Here we are to talk about the Soes bandits the forerunners of high-frequency trading.
In an article I had talked about smarter order routing, here is the link for those interested in reading https://www.thomastrends.com/en/smart-order-routing-in-trading-what-it-is-and-how-it-works/ , Soes means smart order execution system used by a group of individual investors who operated on the Nasdaq market in the 80’s aggressive mode with the aim of inserting more than 100 transactions per day.
The aim of the Soes bandits was to take advantage of small movements in price shifts of a financial instrument by creating a profit.
If we do not understand the basis of technological evolution we can never understand the phenomenon of famous high-frequency trading, in the last 15 years newspapers, media, traders and numerous experts in the sector have tried to understand the functioning of this very complex technological system where so much silence reigns.
The forerunners of high-frequency trading were the Soes bandits who tried to exploit a flaw in the market process, this problem emerged because the soes bandits’ financial transactions were already automated in the 80s/90s.
You will all know that for several years 70% of the world’s trades have been made by programmed algorithm machines, among these market participants there are high-frequency traders who produce sophisticated algorithms with very fast connections and a small part of retail investors.
The latter retail investors program trading systems (for some “mechanical trading”) through programming languages such as Easy Language, Power Language, Pyton, MQL, C++ but with huge differences compared to high-frequency traders.
Returning to the theme of this chapter, Soes bandits through the instant execution of their orders take precedence over the rest of the market with the benefit of being able to enter and exit positions at a high pace compared to all other large investors.
As high-frequency traders used market inefficiencies to fill the trading book with increasingly advanced automatisms, in 1989 a trading software called Watcher was developed to take advantage of the slow updating of price prices.
The most famous interpreters of the smart order execution system are:
- Datek Securities
- Momentum Securities
- All Tech Investment Group
These companies have been accused by regulators and media of increasing market volatility and increasing Bid/Ask spreads by harming investors.
Today high-frequency trading has amplified this trend, is it fair not to fair this mode?
I’m not here to judge the situation but the competent authorities, my goal is to inform investors who very often do not know the mechanics of the markets to become aware of all possible trading methods.