of high-frequency trading. It fills the limitations on the speed of human operation.
The process of generating buy and sell signals according to a certain trading model and automatically executing trading instructions by a computer, including high-frequency trading, algorithmic trading, quantitative trading, and many other forms of trading, is called programmatic trading. His definition is broader.
The head of a private institution, Yang said that the logic of high-frequency trading is relatively intuitive compared to the medium-low frequency model, mainly using speed advantages and price bias to profit.
According to Easton's case report, the company's account pool had a maximum of 31 orders in a second, with an average order speed of one per 0.03 seconds.
Speed, reaching extreme speed has been the main manifestation of overseas high-frequency trading competition. The current state-of-the-art, fastest overseas software in China is about 250 microseconds, and overseas servers have reached 200,000 orders per second, with a speed of less than 10 microseconds.
In addition to the fierce competition for speed, the model and the stage of coding the input strategy no longer exist. Chen Li said: "The speed of large companies is 60%, technology is 40%". Robots will learn physics, advanced mathematics, according to the logic in books, generate trading strategies on their own, programs mimic the human brain, learn to think for themselves.
As the volume of high-frequency trading, which used to belong to a minority group, has grown over the past two years, some market experts have made it clear that high-frequency trading in the Chinese market is clearly still at the level of the United States 10 years ago.
According to the analysis, the market-trading strategy, speculative strategy, execution strategy and experimental strategy are four trading strategies that can be summarized in high-frequency trading. The market-trading strategy is to make a profit by taking advantage of the low buy and sell price. The speculative strategy and experimental strategy have teams operating domestically.
Many industry insiders point out that Easton's tactics are close to cheating transactions. In addition to the alleged violations of circumventing the counter controls of futures firms and opening 31 accounts, whether high-frequency trading disrupts the market remains to be seen.
What is a spoofing scam? By pretending to intentionally buy or sell at a certain price, creating a false sense of demand and attempting to entice other traders to trade, the scam is called a spoofing scam. Spoofing is the practice of withdrawing an order by placing a false quote and then canceling the order to affect the price of the stock.
The May 6, 2010 crash in the U.S. stock market is the most famous case of a fraudulent trading scam, which caused the Dow Jones Industrial Average to instantly plummet by almost a thousand points and the U.S. stock market to evaporate by nearly a trillion dollars. Five years later, 36-year-old British high-frequency trader Salo, was charged by the U.S. Department of Justice with allegedly defrauding traders in order to enable him to buy profits at low prices, using automated programs to set up a large number of index futures displays and cancel trades after lowering prices.
Experimental strategies are generally divided into two types: one is the capture of other programmatic strategies or speculative strategies; the other is the detection of how many programmatic trades are running in the market.
In the case of the Easton High Frequency transaction, a senior quantitative trader said that the more detailed disclosure and handling of the Easton case will have a huge impact on the future of the industry. We are concerned that in the future, other strategies besides high-frequency trading will be involved, so we have recently been extremely cautious and have also proactively stopped trading that we previously thought was not problematic.
In 2014, the media claimed that high-frequency traders were the wolfdogs of the Wall Street hunter-gatherer who specialized in hunting institutional investors, when American investors had just learned about the gray area of high-frequency trading through their book Flash Boy; the wolfdogs of the high-frequency traders entered the retail-based market in China in 2015 and made a big profit, and the $2 billion bullishness of Easton caused a lot of controversy.
The 21st Century Economics reporter learns that the Easton case is still simmering and that some high-frequency traders have stopped trading with other strategies besides high-frequency trading, fearing that they will be implicated.
A senior quantitative trader, who declined to be named, said that as far as I know, many domestic teams have been doing the same tactics before, so Easton's high-frequency trading method is not particularly technologically advanced, although most of them have now closed.
The industry was shocked by Easton's trading speed, and the world is not going to stop fighting.
It is a set of high-frequency programmable trading software, designed and developed by Anton and its overseas technical team, to manipulate and manage the Easton account group, Easton's general manager Gao Qiao and others.
The company's account group averages one order every 0.03 seconds, with a maximum of 31 orders per second.
Because of the special grey rights to the vertical link and even the permeable link exchange, does it mean that Easton's trading speed is so fast?
A person from a futures company told reporters that this is actually very common in futures companies. Foreign orders are not complicated, and can be implemented remotely. Remote and directly connected to the Zhangjiang machine room, it is possible to implement high-speed transactions abroad. This is not at all about attacking the exchange server.
