Unstructured Finance

By Emily Flitter

REUTERS/Rebecca Cook

While the Securities and Exchange Commission maintains it does not need to do much to reign in the high frequency trading machines that have taken over Wall Street, a group of traders who understand how HFT firms make money—because it’s similar to the method they used to use themselves—have become vocal HFT critics. Yes, they may complain because they don’t make as much money as they used to, but they also think the machines are destabilizing the market.

Meet Dennis Dick, a prop trader in Detroit and a member of a league of stock market participants who have had to change their trading strategies now that they are no longer the fastest guns on the Street.

Dick is in the company of critics like Joe Saluzzi and Sal Arnuk, the co-founders of Themis Trading whose book, Broken Markets, details their concerns about the machines.

“We used to be shorter-term traders, scalpers who were also market makers,” Dick said. “Now we’re just trading a longer time horizon. You can’t come in and expect to scalp.”

Dick, who works for Bright Trading and also founded his own research firm, Premarket Info, has met with SEC staff to discuss his concerns about high frequency trading. He emphasizes that while he and the other scalpers might not deserve a great deal of sympathy, the other humans in the stock market—retail investors—certainly do, and they are being treated the same way.

He described how high frequency traders jump in and out of trades institutional investors want to make, forcing those institutions pay as much as they can.

In the meantime, the market is less stable than it used to be, with single-stock mini crashes over a matter of seconds occurring somewhat regularly.

“The whole market structure is built to crash now, it’s built to have these mini liquidity crises,” Dick said.

Meanwhile, he and other traders like him have had to change their behavior, in some ways becoming more conservative. But high frequency trading hasn’t put him out of business completely.

“There’s still opportunity for traders because as price discovery is impaired you’re finding actual bargains out there,” Dick said.