High frequency trader Manoj Narang told us he probably won’t stop trading today.He and his firm, Tradeworx, did stop trading on “Seis de Mayo” (his name for the flash crash, because he thinks it was “a day of vindication” for HFT traders).
So we asked Manoj if he’d turn off his big powerful machines today and stop trading if the NYSE instituted curbs.
Probably not, he said, but it all depends on how legitimately the market is trading. We think he means that it depends on his ability to tighten spreads. If the market is out of whack, spreads are too big and usually HFT avoid markets where they can’t tighten up an already small spread and get out quick.
We’ll find out more later.
Here’s exactly what Manoj told us:
Most likely won’t shut off, but it depends if the market is trading “legitimately.”
By legitimate, I mean:
(A) Trades are occurring at prices that are not clearly erroneous — i.e. likely to be retroactively broken
(B) MOST of the exchanges are functioning properly. (On May 6, both Arca and NYSE were effectively off-line, which made it very hard to trade even if you wanted to…)
IMHO (in my honest opinion), it is irresponsible and counterproductive to trade when the above “legitimacy test” of the market is not passed, even if you expect to profit. This is why I whole-heartedly endorse the idea of circuit-breakers.