Kevin Ferry is the Co-Founder of Cronus Futures Management. He created the company in 2005 with five other traders focusing on fixed income, foreign exchange and equity futures trading in the electronic world. Currently, Chief Market Strategist, Ferry has 24 years experience in futures trading. Kevin Ferry Graduated from John Carroll University in 1983, majoring Economics.
We have ranted and raved about the risks of electronic trading for years. Our concerns have been voiced to cab drivers, investors, CME officials and the family dog. The glazed looks and indifferent responses come from the belief that we are just disgruntled “floor guys” who can’t adjust to the modern world. Nothing could be further from the truth. Now that Alan Ableson has highlighted the dangers in BARRON’s, we expect a more serious investigation.
The title of his missive is “Stacked Deck,” not a start that bolsters confidence in what’s to follow.
I advise paying attention to two quotes from different analysts in the article.
1) “The long run not only doesn’t count, it doesn’t exist.”
2) “HFT provides an ILLUSION of almost limitless liquidity, liquidity that can vanish abruptly if a few platforms take a break.”
We have called this the danger of confusing volume with liquidity. The focus since the “flash crash” remains on equity products. We continue to fear the absorption of massive Treasury supply is the financial tinder of the next forest fire. Large foreign central bank holdings are flood waters held back by an artificial dam.
I ate the Red Pill (see the Wiki) long ago. The risk now is that Congress and regulators consider seeing the capital markets for what they really are. A word of caution, the world behind the facade is a scarier one. The question that retail investors and traders have to ask is can you live in the illiquid and volatile “real” world? Or, is a fake world of relative day to day “stability” and periodic (and regularly occurring) crashes “better?” I stare at the illusion daily, read the BARRON’S. Maybe someone will listen now.