According to the capitalists, many institutions are doing the act of custody, but they will still override the wind control of the futures company, leaving the seat of the futures company, not directly connected. Generally, after the wind control of the futures company from the user's program, at least they will check the collateral. This part is inevitable.
In his overall role as head of Easton's liaison with exchanges and futures brokers, Mr. Wang hides the number of futures accounts that Easton actually controls and assists Easton in technically disguising its high-frequency programmed trading software to violate entry-level trading.
The report confirms a market rumor that was already circulating at the end of August, that Liu Huaqian Futures was falsely claiming to be using the Chinese financial institution's technology flying horse system, and that only one foreign customer was profiting from its independent system, which was supported by the technical director.
Bypassing wind control, and other teams using similar strategies, are completely out of step with each other. It should be noted that high-frequency profits are often within 1 ms (~0.001 seconds)
Cheating is back
In addition to the fact that Easton has circumvented counter controls and opened over 30 accounts, spoofing is considered to be a prominent feature of his trading, as discussed by industry insiders.
Five years later, the U.S. Department of Justice indicted British high-frequency trader, 36-year-old Saro, on suspicion of defrauding traders by using automated programs to set up a large number of index futures displays, pushing down prices and canceling trades to allow him to buy profit at low prices. All of this led to the Dow Jones Industrial Average instantly surging by nearly a thousand points, and the U.S. stock market evaporating by nearly a trillion dollars.
The price reported by the Pyeongchang Group of Accounts is significantly different from the latest market price, and the automated bulk ordering and quick ordering of high-frequency programmed trading software enables a large number of transactions, including buy-sell transactions (transaction volume reaching 8110 people, RMB 11.3 billion); the above-mentioned case intelligence shows this.
Fraudulent traders use ultra-high speeds to lure, withdraw and place orders, provided that they know the status of other traders' orders.
The above-mentioned quantitative traders said that the return of the transaction slips in overseas mature market exchanges, such as the Chinese Mint, at 500 ms is very slow, and the market data of the Chinese exchange is very unfavorable for this operation. What transactions occurred within 500 ms?
Easton uses host servers and exchanges to capture hosts within the same local area network to gain advance information about other traders' listings and manipulate the market, i.e. learn about the order book within 500 ms, according to industry insiders.
Firstly, it is impossible to outsource the program in the exchange's camera host; secondly, the host server and the camera host are located several dozen kilometers apart, in fact, the network is isolated, and there can be no such vulnerability. The system of coding directly to the customer is the Chinese futures market structure, the client's every transaction is known by the exchange. Only a very few people who sign confidentiality agreements know the customer's information, and there is a strict confidentiality system inside the exchange.
Combined with the illegal use of more than 30 accounts by Easton, a private high-frequency trader analyzed that a more likely scenario is that Easton, which bypasses the futures company's counter wind control, uses high-frequency order flows to detect the difference and depth of the order book price within 500 ms, thereby determining the direction of the ultra-short time difference.
Private high-frequency traders observe that this is only a basic approach, and it may be a simpler and more effective one if up to 8,110 people, totalling RMB 11.3 billion, are involved in the transaction.
Quantitative trading experts say that Boehner has a relatively better understanding than other traders of what exactly happens in the order book in the 500ms market, because it is a multi-account sellout. To surpass other high-frequency trading teams that use high-frequency order flow detection order book, and to obtain excess revenue, to master relatively more accurate transaction data, there is no doubt that this violation can be avoided by buying from multiple accounts.
Many people in the industry point out that many domestic teams that participate in high-frequency trading methods have long since closed after the Chinese central bank's continuous offer of restrictive trading measures, and some have switched to war commodity futures to continue their original strategy of trading, but due to the trading volume is not as long as the futures, the earnings are poor.
On May 5, 2014, the CFTC (Commodity Futures Trading Commission of the United States) report on the investigation of the Salao case, 21st Century Economist, said that the behavior of high-frequency traders did not cause the US stock's lightning crash, but increased price movements and caused a sharp increase in trading volume when the order flow in the E-mini period was unbalanced.
A more detailed disclosure and handling of the case in the Boehner-Eckerton case will have a huge impact on the future of the industry. Quantitative trading veterans say that we have recently been extremely cautious and have proactively stopped trading that we previously considered to be safe. Based on the regulatory measures in recent months, we are concerned that in the future, processed trading using other strategies besides high-frequency trading will also be implicated and identified as the culprit of a major adjustment in the stock market.
Translated from the Forum of Programmatic Traders