the following post copied from SS c/nightstalker dated 31/7/07...

the following post copied from SS c/nightstalker dated 31/7/07 explains bot trading.


And while those Instinet systems are primarily designed for US markets, here's one for our very own ASX:

http://www.aegisoft.com/trading_athenatrader.htm

Don't forget that it's almost entirely brokers who can run these systems, as each tiny trade would otherwise attract brokerage. Brokers, of course, don't pay brokerage to themselves.

One of the main uses of bots is to link two computers, on different IP addresses, but belonging to the same firm. Deutsche Bank, for example. Others who do this include JB Weir, Bear Stearns, Lehmann Bros, and many others. These are brokers whose main income is derived from trading their own accounts, and NOT from servicing clients. They just turn the computers on and pull money out of the market.

The two computers will sell to each other - so no nett loss of stock - but will walk the price down a tick at a time, triggering stops along the way, and picking up the cascaded automatic stop sells that occur. In addition, people see the price dropping, and panic sell, with these shares also picked up by the computer doing the buy side. Eventually, a bottom is reached where the price can't be pushed down any further for the day, and the buying computer then takes out the entire sell side all the way back up to the original price or close to it.

Nett result - the broker has snaffled thousands of shares in multiple parcels from auto-stops and panic sells, all at prices well below the current market price.

They may do this several times a day, then again the next day. The only good thing from the small trader's point of view, is that it can be seen that the stock is one that is being accumulated by sombody at the big end of town - usually a bullish sign.

You can see that by selling to themselves via two computers, they outlay zero shares, but pick up numerous parcels of other shares on the way down and back up the dip that they've created.

So, as others have said - it most certainly is NOT a level playing field, this stock market malarkey!

The ASX actually encourage algo (bot) trading, as they make multiple tiny commissions on each trade. Way less than brokerage would be, but it's money in the pocket of the ASX, so they are all in favour, even though most of the smaller private traders think that the practice is immoral, if not downright wrong.

Hope that all makes sense




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Regards, NightStalker

"The trend is your friend till the bend at the end"