On Monday, I posted a lovely animated gif from Nanex showing the rise of high-frequency trading. What I failed to mention is that graph doesn’t show completed trades. It shows quotes.
And according to another nice chart from Nanex, it’s high-frequency quoting that has skyrocketed (left chart), not trading (right):
As Nanex explains:
Each day is plotted in a separate color over the course of a trading day (9:30 to 16:00 Eastern): older data uses colors towards the violet end of the spectrum, recent data towards the red end of the spectrum. The gaps you see between color groups on the quote chart (left-side) is when system capacity was upgraded to handle the increase in traffic, and quote spam jumped to fill the new capacity that very same day.
The number of unexecuted quotes, many allegedly not intended to be executed, has thus skyrocketed.
France recently took steps to try to deter the rise in quotes. In addition to a financial transactions tax it, France will also impose a tax on traders who submit too many unfilled quotes.
In short, France will levy a financial non-transaction tax.
quote spam jumped to fill the new capacity that very same day.
It seems pretty intuitive that the rise of algo driven market making and prop trading hasn’t been matched with an increase in trading overall. There is only so much retail money to go around!