This whole week has given the media a lot to write about. The idea that a single proprietary trader from Hounslow can bring down the most actively traded futures market by Spoofing has really captured the imagination of the media and people a like. I have actually seen a lot of support for Nav as it has become totally clear that the allegations are ludicrous.
Firstly anyone who actually observes the markets can see that Spoofing is still alive and kicking today. It is a widely used strategy and the front running on those Spoof orders by the HFT algos are as quick as ever. You see that a lot of the time if you put any half decent size into the book you will get the front runners out in force, and it is so fast that manually you have no chance of mimicking the action. Often once the front runners have done their thing the size disappears. So although Nav is technically guilty for deploying the strategy he used, it is not an isolated technique and if they go after him then they need to go after everyone who deploys the strategy.
Secondly to then accuse him to be responsible for the flash crash is an insult to the financial system as a whole. The market is like a battle field, we are all trying to predict human behavior to make money. So why do support and resistance levels work well, cause you know that historically around those levels you have other traders thinking the same thing and you can use that to your advantage to make a high probability trade. So in today's markets its not much human behavior, but it is computerized behavior which drives the market.
So to try and read the Algos is the goal. Nav had found a way to do this, beat the Algos at their own game. Now there are good Algos and bad ones, and some of these Algos in the market that day weren't programmed to deal with the lack of liquidity at the time and misread the order book(most likely), which lets face it is never really real. Reading level 2 these days especially in the futures side is very unreliable. So these bad Algos were intensifying the selling which then caused the flash crash. As we know Nav's Algos were switched off two minutes before the plunge so he may have contributed to them getting into a proper mess. Now is this his fault, NO. Its like saying its Floyd Mayweathers fault for knocking out someone in a boxing match. This market is a big arena with many players, Nav was a big player who played the game well but should not be blamed for the bad players who as a result caused in my opinion the panic selling.
Nav was quoted as saying on the night of the Flash Crash that "I Beat the Algos". This is what he done, he did not bring down the market, nor did he plan to do so. These strategies have been adopted many times, and it just happened that on this occasion there was an adverse reaction.
Nav consistently did 1 to 2% of the volume on the ES, which considering the size of that contract, is huge! So clearly there was a lot of trading going on, the CME loved him just like all the exchanges love the HFTs cause they bring in a lot of business to the exchanges. But it seems Nav as a sole entity is easily dispensable, an easy target. The big firms have wealthy clients, and much more influential people behind their funds. So messing with them is messing with the wealthy elite.
Now of course this is just conspiracy, but its totally plausible. The only way prosecutors can have credibility with this claim is to go after all the firms which engage regularly in similar practices, and this way there is genuine legitimacy to what they are trying to do.
However this is incredibly unlikely since HFTs provide alot of the trading volumes on all the exchanges.
The whole saga in parts is comical, I was reading a piece in the paper claiming Nav traded in Hounslow so he can have a faster connection to those in the city and have an edge on them. When I read that I didn't know whether to laugh or cry. As most traders know, when trading US products on US exchanges, independent traders are always at a disadvantage cause you are at least 60 to 70 ms behind in speed (which is light years in HFT world), purely because of location. Most of the sophisticated Algos running in the ES have co located servers at the exchange giving them almost zero latency. So at best if he had his orders running on a co-lo server he would be on a level playing field. Second the big players in the city dont have normal internet, they have high bandwidth unshared lines, so it seems like the papers are just coming up with anything for a story.
I sincerely hope he is exonerated of the charges, but one thing is for sure, his life will be totally different after this. He is likely to be a hero in the trading world, it will be interesting to see whether he will be able to trade again, but either way lets hope common sense prevails.
Firstly anyone who actually observes the markets can see that Spoofing is still alive and kicking today. It is a widely used strategy and the front running on those Spoof orders by the HFT algos are as quick as ever. You see that a lot of the time if you put any half decent size into the book you will get the front runners out in force, and it is so fast that manually you have no chance of mimicking the action. Often once the front runners have done their thing the size disappears. So although Nav is technically guilty for deploying the strategy he used, it is not an isolated technique and if they go after him then they need to go after everyone who deploys the strategy.
Secondly to then accuse him to be responsible for the flash crash is an insult to the financial system as a whole. The market is like a battle field, we are all trying to predict human behavior to make money. So why do support and resistance levels work well, cause you know that historically around those levels you have other traders thinking the same thing and you can use that to your advantage to make a high probability trade. So in today's markets its not much human behavior, but it is computerized behavior which drives the market.
So to try and read the Algos is the goal. Nav had found a way to do this, beat the Algos at their own game. Now there are good Algos and bad ones, and some of these Algos in the market that day weren't programmed to deal with the lack of liquidity at the time and misread the order book(most likely), which lets face it is never really real. Reading level 2 these days especially in the futures side is very unreliable. So these bad Algos were intensifying the selling which then caused the flash crash. As we know Nav's Algos were switched off two minutes before the plunge so he may have contributed to them getting into a proper mess. Now is this his fault, NO. Its like saying its Floyd Mayweathers fault for knocking out someone in a boxing match. This market is a big arena with many players, Nav was a big player who played the game well but should not be blamed for the bad players who as a result caused in my opinion the panic selling.
Nav was quoted as saying on the night of the Flash Crash that "I Beat the Algos". This is what he done, he did not bring down the market, nor did he plan to do so. These strategies have been adopted many times, and it just happened that on this occasion there was an adverse reaction.
Nav consistently did 1 to 2% of the volume on the ES, which considering the size of that contract, is huge! So clearly there was a lot of trading going on, the CME loved him just like all the exchanges love the HFTs cause they bring in a lot of business to the exchanges. But it seems Nav as a sole entity is easily dispensable, an easy target. The big firms have wealthy clients, and much more influential people behind their funds. So messing with them is messing with the wealthy elite.
Now of course this is just conspiracy, but its totally plausible. The only way prosecutors can have credibility with this claim is to go after all the firms which engage regularly in similar practices, and this way there is genuine legitimacy to what they are trying to do.
However this is incredibly unlikely since HFTs provide alot of the trading volumes on all the exchanges.
The whole saga in parts is comical, I was reading a piece in the paper claiming Nav traded in Hounslow so he can have a faster connection to those in the city and have an edge on them. When I read that I didn't know whether to laugh or cry. As most traders know, when trading US products on US exchanges, independent traders are always at a disadvantage cause you are at least 60 to 70 ms behind in speed (which is light years in HFT world), purely because of location. Most of the sophisticated Algos running in the ES have co located servers at the exchange giving them almost zero latency. So at best if he had his orders running on a co-lo server he would be on a level playing field. Second the big players in the city dont have normal internet, they have high bandwidth unshared lines, so it seems like the papers are just coming up with anything for a story.
I sincerely hope he is exonerated of the charges, but one thing is for sure, his life will be totally different after this. He is likely to be a hero in the trading world, it will be interesting to see whether he will be able to trade again, but either way lets hope common sense prevails.
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