Q&A by Don Bright
SURVIVAL OF THE FITTEST
Don, I read your article about the subpennies and high-frequency trading. I have also read that these new demons might very well kill each other off in the near future. What steps are you and your traders taking currently to help offset these challenges?
Good question, I’ll try to give you a few ideas. The idea of “parking” on a limit price in hopes of collecting 0.002 or so in liquidity rebates seems sort of silly nowadays since these subpenny orders can flash in front you at the rate of thousands per second. What happens when you have 1,000 shares offered at 42.30, for example, is that these flash orders will go in offered at 42.2999 or similar and take the order from you. The only time you’ll be filled is when there is a large-enough order or a higher limit, allowing the price to go a few pennies against you. This can cost a lot of money. The other alternative is for you to basically lose a penny and hit the prevailing bid price. Either way, you’re losing money.