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Submission + - Market Data Firm Spots the Tracks of Robot Traders (kurzweilai.net)

linzeal writes: Nanex, the data services firm, has discovered mysterious and possibly nefarious trading algorithms are operating every minute of every day in the nation’s stock exchange. Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade.

Often, the buy or sell prices that they are offering are so far from the market price that there’s no way they’d ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants.

The company’s software engineer Jeffrey Donovan thinks that the odd algorithms are just a way of introducing noise into the works. Other firms have to deal with that noise, but the originating entity can easily filter it out because they know what they did. Perhaps that gives them an advantage of some milliseconds.

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