Researchers planning a system to completely computerize stock market trading uncovered 18,520 instances of stock market manipulation between 2006 and 2011.<\/h3>\n
If you are walking down the streets of New York City and you suddenly see a crowd rushing your way what to you do?<\/p>\n
Most likely you will assume the crowd is in panic because they fear for their lives and join them in running to save your own life and ask questions later.<\/p>\n
The same kind of herd mentality exists on Wall Street.<\/p>\n
With millions of dollars on the line the shares of the stock you are holding start to plummet into a free fall.<\/p>\n
The commotion grabs your attention and only thing you can decipher is a room full of people shouting at the market maker to sell, sell, sell.<\/p>\n
When everyone else in the room is dumping unloading their positions as the price tanks, you assume there must be some horrible news and jump in on the frenzy and dump your shares to limit your losses and ask what the bad news was after the fact.<\/p>\n
Mix tens of thousands of start of the art high-speed computers into the equation, with the ability to execute tens of thousands of trades per second and running highly complex algorithms designed to prey on this herd mentality, and you suddenly enter the shadowy underworld of Wall Street known as High Frequency Trading (HFT).<\/p>\n
These trading bots take advantage small differences in prices on the markets along with flaws in the market exchanges while roaming in a realm were executing a trade a few milliseconds faster than the next guy is equivalent to humans having insider information days in advance.<\/p>\n
As much as these automated borgs enjoy snacking on the savory taste of the retail investor\u2019s life savings the real feast comes from cannibalizing their own kind.<\/p>\n
By flooding the system with thousands of sell orders, often spoofed or cancelled,\u00a0 in just mere milliseconds, they trigger other bots to into panic and drive the price of whatever shares they target either up or down.<\/p>\n
In less time than a human can even react these bots earn their wage for the day and have changed the trajectory of the the shares they have targeted in a manner invisible to the human eye.<\/p>\n
Only by using other computers and examining the sequence of trades in the aftermath can one detect the ulfrafast financial black swan event that has just occurred.<\/p>\n
On March 23rd, the real-time data feed company NANAX did just that in catching high frequency traders using the same sophisticated computer trading algorithms to manipulate and crash silver prices.<\/p>\n
\nTraders Caught Using NASDAQ Exploit To Manipulate Silver Prices<\/a><\/h2>\n
Hedge funds caught red-handed using flaws in the NASDAQ market exchange to manipulate the price silver using high-speed computer trading algorithms.<\/h3>\n
Despite documented flaws in the way market exchanges handles high speed trades at high volumes<\/strong><\/a>, which are attributed to the DOW flash crash, electronic trading systems still have not been patched to fix the issue.<\/p>\n
The vulnerability stems from bad timestamps assigned to orders when traders flood the system which causes trades to executed on quotes before they even yet exist in the system.<\/p>\n
Earlier today high frequency traders were caught in act by NANEX taking advantage of the flaw to exploit the NASDAQ silver ETF by barraging the system with a whopping 75,000 trades per second.<\/p>\n
The exploit then triggered other trading robots to execute trades based on the high volume of trades quickly plummeting silver price.<\/p>\n
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While I was under the impression that such things did indeed happen I assumed that they were a rare exception.<\/p>\n
I assumed only the greediest or most desperate traders would be foolish enough to risk getting caught engaging in such behavior, take for example the case of JP Morgan whose short position on silver would bankrupt the company if they allowed the price of silver to rise to high.<\/p>\n
However, I was completely taken off guard when Financial Sense followed up on March 23 silver crash and reported on an interview with Ted Butler.<\/p>\n
In the interview, Butler explains that the practices is not only limited to the silver market but,\u00a0 quite to contrary, all markets are being manipulated by High Frequency Traders and very frequently.<\/p>\n
\nSilver Manipulation Caught in the Act; HFT Swamps NASDAQ with 75K SLV Sell Orders Per Second<\/h2>\n
Ironically, just days after noted analyst Ted Butler came on the show<\/a><\/strong> to explain how silver and other markets are manipulated through the use of high frequency trading, the real-time data feed company, Nanex<\/a><\/strong>, showed how the silver ETF (SLV) was forced downwards by a rapid number of machine-generated quotes exceeding a rate of 75,000 per second. Before you start to think that this was merely a bunch of people hitting the sell button all at once, consider this: They were all launched within the space of 25 milliseconds\u2014ten times faster than you and I can blink!<\/p>\n
Here\u2019s a chart of the second by second market activity in SLV where you can see the massive lightning-quick spike occurring at 13:22:33.<\/p>\n
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\nSource: Nanex<\/p>\nTed Butler Explains the Whole Process<\/h4>\n
\n\u201cWhat\u2019s happening is that these commercials [or large traders], through HFT, can set the price suddenly down. It didn\u2019t go down because there was massive selling from the commercials, they just set the price down. They know how to do it with their computers by putting in actual orders, and faking it, and spoofing, canceling them right away; but what happens is when the price moves down then the selling comes, which is the intended effect and result. Commercials basically put the price down in order to set off stops because everybody seems to be some type of technical trader in the market that reacts to prices.\u201d<\/p>\n
(Click here for interview and full transcript<\/a><\/strong>)<\/p>\n<\/blockquote>\n
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